Choosing the right location to expand or consolidate food distribution operations is a challenge that many organizations are faced with. In these days of economic uncertainty, choosing the wrong location can be financial suicide.
Companies need to do their homework in the initial phase of the project to determine what their objectives are, not only for the actual site that they choose to locate at, but also in relation to their products, the location of their markets and the logistics models needed to get those products to the market in the fastest and most cost-efficient way possible.
The business of site selection should begin with companies identifying where their pain points are.
"It starts with primary issue identification," says Jeffrey Karrenbauer, president of Insight Inc., a Manassas, VA-based supply chain, software and consulting firm. "You need to think about what's bothering you."
Pinpointing concerns, he believes, can go a long way to actually determining what the objectives for a new site should be.
Matthew Schlosser, senior manager of supply chain strategy for Hershey, PA-based The Hershey Co., suggests limiting the site selection process to one or two exclusive goals. "You can't have a lot, because you're going to be dealing with numbers and then you set objectives from those figures. That's how you get cross-functional alignment."
Being able to name an initial goal naturally gives rise to factors such as these, as well as others such as inbound and outbound transportation costs, holding costs and inventory costs. These will all help suggest site locations and if a company is not using accurate data, or they're guessing at what the figures are, by the time all of the information forms a modeling perspective-which is what informs actual site selection-the location that is chosen will likely be off by quite a bit.
"Your data integrity is more than a little important because it helps you determine the direction you should go," says Hershey's Schlosser. "You know the size of the building you need, you know the service territories you want to be in, you've gone out and gotten real rates-the math will tell you where to go."
Otherwise, you could wind up in LA, when you really need to be in Vegas.
Everyone wants to keep costs down these days. It's not so easy when you're looking to site a new facility and land costs are through the roof, especially if your company is looking to locate near an urban center such as New York, Atlanta or Los Angeles. This makes it prohibitive to build a warehouse in close proximity to such an area. However, companies should be wary of letting the quest for cheap land lead them to locating their DC somewhere in the hinterlands, where access to intermodal transport is limited.
"It doesn't matter how efficient your distribution center is in upstate Minnesota if you can't get your product rapidly to your customers," says Andrew Chesley, a consultant with Global Springs, a Concord, NC, firm that consults on site selection. "From a cost basis, everyone should be in upstate Minnesota, but in reality no one is."
Companies that need to be close to urban centers of population, yet still keep the cost of land down, might want to look at some of the smaller markets around those areas.
Leasing is another consideration.
"More and more, companies don't buy the land," says Paul Evanko, senior vice president, St. Onge, York, PA.. "They end up working out a leasing arrangement."
He says the reason for the popularity of leasing is that today's networks have to be fluid due to changes in the business environment. Generally, today's leases run for three to five years, with options.
The experts suggest that companies keep their future objectives in mind when selecting land.
"Whether they're building a half-million square foot facility or leasing an existing site, companies should determine whether there are expansion capabilities on the same parcel of land," notes John Hurst, vice president of warehouse management services at APL Logistics, Oakland, CA. "Can they get options on the land to build out if they need to? If it's an existing building, is it expandable?"