May 2007 | Commentary | EcoDev

Site Selection: Think Globally, Act Locally

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The globalization of commerce has created a new infrastructure that is fast becoming the backbone of our information economy. This change also affects worldwide logistics operations.

Because of the global economy, companies have a greater need to operate their supply chains at maximum efficiency.

To achieve these results, many Fortune 500 corporations—along with small and mid-sized businesses—are rationalizing their supply chains, analyzing their distribution networks, and determining ways to make their processes more efficient.

As a result, the real estate industrial base has grown dramatically over the past few years to address companies' needs for optimized efficiency and globalized operations.

Planning and Operating Global Supply Chains

Labor and facility availability are major issues for companies planning and operating global supply chains. They are also important factors for successful start-ups.

During the next five years, many companies will improve their supply chains by optimizing facility locations. This entails examining the facilities, transportation lanes, labor, and operations aspects of any given region.

Take a company that operates 20 distribution centers around the world, for example. If the company's logistics managers want to make its distribution network more efficient, they may decide to combine distribution centers, or outsource the function to a third-party logistics company that operates newer, more efficient facilities.

Companies such as this one must also consider other trends when rationalizing the supply chain for the new, global market infrastructure:

  • Competition for labor, facilities, and incentives is fierce today. Companies can no longer postpone labor and facility decisions.
  • Companies are securing land in major distribution markets at rapid rates, pushing development farther out into secondary markets.
  • Prime real estate positions are an asset that can help companies speed consumer products to market within most major geographical areas.
  • The farther away real estate is from major industrial markets, the greater the capital exposure for operating companies and real estate investors. No one wants to own a building in a cow field, after all.
  • Traffic patterns are a major consideration when locating DC facilities.
  • Major ports are often congested, making locations close to secondary ports attractive.

Economics vs. Current Events

Economically speaking, the closer a company is to its customers, the lower its transportation and operational costs.

Over the last few years, however, offshoring to China and India has become common, raising the question of how to balance pure economics against the realities of the global marketplace.

As economic needs and wants shift, outsourcing can act as a catalyst for positive change, creating new growth opportunities for companies all over the globe.

Additionally, the countries to which work is being outsourced create new efficiencies by packaging items for distribution prior to their departure.

Despite these considerations, finding a distribution location that helps companies get close to their end customers is still one of the most critical supply chain decisions to make. DC sites aren't as abundant as they used to be, and a greater stress exists today on U.S. infrastructure.

Understanding the new global infrastructure, and how to take advantage of it, is the next frontier for real estate logistics.

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