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Inbound-Outbound Logistics Cost Determines Location Decisions

The majority of respondents to Area Development's 24th Annual Corporate Survey said inbound-outbound shipping costs were important to selecting a site. Consider these factors before your next move.

June/July 10
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To figure out what markets you will serve can be as easy as looking at a map or as complicated as hiring a site selection consultant to conduct a service area study. The easy route involves taking the time to call and discuss issues that other distribution facilities in the area have. Ask them why they are there, about the transportation infrastructure, and if they are meeting cost and service targets set before they located to the area.

Don't worry about reaching out to other distribution facilities in the area. There are plenty of opportunities to speak with representatives from those sites. Begin a discussion on a social networking platform like LinkedIn. Attend local professional meetings hosted by the Society of Industrial and Office Realtors (SIOR), the Warehousing Education and Research Council (WERC), Commercial Real Estate Development Association (NAIOP), or the Council of Supply Chain Management Professionals (CSCMP). One reason to attend local meetings and conferences, especially in the logistics and supply chain field, is to discover best practices or issues and concerns that could affect your distribution facility. You can also measure your company against competitors, an opportunity to snoop around without really snooping.


Keep your transportation options open. Look for sites that provide a mix of options, from air and rail to truck and ocean shipping. Customer business strategies change as fast as teenage trends. If your customer changes plans a year after you begin operations and expects you to deliver to another region in the country or to another country altogether, can you receive and send shipments using a combination of shipping methods? And don't forget about expediting orders. While FedEx and UPS can support your strategy, your total cost analysis must reflect the cost of those services. Being located near a combined heavy weight and small package air hub can make a difference.

Evaluate any long-term plans that could alter the mix of products and how that will affect shipping methods and service delivery. And remember that transportation typically comprises more than 50 percent of a company's supply chain costs. Labor costs consume around 17 percent, while rent, taxes, and maintenance typically encompass less than 10 percent of supply chain costs (Figure 2).

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Future Projections
Consider your company's growth potential, as well as which customers will grow with the company. Will the business grow or decline over the next five years? Will it expand or reduce overseas operations? Having several small distribution facilities will speed delivery to customers and lower fuel and trucking costs, but it will be harder to manage inventory and consolidate deliveries if something changes.

At the same time, don't succumb to the one-size-fits-all approach. If your company provides a range of products and services, locating a large cold storage facility in a central location to support many customers may make sense. The larger facility will have higher costs associated with transportation - longer routes, slower delivery, and higher fuel usage - but lower costs when considering other factors such as work force training, lower inventory levels, and ability to consolidate orders. Be sure to examine total cost when analyzing your network cost.

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