An independent location advisory, economic incentives, and real estate services firm, Site Selection Group completes more than 100 corporate projects per year for a variety of project types including manufacturing plants, distribution centers, headquarters, call centers, and data centers. Although we counsel companies to approach site selection in an objective manner, we have seen companies make mistakes as we guide them through their expansion, consolidation, or relocation projects. As the old saying goes, you learn more from your mistakes than your successes.
In an attempt to save companies from the hardships of their predecessors that we’ve witnessed over the years, we’ve compiled the top five mistakes we routinely see companies make in the location decision process. Consciously eliminating these mistakes from your next site selection project will result in the most effective location decisions.
1. Assembling an incomplete internal project team
Properly navigating the location decision process can be a complex endeavor that requires a high degree of cooperation and coordination across multiple disciplines. Although most companies understand the need for vendor(s) to possess the skill sets along the entire value chain of site selection, some companies make the critical mistake of not applying the same philosophy when assembling their internal team. Whether it is confidentiality concerns, the overall lack of resources, or siloed business units, we frequently see key stakeholders missing from our clients’ internal teams.
Based on our experience, a complete project team should include stakeholders from operations, supply chain, finance, human resources, real estate, and tax. In addition, it is imperative that all stakeholders be informed throughout the entire process even though their individual involvement might ebb and flow as the project progresses.
2. Loosely (or incorrectly) defining project specifications
Speed-to-market is a common concern for most site selection projects. Understandably, companies are typically anxious to commence the process, but unfortunately, at times, their hastiness sacrifices the accuracy of their project specifications. Because each site selection process should be highly customized based on the specific project’s technical requirements, starting the process before these are properly defined (or blatantly changing specifications mid-course) can have a costly effect on the ultimate location decision. At a minimum, we recommend spending the proper time and resources to tighten up head¬count and capital investment figures, as well as technical real estate and utility requirements prior to starting the search.
3. Letting economic incentives drive the project early in the process
Some companies can become enamored with the topic of economic incentives to a fault. It is natural for companies to enjoy being monetarily rewarded for creating jobs and investing capital into a community (or keeping up with the Jones…or Foxconns). However, the early stages of the location decision process are not the time to let economic incentives drive decisions. Overtly emphasizing the importance of economic incentives too early can likely have a counterproductive effect on the various issuing bodies (municipalities, counties, states, utilities, etc.). In addition, it is the objective of almost all companies to have operations far outlive an economic incentives package. Therefore, there is going to be a time when operations are not subsidized by these incentives.
One of our core philosophies is to find the optimal location that ensures our client’s ongoing operational success, and to only use economic incentives to draw meaningful distinctions between a set of competitive semi-finalist locations. There is a delicate balance to maximizing economic incentive opportunities while making sound location decisions.
4. Understating the tightness of the industrial real estate market
Due to a variety of macro factors, most manufacturers have a speed-to-market concern (as noted earlier). In most cases, the most effective way to shorten the timeline until a project is fully operational is to locate in an existing or retrofitted building. Again, in our experience, most production-oriented projects are not able to find an existing building suitable for their operational needs, and not for lack of effort; rather, these buildings simply do not exist. The market for second-generation, quality, production-oriented buildings is as tight as ever.
Due to these conditions, it is not uncommon for projects to be forced to extend timelines to accommodate a build-to-suit scenario. We recommend that companies run an independent, yet parallel search for shovel-ready land sites to mitigate risk. It is cheap insurance against a very competitive real estate market.
5. Internal bias toward locations early in the process
Objectivity should be the most important aspect of corporate site selection. The site selection process is meant to be a top-down approach where all location options are initially considered, while a series of analyses and filters are applied to pare down the field of candidates. This is a survival-of-the-fittest exercise that ensures companies are only selecting the most competitive locations.
Far too often, companies engage location consultants with preconceived notions that seriously jeopardize objectivity in the search process. This is typically born from companies doing some level of location due diligence internally prior to selecting their preferred vendor. While we believe this initial research can be a valuable way to evaluate the performance of your vendor and can also introduce helpful market and operational intelligence, we strongly encourage companies heed the advice of their partner and remain objective throughout the process.