Choosing a DC Location: Keeping Success in Site
The decision to build a distribution center comes with expectations that it will help a company reach key markets, hire an appropriate workforce, and maximize profitability while minimizing operating costs. Finding that ideal location in a community that embraces the company’s operations, however, is more difficult than merely choosing any site within a targeted region.
Location decision is crucial for a business’ long-term success. Factors such as infrastructure, labor costs, proximity to customers and suppliers, and community and site characteristics need to be part of an acceptable model that supports the company’s goals and objectives.
Finding the Right Site
If a company selects a less-than-optimal site, it may have labor availability problems, ongoing transportation issues, and yearly recurring costs. These issues can be resolved by paying close attention to site selection.
Companies choosing a distribution center location need to consider three key factors to site selection success:
1. Locating near delivery points cuts transportation costs. Transportation is one of the most important factors in distribution center logistics. The cost of hauling products from a distribution center to customers and consumers is based on fuel prices as well as driver and truck maintenance costs, which usually increase annually.
Being in the right location is vital for minimizing transportation costs from a distribution center to retail stores, or wherever a company’s final destination is. Generally, costs are associated with shipping from the distribution center to the end user, as opposed to vendors shipping into the distribution center.
On the Rail Trail
Although truck is often the standard method for transferring goods, many companies desire a location with rail access to cut shipping costs on large volumes of heavy products that do not require precise delivery times. Businesses should be prepared for a timing trade-off, because delivery times via rail often are slower and less predictable.
An optimum distribution center location for a major retailer, for example, needs to best serve its delivery points. Analyzing its network of existing and planned distribution centers is a good way for the retailer to determine optimal location. In the retail business, on-time delivery is crucial, so proximity to clients and suppliers through highly accessible highways or rail lines saves time and cuts costs.
In addition to a site’s physical location, its internal functions—rack and conveyor systems, and pick-and-pack solutions—are important. When designed and located effectively, these systems help increase product flow and shipping efficiency.
2. Labor and community acceptance can make or break a project. While various markets may meet a company’s transportation needs, it may be harder to find a reliable and productive labor force. As such, labor force is the foremost community characteristic to identify in site selection. Firms should also analyze turnover rates because retraining employees increases operating costs.
Most communities will provide a survey outlining the area’s wage and benefit rates, which are impacted by geography and the presence of organized labor. Often, incentive packages are offered to businesses that meet or exceed community wage averages.
Getting a community’s support is vital. When a community is behind a project, everything from permit approvals to the plan’s review processes moves faster. Selecting a pro-business community is a definite plus.
The likelihood of increased truck traffic and noise in the area are the most common concerns raised by citizens when firms build new distribution centers. Companies can mitigate these concerns by locating off an interstate and away from residential areas.
The best way to counter misperceptions is to have community leaders speak with officials in an area where the company has successfully located other operations.
3. Site characteristics impact initial investment and beyond. Carefully selecting a site location with ideal characteristics minimizes up-front development costs. A fairly flat site that is not environmentally challenged is the best location for a distribution center. Blasting large rocks and mitigating wetlands is expensive and time consuming. Choosing sites that are free of environmental issues also reduces initial site development costs.
The time it takes to study and resolve environmental issues may influence companies to search in another market. Sometimes, however, they have no choice but to build in an environmentally sensitive area to serve customers.
Companies with short development time frames need sites with existing water, sewer, power, and roadways, but these sites are usually more expensive. If businesses plan far enough in advance, they can leverage communities to provide free or discounted land, and find government incentives that deliver infrastructure at no cost to the company—and can potentially benefit the community.
Increasingly, organizations require fiber optics to receive and transfer data. New technologies run through fiber optics allow companies to set up inventory systems that automatically order items from the distribution center when they are purchased from a store.
From available properties to workforce data to economic development incentives, the Internet has put valuable information at the fingertips of those seeking optimal distribution center locations. Yet attaining the appropriate mix of site characteristics is still complicated by time-consuming research and approvals.
The time and money spent planning and building a distribution center is accurately viewed as a major investment, but choosing the right site will reap positive business performance for years to come.