September 2007 | How-To | Ten Tips

Selecting a DC Location

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With the growth in global trade, deciding where to locate your distribution centers is an increasingly challenging process. Dr. Jeffrey Karrenbauer, president and co-founder of INSIGHT Inc., offers these tips for selecting the best sites.

1. Evaluate your supply chain network and create a plan.Look at what you are doing now and where you want to be in five, 10, or 20 years. Evaluate alternative operating strategies and their associated impact. Create a strategic business plan and consider land requirements: will you need to expand and do you have enough land?

2.Understand your site requirements and throughput volumes. Prepare accurate estimates of your inbound and outbound shipments, number of SKUs, peak inventory levels, value-added processes, and reverse logistics requirements. Determine how much inventory you need to carry to get products to market quickly.

3. Consider hiring a consultant. If you don't have the internal resources or qualifications to tackle site selection alone, hire an expert. The local Chamber of Commerce, industrial park developers, banks, and real estate service companies can guide you to the right site selection consultant.

4. Know the labor force in a potential location. Is there sufficient labor? Don't just opt for cheap labor; experienced labor is more important. Check how wage structures compare among various locales. You want this workforce to have a good work ethic, and to welcome learning and training.

5. Will executives relocate? Consider the desirability of housing and the environment around the facility location. Will your executives want to relocate there? Investigate with a good real estate agent.

6. Consider tax advantages. You want favorable business tax advantages for foreign investments at the state and local government levels within the United States. You also want to minimize import taxes for raw materials and expensive capital equipment, as well as export duties. The tax consequences of a site decision, and the financial incentives proffered by state or local governments, might factor into the equation, perhaps even influencing how the deal is financed.

7. Thoroughly examine the region's economic stability. Choosing a state that is not economically stable could impact your entire operation. You may not be able to purchase the goods and services to operate that facility properly.

8. Examine the infrastructure carefully. Adequate and reliable transportation resources, along with good highways, airports, and seaports, ensure that products can be delivered to meet customer service requirements.

9. Select close proximity to your customers and/or suppliers whenever possible. Transportation costs are 50 to 60 percent of total distribution costs, so factor in the additional transportation expenses you'll incur if your new facility is farther away from those in your value chain. Consider purchasing a software package to examine alternate scenarios.

10. Employ a real estate attorney. Once you identify and agree on the desired location, hire an experienced real estate attorney to establish a suitable acquisition of the land, building and equipment, and draft the appropriate contracts.

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