May 2003 | Commentary | Viewpoint

The Blocking and Tackling of Site Selection

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As a company's space needs change, selecting the appropriate site for its distribution centers becomes increasingly important to the bottom line.

Here are some practical ideas and tips that can help you along the way.

Logistics Audit. When considering a new DC, the first step is to survey your present situation and address decreasing cycle times, changing supply sources, or increasing operating costs.

Your audit may yield information indicating that it's time to begin the site selection process for a new DC. This is the time to define objectives and develop an operational/financial model for the relocation project.

Prepare a business profile to help solicit tax abatements/incentives later in the game. Also consider involving logistics consultants, industrial engineers, or real estate brokers to objectively review each element of your distribution system and help organize your needs, wants, and plans. Your plan must include a realistic timetable and communications program for all players.

Distribution Network Analysis. Next, carry out a comprehensive distribution network analysis to understand each facility's role in the total supply chain. Collect and analyze overall supply chain costs from a representative period to determine how future sales projections, market trends, and customer and supplier location changes will affect your network. This is best done through a computer model that maximizes inventory, transportation, customer service, and location objectives.

A sensitivity study between costs and customer service allows you to compare all the scenarios to optimize your distribution network. This initial analysis will help you target geographical areas for consideration.

High-Level Screen. It's important to remember that dots on a map do not equal points on the scoreboard. Your team must determine strategic location objectives within the targeted areas. Identify three to five essential "threshold" criteria that each city must meet. This high-level screen should produce a maximum of a dozen cities for consideration.

Facility Planning and Logistics Outsourcing Study. You may need to answer some critical questions regarding facility planning and logistics outsourcing and adjust the facility strategy based on labor and capital investments in material handling equipment and information systems. Develop a preliminary design and perform value engineering to ensure that economic, safety, and flexibility issues are being met. Working from the inside out enables your team to determine how much square footage you need.

You might also evaluate outsourcing your distribution operation. Review outsourcing trends within your industry and select competitors to assess a logistics service provider's performance relative to your benchmark from the logistics audit.

At this point, you will have outlined your facility specifications, defined your labor requirements, and further prepared your team for success.

Macro Site Selection. You can then start a macro site selection process that digs into more detail about the targeted cities. Research and analyze specific criteria related to labor force, distribution climate, and operating costs. Macro site selection will help you build consensus through educated decision-making on relevant information to arrive at a short list of two or three cities.

Micro Site Selection.City visits will help your team gain firsthand experience to rank each location, highlighting labor, real estate, and tax incentives. Interview local distribution operations to verify comparative labor data on hiring, turnover, wage scales, incentives, and other factors to capture the greatest labor pool.

Prior to the city visits, review recent tax abatement/incentive allocations of comparable projects so your team can maximize its time with each location's economic development groups. At the conclusion of the city tour, you will be in a position to make a confident recommendation of the city and site.

Implementation. The blocking and tackling of site selection puts your team in a position to make a winning decision about moving to a new DC. Proper planning and execution, the blocking and tackling of site selection, can help streamline the process and maximize the benefits.

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