"Do they all perform the same type of execution and deliver the same type of product?" Asks APL's Hurst. "Do they really need six or seven identical warehouses or can they mesh the mix, in order to have two primary DCs and five feeder DCs that are closer to the customers. Perhaps the rationalization of their SKU's is that five feeder DCs can handle 80 percent of their faster moving items."
Also, is the demographic for the new DC substantially different? Will they serve a more specialized customer base in a particular area?
"Some warehouses specialize in one sort of thing or another, unless they're serving a similar customer base. However, if they're not serving the same type of customer, they should consider specializing them," explains Chicago Consulting's Harris.
Another factor to consider when examining a company's market objective and the number of warehouses required to meet that objective is inventory cost. The simple fact is that the greater the number of warehouses a company maintains, the higher the inventory costs associated with them.
"It requires more inventory if you divide the country up into smaller territories that are being served by more and more warehouses," says Harris. "In effect, it's taking you more inventory to provide the same level of service. Remember the old saying-if the inventory's in one place, it cannot be in the wrong place."
Some experts caution against adopting what they see as a "micro-view" when doing site selection.
"A lot of people use specialized tools that are myopic. They look at line balancing, capacity utilization, but they really ought to be doing that kind of macro production planning in the context of the entire supply chain, rather than just looking at a few manufacturing locations and trying to balance them," says Insight's Karrenbauer.
"People ask us how many warehouses they should have and where they should be located, but we encourage them to think in the much broader terms of designing the entire supply chain."
The typical supply chain encompasses procurement and raw material supplier locations, manufacturing locations, finished goods locations, cross-docks, ports, as well as intermediate nodes-not positioning the new site in conjunction with all of these can lead to dismal results.
Perhaps the largest consideration involved in siting a new DC, in terms of dollars, is outbound transportation. It is estimated that this accounts for anywhere from 60 to 70 percent of total operating costs and if a company fails to write an accurate transportation analysis, chances are they will not be able to choose their site's location accurately.
A company needs to ascertain the logistical models required to bring goods into the facility, as well as transport them out. As the cost of fuel continues to rise unabated, this subject will only grow in importance.
"It's easy to rack up a million-plus differential in outbound transportation costs and when we do site studies over-and-over again, where we add up the dollars, it's not electrical costs, it's not taxes, it's not labor, what really makes the difference is outbound transportation dollars," notes Global Springs' Chesley. He adds that the type of facility a company is looking to site also comes into play. Regional DCs that are shipping to retails stores may use different transportation methods than national DCs, whereas manufacturers creating large quantities of goods may use rail to get their products to the next tier in the supply chain. It's not enough to say ‘a truckload from Point A to Point B costs "x" per mile and therefore we should cite our facility here.' Most people have a more complicated transportation structure than that and use a mix of modes-perhaps some rail, LTL carriers or truckload carriers. It depends on what sort of distribution they're doing. Food distribution takes in a whole lot of territory."
In addition to distance from markets, companies need to keep in mind the logistical situation revolving around where the actual site is located. Does it have easy access to major thruway systems? It is located near highway arterials and interstates? Do you need proximity to a port or the rails?
In addition, companies may want to consider locating in areas where there is a more competitive trucking market and they can negotiate with shippers for the best rates for over the road shipping, if they don't maintain their own fleet, that is.