The goal of any warehouse siting decision has to include reaching the target market efficiently and effectively. To that end, it means going where the crowds are. But where you locate relative to the major metropolitan areas will drive cost as well as operational efficiency.
Major van line studies of household goods moves offer some insight into where people are moving. The top gainer by percentage of inbound moves versus outbound moves in 2004 was the state of North Carolina. United Van Lines' 2004 Migration Patterns Study shows 61.8% of the North Carolina moves were inbound vs. 38.2% outbound. The study labels a state with 55% or more inbound moves as a "high inbound" state. The same rule applies on outbound moves. States are considered balanced if they don't fall into either category.
In United's 2003 study, North Carolina and South Carolina each registered 61.3% inbound moves. That year, Atlas Van Lines showed 57.2% inbound moves to Florida, 56.2% inbound to Arkansas and 55.5% inbound moves to North Carolina.
While the migration studies show some patterns of household moves, the volume numbers tell a little different story. United's highest volume of moves in 2004 involved California (49,965), though 54.7% of those moves were out of the state. Florida, which showed a net gain, was next with 34,128 moves (59.9% inbound). It was followed closely by Texas with 33,763 moves (52.6% inbound). By contrast, North Carolina's 61.8% inbound moves were based on a total of 15,569 moves and Alabama's 61% on a total of 5,359.
A shifting consumer base tells part of the story. If you're in the consumer packaged goods industry, you're looking at demand. But whether you serve consumers directly or you move product to manufacturing and assembly operations, those population shifts represent workforce.
The Site Selector index, developed by Expansion Management and Logistics Today, provides some indications of where you can expect to find a logistics workforce. Having enough workers with the right skills is one part of the picture. The Southeast region rankings on page 26 offer some insights on the national ranking of each Southeastern metropolitan area relative to the concentration of logistics services (transportation & distribution) and logistics industry workforce.
Miami, which has the highest concentration of logistics services in the U.S., has the sixth highest level of available logistics workforce. But those are only two factors in the site selection decision.
Road conditions in Miami and in top-ranked Atlanta are excellent. That's good if you're shipping and receiving goods by truck. But the bad news is, both cities rank very poorly on measures of road density, congestion and safety. Miami's 328 ranking puts it only three notches from the bottom nationally (based on the 331 standard metropolitan statistical areas ranked nationally by Logistics Today). Atlanta fares only slightly better, with a congestion rating of 308.
Other factors come into play in site selection, whether it is for a plant or a distribution center. Among the transportation concerns are the relative strengths of a city in various modes. If you receive rail carloads and ship truckloads, rail and road factors will dominate your thinking. If you receive truckload and less-than-truckload (LTL) but ship heavily by parcel or expedited services that rely on air service, your concerns will be weighted differently.
Trading strengths and weaknesses of various areas narrows the field. The next step is to look closely at costs. Jack Boyd, with location consultant firm The Boyd Company Inc., has done a lot of the legwork by developing a warehousing industry cost analysis based on the annual ranking of America's 50 Most Logistics-Friendly Cities as determined by Expansion Management and Logistics Today). Boyd's Biz-Costs Report offers a comparative analysis of the costs of operating a distribution warehouse in each of the top 50 cities.
Not surprisingly, most of the 10 low cost sites for constructing a warehouse or distribution center (DC) are in the Southeast. The more expensive sites are along the East and West Coasts. At number 50, New York City is the costliest city.
For the purposes of developing a cost model, Boyd created a hypothetical 350,000 square-foot warehouse with 150 non-exempt workers shipping product over the road to a national market. The labor mix includes 16 different job functions from secretary to fork lift driver. This provides a base payroll cost to operate a DC in each of the 50 cities Boyd compared.
Other standard costs include energy, heating and air conditioning, and shipping costs. The construction comparisons include amortization costs and property taxes. Lease examples substitute lease costs for these categories.
Boyd says more of his site location clients are electing to build rather than lease. He also notes that there is a trend to fewer but larger facilities. An interesting development is that more nonwarehousing functions are being co-located at the DC. These corporate and administrative functions range from accounting and payroll to call centers and fulfillment. Cost is one factor behind this trend.
Boyd says companies are discovering they can move many of the administrative functions from white collar locations to blue collar locations. You're locating to a warehouse at $5 a square foot vs. $20 or more per square foot in an office, says Boyd.
"Staffing requirements for warehouses have been elevated over the years as companies become more information technology intensive," he explains. In a modern warehouse, you'll not only find lift truck drivers, but also software engineers and other corporate administrative staff who used to be located at the headquarters. "There are greater labor and skill set demands, and it does require more labor cost analysis as part of the mix in terms of where these warehouses should be located."
The basic business of a warehouse, however, is still shipping and receiving product. To cover that variable, Boyd includes a scenario to model outbound shipping costs, comparing various origin-destination pairs.
"What it shows is the impact of geography on serving a national market," says Boyd. In the end, any logistics professional going through a site selection process will substitute real shipment data along with real workforce needs for the sample data.
Boyd's outbound shipment model includes 10 destination cities. The 10 were selected to reflect "the optimum 10-city regional distribution configuration for serving a nationwide U.S. consumer market." The underlying assumption in computing the numbers is truckload lots of 30,000 lbs. using private over-the-road carriers with charges projected at $1.46 per mile.
New York, Miami, Los Angeles, San Diego, Oakland and San Francisco remain high-cost centers for transportation. Not surprisingly, mid-continent cities like Kansas City, St. Louis and even Memphis score strong advantages in nationwide transportation costs.
What happens to Cleveland, Ohio — ranked by the Site Selector as the nation's most logistics-friendly city — when actual costs are factored into a site selection analysis? It slips into the mid-20s based on Boyd's rankings of construction, lease or outbound shipment costs. Gary, Indiana, on the other hand, which is at number 29 in the national Site Selector, winds up in the top 10 on all three of Boyd's measures.
One point in all of this is that no single tool gives a complete picture when it comes to siting a warehouse. Expanded operations at a warehouse site will make demands on the building size and configuration as well as the workforce needs. Moving from a well-rounded, baseline view like that provided by the Site Selector to a more detailed view based on actual cost factors only gets you closer to a decision.
More companies appear to be looking at proximity to market vs. center of market-in order to balance cost and convenience. That may not lead to a flurry of construction in low-cost markets like Mobile and Birmingham, Ala., but when companies weigh the impact of congestion in New York, Atlanta and other major markets, they are finding alternatives in areas like Lehigh Valley, Penn., or in Georgia counties south of Atlanta.
Security is becoming more important to the decision, Boyd notes. The fallout from the September 11th terrorist attacks is still playing out in terms of corporate site selection. It's not the fear of another attack so much as the potential for disruptions that could shut down ports, highways or other infrastructure. Many siting decisions are made based on staying out of areas with heavy concentrations of industrial facilities.
Atlas Van Lines www.atlasworldgroup.com
The Boyd Company Inc. www.theboydcompany.com
United Van Lines www.unitedvanlines.com
|Most Logistics-Friendly Cities|| |
Lowest Lease Cost
|(based on a 350,000 sq. ft. warehouse)|
1. Cleveland, Ohio
1 Mobile, Ala.
|2. St. Louis, Mo.||2 Memphis, Tenn.|
|3. Oakland, Calif.||3 Birmingham, Ala.|
|4. Chicago, Ill.||4 Nashville, Tenn.|
|5. Minneapolis, Minn.||5 Louisville, Ky.|
|6. Houston, Texas||6 Ft. Worth, Texas|
|7. Kansas City, Mo.||7 Indianapolis, Ind.|
|8. Baltimore, Md.||8 Savannah, Ga.|
|9. Detroit, Mich.||9 St. Louis, Mo.|
|10. New York, N.Y.||10 Gary, Ind.|
|Source: Expansion Management/Logistics Today's Site Selector||Source: The Boyd Company|
Lowest Construction Cost
Lowest Outbound Shipping Cost
|(based on a 350,000 sq. ft. warehouse)||(based on 10-city regional distribution network)|
|1. Mobile, Ala.||1. St. Louis, Mo.|
|2. Birmingham, Ala.||2. Kansas City, Mo.|
|3. Nashville, Tenn.||3. Tulsa, Okla.|
|4. Savannah, Ga.||4. Memphis, Tenn.|
|5. Louisville, Ky.||5. Indianapolis, Ind.|
|6. Ft. Worth, Texas||6. Chicago, Ill.|
|7. Indianapolis, Ind.||7. Gary, Ind.|
|8. Tulsa, Okla.||8. Nashville, Tenn.|
|9. Memphis, Tenn.||9. Louisville, Ky.|
|10. Gary, Ind.||10. Cincinnati, Ohio|
|Source: The Boyd Company||Source: The Boyd Company|