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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
Before you locate your next distribution center or warehouse, you will examine various site selection criteria. Area Development's 24th Annual Corporate Survey ranks site selection factors that corporate managers say are important or very important in their location analyses. This year more than 81 percent of respondents said inbound-outbound shipping costs were very important or important in their decisions (Figure 1), making those costs the tenth most influential site selection factor in 2009.

Future implications of inbound-outbound shipping costs on distribution networks should concern corporate managers. The volatility of fuel costs, accessibility of other modes of transportation, and major legislation currently being debated have given corporate managers a new list of worries. But building a robust distribution network can alleviate future problems.

The Big Picture
Before corporate throws a dart at a map to select a site, executives should pause to consider the implications of a new site on the company's overall network and go-to-market strategy. Today supply chains are no longer local, but global. Consumers are fluid, market shifts are the norm, and third-party-logistics providers (3PLs) are more plentiful and capable than ever. To be responsive, companies need a robust distribution network, not a perfect site. Even if the dart lands in California, the best site to modify in your distribution network may be Washington, Oregon, or even Georgia when the company reviews transportation flows, fuel costs, lease terms, facility size, growth projections, and customer expectations.

Successful site selection relies on more than a single factor. Managers should ask how a potential site will fit into the company's overall network flow, how it will respond to changes in the market, and what the total network cost to the company will be. Site selection begins with network design, and as companies reconsider their networks they should make sure they align with their go-to-market strategies, and that they fit into its strategic supply chain.

Ask Area Development

Planning a move that centers on logistics? Submit your business questions at the end of the article to Ask Area Development and the authors will respond.
Finding a Site
Oscillating fuel costs, new laws and regulations, fewer state and local incentives due to the recession, and aging infrastructure have corporate managers rethinking their site selection strategies. While corporate management has no control over cost of fuel, laws and regulations, incentives, or overall infrastructure, it can control the design of its distribution network. A flexible, robust distribution network that takes a long-term view can forestall potential problems.

To create a robust distribution network, first examine individual distribution centers and determine whether those sites fit into the company's overall network flow and go-to-market strategy. Before adding to or moving a site to create a network that is more robust, ask yourself:
• What markets will the new site serve?
• Should the site be a larger facility that supports multiple regions or should we build more distribution centers that are smaller and closer to customers?
• What are our transportation options at those new sites, especially if our customers decide to change their strategies?
• What is our service to the market strategy likely to be in the future: three-day, two-day, the same day, or the next day?
• Will clients change their order patterns to more frequent and smaller shipments to reduce inventory at their ends of the supply chain?

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