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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.

Tim Feemster, Managing Principal, Foremost Quality Logistics and Joseph Tillman, Senior Researcher and Consultant, Supply Chain Visions (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.

Transportation
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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About the Author

Tim Feemster, Managing Principal, Foremost Quality Logistics
Over 35 years of experience have provided Tim Feemster, Managing Partner, Foremost Quality Logistics, with a variety of problem solving situations in real estate, transportation, logistics, and distribution. Tim is quoted frequently in the industry press and makes over 20 presentations a year to professional organizations. Before starting FQL Logistics, Feemster was a senior manager in three manufacturing companies, a consultant, an executive in two 3PL logistics providers, and a Practice Group leader two real estate companies. Feemster has been responsible for transportation & warehouse operations, real estate site selection, economic development strategy consulting, strategic planning, and lean quality management. Feemster holds an M.B.A. in Marketing from the Ross School of Business, University of Michigan in Ann Arbor and a B.A. in Mathematics from DePauw University in Greencastle, Indiana. Feemster is an active member in the Warehouse Education and Research Council (WERC.org), where he is Past President; Council Supply Chain Management Professionals (CSCMP.org); Industrial Asset Management Council (IAMC); Intermodal Association of North America (IANA.org), International Association of Refrigerated Warehouses (IARW), and the International Council of Shopping Centers (ICSC.org). He is also a member of the Board of Directors for the Trade Data Exchange (TDE) Corporation.

More articles by Tim Feemster

Joseph Tillman, Senior Researcher and Consultant, Supply Chain Visions
Joseph Tillman has worked for a number of years in the transportation and warehousing industries. He has an M.B.A. from Georgia Southern University and a B.S. in geography from the University of Georgia. Joseph is a consultant and senior researcher at Supply Chain Visions.

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What factors must a small company consider regarding logistics and relocation that a large company does not? And vice versa?

For the most part, large and small companies will consider similar site selection factors... More
- Tim Feemster, Managing Principal, Foremost Quality Logistics

How is logistics changing to be more flexible for changing inventory levels and client distribution and transportation needs?

Some companies are using Vested Outsourcing as a way introduce lean principals across company boundaries and to target overall waste in the supply chain. More
- Tim Feemster, Managing Principal, Foremost Quality Logistics

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