One of the most vital decisions that a
corporate officer must make, as it
relates to the company’s supply chain, is location: stay, move to a more convenient or efficient location, add or reduce
warehouses, or add or reduce plants.
These decisions can financially make or
break a company.
“You will leave money on the table if you
don’t follow a repeatable process that’s
known to produce excellent results,” says
Tim Feemster, Senior Vice President,
Director of Global Logistics for Grubb &
Ellis Company, representing their offices
globally. “For instance, you might go to a
city’s economic development commission
too early, when you don’t have enough
facts. That does not yield the optimal solution.”
Smart Business talked with Feemster
about how to formulate a results-oriented,
repeatable process of selecting warehouse
locations for your supply chain.
How long does the whole process of finding
an appropriate and economical location
take?
The process usually starts with the operations team recognizing a need for network change. They are either making an
acquisition that entails expanding to multiple facilities, they have decided to combine
the network, or they are making changes to
their terms of sale that will alter the network. Or the company might just outgrow
its buildings.
Typically, finding the right location will
take eight to 10 weeks if you’re doing a true
network analysis and running a model. If
you’ve determined what specific market
you want to be in, then, obviously, it’s a
shortened period. The concept is very scalable, it’s a world-class process, and if you
don’t do it in the right sequence, it can cost
you money.
How are the CEO and/or directors involved?
Changes in corporate business strategy
typically force a change, so the CEO and
directors would be involved at some point.
They would delegate implementation of
business strategy changes to their supply-chain logistics groups, asking for an analysis and subsequent recommendation.
During this process, the CEO and directors
receive updates and, eventually, a solution.
Explain the five steps to determining a new
location.
The first is contextualizing or outlining a
strategy. It starts by articulating basic
requirements. What’s your ship-to-deliver
cycle? What’s your order-to-delivery
requirement from a customer service perspective?
You develop preliminary cost profiles to
determine the relative importance of factors such as labor quality, operating costs,
quality of life and operating environment. A
professional adviser can help you sort
through what might be some oddball
requirements, considering everyone’s individual agendas. He won’t make light of
them, won’t discount them but will bring
them into the analysis and get them all on
the table.
In the beginning, you calculate with your
team what’s strategically important. You’re
not actually measuring the factors, just
identifying them. Then you have to determine the relative importance of such factors, so you actually weight them.
During the initial screening, you figure
out which locations may have your requirements. You run a model and do the math,
keeping in mind that 50 percent of the cost
of doing business is transportation from
the distribution center to the clients and
over 15 percent is labor.
Eventually, you rate each of the communities on a scale of 1 to 10 in each of your
key requirements. You determine what
sites may make some sense, trying your
best to put more than one location into
play. This process forces a somewhat quantitative analysis rather than basing factors
on emotion or opinion.
With the location assessment, you’re putting all the information you’ve obtained
into a visual perspective with a qualitative
cost matrix. For instance, you rate quality
or availability of labor 1 to 10 for each location. When you total up your scores, you
narrow your list from 10 or 15 to a short-list
of two to four sites.
Field visits are next, in order to obtain
more data. You can talk about competitors
to make the economic development commissioners recognize there’s a horse race.
You’re doing a little poker playing at this
point. You may have the final site virtually
determined, but you don’t want to let those
people know. When this step is completed,
you know a lot more about the sites, not
just your intuitive understanding of them.
Finally, comes negotiation and selection.
The real estate group has one agenda and
the operating group has a different agenda,
and sometimes, they’re not on the same
page. That’s why the final decision has to
be as unbiased and logical as possible and
why you should rely on an experienced
real estate adviser. But, in the end, it’s the
client’s decision.
TIM FEEMSTER is Senior Vice President, Director Global
Logistics for Grubb & Ellis Company. Reach him at (972) 450-3225 or [email protected].