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What sparks site selection decisions? From strategic locations to tax incentives to organizations that develop custom solutions, these factors juice the site selection process.
W hile the real estate mantra is “location, location, location,” the site selection mantra is “choices, choices, choices.” The challenge of choosing the right site for your headquarters, manufacturing facility, warehouse, or distribution center is becoming increasingly complicated as the nature of logistics evolves in the digital age. “The critical location factors for manufacturing, warehousing, and distribution are different and will become more so as integrated digital manufacturing operations technologies develop and as warehousing and distribution activities become close to fully automated,” says Edward (Ned) Hill, professor of economic development and senior research associate for the Ohio Manufacturing Institute at Ohio State University.
“Often the search is influenced by the job of the person who heads the effort,” Hill says. “Not surprisingly, chief financial officers pay more attention to rates of return, while those with production responsibilities focus on resource availability and the current pain points in operations.” Regardless of functional bias, the journey begins in the same place. “You start with data—lots and lots of data,” Hill says. And questions—lots and lots of questions. ( See sidebar on page 52. ) General critical location factors include whether the new site is shovel- ready or close to move-in ready. It’s also important to determine if the state or economic development authority serving the area has a certified site program to ensure the site meets requirements such as whether it is in an updated flood zone; has the appropriate zoning; utilities are in place; there is room for expansion; and whether the area enjoys business-friendly public officials, building inspectors, and approval processes. FUNNELING INFORMATION “Site selection is a funnel,” Hill notes. “Think of the search process as taking part in three phases. The first phase is internal with the search team, possibly aided by a consultant. At this stage, information is sifted with the goal of identifying the regions that the search will focus on.” In this phase, the team defines the elements of success and the critical location factors to be considered. The second phase, he says, is outward- focused. The team begins to search commercial real estate and economic- development organization data to identify potential sites. The third phase is site analysis, where the team conducts
“Critical location factors are financial and resource considerations that dominate location searches,” adds Hill, who has done extensive research on best practices in site selection as well as issues involving state and local economic development. SHARPENING YOUR FOCUS When choosing the ideal spot for your logistics facility, the individuals and teams leading the charge must be prepared to sharpen their pencils. “Locating a facility remains a data- driven financial spreadsheet exercise subject to a series of must-have site- specific factors,” Hill says. “Locational decisions often take on a North American focus, rather than a purely U.S. focus. “Since the population centers of Canada are stretched along the border, many distributors are including those markets in their analysis,” he adds. “Similarly, companies that service manufacturing operations in Mexico need to consider how those customers will be served.” Geography, workforce quality, and
regional educational assets as well as the advantages—and sometimes incentives—offered by government and local utilities all play a part in the decision-making. If the task is to relocate an existing facility, companies can benchmark prospective locations against the current site. “The team can see how marginal investments in current sites can recalibrate the benchmark,” Hill says. “It does not surprise me that marginal investments in either the current site or current market area can outperform new sites because the comparison is between marginal cost investments versus total cost. “The exceptions are expansions to accommodate new growth or when the existing site has become toxic for some reason,” he adds. WHO’S IN CHARGE? As in all aspects of business, a key consideration in site selection is leadership: Has the company put together its site-location team and who will head it?
October 2022 • Inbound Logistics 45
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