Building costs are another enormous expense that companies must consider when looking at new sites. This is where knowing your priorities and objectives can bring unexpected windfalls.
"The escalating costs in construction have made the existing facility approach a priority for the vast majority of companies out there," explains David Norrie, senior vice president and co-director of the Food Facilities Group at CB Richard Ellis, a company that represents the owners and users of food industry real estate. "Companies need to ask themselves ‘do we have a chance to find an existing facility that works for us or that we could modify to fit our needs?'"
According to industry experts like Global Springs' Chesley, the cost of a facility is one of the largest considerations a company has. It's also an area where you can find some fairly large differentials. However, it requires you to be careful about specifying your needs.
Chesley relates the story of Kal Kan, a former client. The company was looking to relocate to a new facility. Kal Kan maintains a high volume of product, on the order of 2,000 pallets of each SKU, with a relatively small number of SKUs, approximately three or so.
"They were getting a trailer out of their factory every 18 minutes and then another trailer would arrive. And this is 24 hours a day, seven days a week. Obviously if trailers arrive at that rate, they have to go out at that rate or you run out of room very fast."
Chesley says that the building that worked best for the company was an older one, not very tall by today's standards and, because of the lack of height, it was quite inexpensive relative to other buildings.
Proximity to one's customers is an extremely important consideration when deciding upon a new site, whether it's for a stand-alone DC or one that will fit into a larger distribution network. A company needs to analyze what its objectives are in terms of how to best serve its particular market niche and factor that into the new location.
"If you are a large consumer products company, like Kraft, you're shipping to distribution centers and there is some leeway in terms of how close you are to your customers," explains St. Onge's Evanko. "If you're a supermarket company and just delivering to stores, you'll need very close proximity to them in order to provide the type of delivery service that a store typically expects."
Companies need to factor in customer service objectives as well. What kind of service do they want to provide to their customers? Is it short lead time and/or high availability? What if you have to be located next door to them? What level of confidence do you wish to instill in the people you are doing business for?
"Throughout history there are many examples of accounts that have been won by a sales organization with the promise of putting a warehouse right next door to the customer," says Terry Harris, managing partner of Chicago-based Chicago Consulting. "Understanding what customer service is and what they need is an important step. You need to create a clarification of what your customer service will provide."
Part of this is a clear understanding of the client-what its physical inventory requirements are and what they will be in the future, so that a company positions itself, in terms of warehouse space, to meet it. Companies should also be aware of what their own internal plans are for growing the markets that they're pursuing today and position themselves in the correct geographic position to enable those plans.
Supply chain optimization should be another objective in relation to serving a company's customer base. Companies need to take a "big picture" overview of where their other warehouses are located in relation to a new one they're looking to site.
Are all of the DCs mirroring each other? Will there be any substantial overlap in terms of areas served?