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It's the Network: Not the Node

What matters most for a distribution facility location is its ability to fit into the overall network flow.

LDW: Logistics, Distribution & Warehousing 2009
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Making the Case
Run some case studies. Pick some target sectors, and start the network design process by examining how existing facilities currently meet customer requirements. Does the existing infrastructure have the ability to ship to key customers within their delivery timetables at an economical cost? Can you show how a new location might lower freight spending? Can a new location take advantage of multiple modes of transportation to preserve flexibility in shipping and to promote carrier competition?

Once you have an understanding of how a target area fits into the broader perspective, then it's time to employ all the traditional tenets of site selection. Conduct an initial screening of the targeted area and draw up a list of possible sites. Nothing beats firsthand reconnaissance. Make site visits, but maintain a low profile. Be sure to understand zoning and other legal requirements to ensure that the building can be constructed or retrofitted to meet prospective space and power needs.

Benchmark the local labor market: rates, skills, and availability. Don't forget to look at traffic flows and congestion, which is becoming a bigger impediment to shipping every year. Once the homework is done, narrow the list of possible sites. Finally, have a thorough understanding of the available incentives or tax breaks.

There are other issues that might seem secondary to DC operations but that may ultimately prove to be important. These tend to be highly specific, depending on the situation, e.g., access to public transportation, or proximity to vocational training, or access to the power grid. It varies.

But one consideration that always makes a difference is the area's political and business climate. Community relations matter. Some communities will accept a distribution operation handling hazardous materials, for example, while others will not. Some locations can quietly begin high-volume distribution without causing a ripple, while others face community opposition because of traffic volume and road safety concerns.

Key Lessons
Distribution networks must flex to adapt to the economic environment. Site selection decisions are driven by a cost-service tradeoff. How a company makes the tradeoff dictates the location decision. With volatile energy costs, revisiting DC location decisions creates an opportunity for those who can build a credible story.

No site is likely to have a perfect balance of attributes. Tradeoffs are inevitable. But careful consideration of costs, services, labor availability, and infrastructure capacity in light of current and future needs - all presented in the context of the overall network strategy - will help your company to pick the right site for its next warehouse facility.

Steve Geary is on the faculty at the University of Tennessee and Tufts University. He based this article on material he originally published in DC Velocity magazine, February 2007.

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