Who Needs - Or Wants - to be Near The Consumer?
Proximity to major markets was only ranked 10th in importance by the respondents to Area Development's 2007 Corporate Survey, but economic and environmental trends may increase this factor's relevance.
Christopher Steele, Global COO and North American President, Ivestment Consulting Associates (Aug/Sep 08)
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oil costs are very likely to cause manufacturers and distributors to
move their facilities closer to population centers as a cost-cutting
measure. Proctor and Gamble has announced that they are developing
strategies to do exactly this, using some of their Chinese facilities
as a test-bed. The company has already noted that this is only the
first step in moving toward a more decentralized and
customer-market-oriented manufacturing and distribution location
Likewise, Wal-Mart recently announced a new strategy
for sourcing food products for its mega centers. As part of a larger
initiative to broaden its offerings, the retailer is moving toward
buying more of its produce directly in local markets and from local
farmers. In addition to providing more local flavor to the food
offerings, this also gains the company a host of cost and
These changes also carry some
intriguing implications for other aspects of the real estate strategy.
A more diverse, market-access-centered network strategy naturally calls
for a greater number of medium- and small-sized facilities as opposed
to a small number of large, centralized facilities. In addition to the
advantages of getting closer to the end market and serving consumer
needs more quickly and at a potentially lower transportation cost, this
strategy also carries with it the additional real estate advantage of
not putting too much of an investment in any one facility. This allows
a company to make smaller, incremental changes on a rolling basis as
market changes or opportunities occur. Any one addition, change,
closure, or even mistaken location decision carries much less
operational and P&L risk.
|Corporate Survey 2007
Combined Ratings* of 2007 Factors
|Site Selection Factors 2007
|*All figures are percentages and are the total of "very important" and "important" ratings of the Area Development Corporate Survey and are rounded to the nearest tenth of a percent.
In sum, some measurable advantages
have evolved for locating more manufacturing and distribution in close
proximity to the direct zones of consumption. Even so, it's important
to note the sensitivity of these decisions to environmental and
economic changes. Certainly, we did not foresee the circumstances that
would push for on-shoring even a short five years ago. Given the
compelling dynamics outlined above, it is important to remember that
times change, and remaining flexible is the best strategy.