The What, Not the Where, of Site Selection

While much has been written about site selection from the real estate and cost reduction perspective, little has focused on the supply chain management perspective.

What’s the difference? To start with, true SCM focuses on adding value to the customer and sharing that gain with all the component links in the supply chain. Rather than looking at site selection from a cost-limiting focus, we must look at it based upon what will add value to the supply chain.

The least-cost variable component in real estate is location, location, location. Yet that variable can also have a dynamic impact on service and the supply chain’s added value. In theory, the closer to the market, the shorter the response time to deliver to the customer.

Actually, this theory is only partially true. The reduced lead time, given the proximity to the market, implies in-stock availability. It also implies the ability to respond with short order cycle time within the four walls, neither of which is a given based on location and/or site selection criteria.

We typically place too much attention on location and not enough on the distribution facility’s purpose and strategic role. As customer expectations increase, the desirability of postponement also increases. These changes transform the distribution center from a repository of inventory to a value-added “logistics utility.” The logistics utility transforms the physical inventory into a customer-specific end product.

Refocusing a distribution center’s function from a storage facility to a service center for the end user’s specific product needs often changes the basic requirements. The requirements of space (storage), proximity to market, and workforce skill sets may all change dramatically. And each change may have a significant impact on the what as well as the where that you seek.

Strategic Purpose of Site Selection

In days of old, site selection was all about location. Today, site selection is more about strategic purpose—the what, not just the where. This perspective on site selection requires a clear understanding of labor requirements, quick response transportation modes, utility requirements, and potential benefits of trade free zones.

It is necessary to have a vision not only of what is required today, but also the direction of tomorrow’s markets. The strategic positioning of tomorrow is often best addressed through the flexibility of outsourcing.

Site selection is one of the most challenging assignments a logistics manager faces. To the inexperienced, it may appear to be a simple task—just a matter of real estate prices and availability. In reality, selecting a site for new distribution facilities has a major impact on logistics costs and operational efficiency, and even on a company’s overall marketplace success. It also involves a web of related, but difficult, decisions.

Fortunately, approaching this task with a solid understanding of how to get and use the right information for making decisions can make the task easier and your job more efficient.

What is the “right” location? How many and what type of facilities are needed? What size and what function should each location perform? These strategic questions must be answered before any real estate considerations enter into the discussion.

Despite the old maxim of location, location, location, deciding where to establish a new facility should generally be the last step in the process. The first must be the strategic questions of what and why.

By clarifying the fundamental nature of a company’s supply chain requirements, you can ensure that site selection, wherever it may be, contributes to a viable facility long after the traditional considerations of land cost and real estate taxes have been forgotten.

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