Finding the Best Site for Your Next Distribution Center

Sept. 1, 2001
Selecting the right site for your future distribution center requires a lot of research and planning. The good news is that there are plenty of resources you can tap.

Finding the Best Site for Your Next Distribution Center

Selecting the right site for your future distribution center requires a lot of research and planning. The good news is that there are plenty of resources you can tap.

Even in today’s down economy, businesses all over the country are expanding. Perhaps even yours.

Imagine, if you will, that sales are up dramatically and your company isn’t able to keep up with orders for new widgets. In fact, the demand is so great in the Southeastern United States that you aren’t able to make all your deliveries on time. Not only that, but transportation costs are eroding profits.

Clearly, it’s time to open a new distribution facility somewhere in the Southeast, but the question is where? How do you know when you’ve found the right site? For that matter, how do you even know what to look for?

On the strategic level, basic business considerations will drive you to a certain region of the country (or world). From there, operating costs and labor availability will narrow your search to a few metro areas. At that point, real estate considerations take over.

Manage your information

Throughout the entire process, you will be bombarded with information.

If you are thorough in your search, you’ll learn more about a community — many communities, in fact — than do the “city fathers.” You will have explored, in excruciating detail, the demographic characteristics of many areas to determine whether that location can supply the quantity and quality of the work force you will need to operate your facility.

You’ll learn all about transportation infrastructures, tax structures, the number of hospitals and doctors, the location of all the fire stations, the electric power grid, and even the “quality of life.” You will have visited every empty building and prime piece of land that might conceivably meet your needs.

Heck, you’ll probably even be on a first-name basis with the mayor and his or her spouse. You’ll know so much about a community that, in a way, you’ll feel almost disloyal if you decide to locate your plant elsewhere. Don’t.

Before you make your final choice, you need to answer, in the affirmative, these points:

• Will locating your facility in this particular community enable your company to be more competitive in terms of operating costs?

• Will this move allow you to offer competitive pricing that will enable your company to be more profitable?

Remember, in the final analysis, it’s still a business decision.

Get to know the local economic developer

As you get serious about finding the best site for your company’s impending business expansion, it won’t be long before you start running into what is known in the site selection business as the “local economic developer.”

Chances are good that you’ve never heard of these folks before or, if you have, you’re not sure what they do for a living. They usually represent either a city or a region and have titles such as director of economic development or president of the chamber of commerce.

About one thing there should be no doubt — they are unabashed advocates for their community, and their mission in life is to convince people like you to move your company to their region, bringing with you jobs, capital investment and future tax revenue.

They have also been in this business for a long time and can provide an enormous amount of assistance and advice about the site-selection process. Don’t worry about hidden agendas because theirs isn’t hidden. It’s there for all to see.

Most developers will tell you up front if they think your company wouldn’t be a good fit in their community. That’s because they understand that the only way for them to succeed in their mission of building a better future for their community is if your business succeeds.

They exist to provide a valuable service to your company. Look at them for what they are — knowledgeable representatives of their communities skilled at helping a company like yours navigate its way though the complex site-selection process.

And they’re everywhere. Every state, county and city has one, as do the vast majority of utilities. Call them. Use them. They’re a valuable resource that can provide much of the information needed to make an intelligent site location decision.

Examine the costs

Now that you know whom to contact, one of your biggest constraints will be time. You probably need to have your facility up and running as quickly as possible so that it can start receiving and shipping product. This is where factors such as existing buildings and streamlined permitting are really important, because they will greatly reduce the time needed to have your facility operational.

When you examine your annualized costs, look closely at your labor costs. How much are you going to have to pay in wages and benefits to operate your plant? Have you taken advantage of new material handling equipment and technology to reduce existing labor costs?

Look at your facility occupancy costs. This is what it will cost you in rent or mortgage to use your new facility. Have you reduced operating expenses here? If not, have your increased expenses here led to savings in other areas (e.g., labor)?

You also need to look at your future tax liabilities: not only your corporate and personal income taxes, but also taxes on real estate and inventories. And don’t forget worker-related taxes such as unemployment insurance and workers’ compensation.

Then there are the utility costs to operate your new facility. By utilities, I don’t mean only electricity or gas. This category also includes telecommunications, water and sewage. Depending upon your business, even a simple half-cent break in your rate can mean tens of thousands of dollars annually in savings. But even if you have to pay a little bit more in one area — say, electricity — as long as you can reduce your overall utility costs, you’ve done well.

Don’t forget to investigate whether there are any additional costs you’ll be paying due to environmental or regulatory constraints.

Finally, does your new location afford you greater access to customers, services or markets? After all, that’s probably one of the major reasons why you’re looking for a new location in the first place.

Looking at the real estate

Once you’ve narrowed your search to a few communities, it’s time to start looking at the real estate and asking all the right questions.

The most obvious feature is whether there is an adequate building already in place. After all, moving into an existing facility, and retrofitting it, is usually a lot cheaper than building a facility from scratch. More importantly, it will enable your company to be up and running sooner.

Next is adequate room for expansion. This is important whether the site has an existing building on it or not. Businesses prosper. Companies grow. Will the site accommodate that growth?

Is there adequate transportation access to the site? Which modes of transportation are most important to your company? Are there roads or highways in place to support the new operation?

Is the basic infrastructure in place and is it adequate for your needs? An undeveloped piece of land (often called a greenfield site) is not a showstopper, but it sure helps to have electricity, water and gas — as well as at least a gravel or dirt road — out to the site.

Is the site properly zoned so that your company can do what it wants to do with the plot of land or existing building? If there are any zoning ordinances or environmental restrictions that will preclude your smooth transition into a manufacturing environment, you should know that.

Is the site free of environmental problems? The site you have in mind might be perfect as far as the previous criteria are concerned because it was the former site of a paint or battery factory. However, there might be EPA or cleanup issues involved with the site. No one wants to be responsible for the expensive cleanup liability.

Is there clear title to the property? Do you know who owns it? Are you sure it’s really still available? Does it involve multiple pieces of property with multiple owners?

Is the cost of the land or price of the building reasonable? How confident are you that, once the land or building owner hears that there is a prospect in sight, the price will not escalate? This becomes a more important question the greater the number of property owners involved.

Do you know what financial incentives may come into play with the site? Which federal, state and local incentives might this company be eligible for with this piece of property? Don’t forget the utility companies in this area.

Is there adequate parking available for the company’s workers? Make sure you know what the standard ratio is, and then try to improve it. Remember that round-the-clock operations with multiple work shifts generally require more parking than do straight 8-to-5 operations.

Finally, is there someone in a position to fix any problems you encounter and, more importantly, do you know who that person is? Problems will arise because no place is perfect. However, being able to address and correct any stumbling blocks as they occur will greatly speed the process.

Once you’ve examined everything mentioned here, and compared the costs of the various locations, then, and only then, are you in a position to make the best relocation decision.

Guess wrong and you’ll be paying for those mistakes for years to come. MHM

Bill King is chief editor of Expansion Management, a monthly international site selection magazine for executives of companies that are actively looking for a place to expand or relocate their operations within the next one to three years. He can be reached at [email protected].

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