Logistics Centers
Site Selection Tips
By Russ Dixon

Not too long ago, one of the county's biggest expedited air carriers ran television commercials depicting people pulling products off their computers, printers and fax machines.

Despite the obvious playfulness of the visuals, there's a lot of truth in that campaign, at least when it comes to customer expectations.

A growing number of companies now demand extraordinary logistics service from their vendors - including near-instantaneous delivery. As a result, running an efficient outbound distribution program has become critical for every company interested in maintaining its customer base. And using strategic logistics has become one of the easiest ways to pull ahead of the pack.

There are many components to strategic logistics. But one of the most key is the distribution centers you operate.

With that said, here are several suggestions for choosing the site or sites that will work best for you.

Start with the clock
One of the classic definitions of logistics is "the right product to the right user at the right time." Your search for an optimum distribution site should start with an analysis of what "right time" means in terms of your product, company and customers.

For example, some products are more perishable than others. Literally perishable products such as fruits and vegetables and flowers have a very short time to get to customers before they're relegated to the trash bin. And economically perishable products, like the hot fall styles have only a short time to reach their destination before they're yesterday's news. (How many of us will buy a wool suit in May?)

Such perishability will mean stricter standards for on-time delivery.

Some customers are more demanding than others, too. A hospital waiting for a replacement part for its MRI machine isn't going to be happy with a turnaround time of a few days, because that could mean thousands of dollars lost. By contrast, a cosmetics company's customers may be delighted to have orders shipped within five working days of placing their orders.

Unfortunately, there is no rule of thumb. It varies from industry to industry and even from company to company.

Plug in some numbers
Step number two is to decide how many distribution centers you want. This will ultimately affect the cities you choose as distribution points and the size of facilities you'll need in each city.

If you're the streamlined type of company that wants a single distribution point, your distribution center will probably wind up in a major population center (think Chicago, Atlanta or Dallas) or a city near the center of the country (think St. Louis). If you prefer to deal in higher numbers, you could still wind up in the population or geographic centers. But you could just as easily land in geographically dispersed markets like Salt Lake City, Jacksonville or Columbus.

The more centers you use, the smaller you'll need the square footage at each of your centers to be.

People often ask what the ideal number of distribution centers is. Unfortunately, there is no standard answer, even when you're talking about companies that operate in the same industry (although I can tell you that according to a recent Warehouse Education and Research Council study, companies currently are averaging between three and four distribution centers, which is down from previous years.) The right answer is usually arrived at by a complex formula that takes into account specifics such as your budget, comfort level and customer needs as well as your ability to pay inventory-carrying costs.

Compare markets
With these two steps done, it's time to compare specific distribution markets, which is undoubtedly one of the most time-consuming and pain-staking tasks in the whole site selection process. Among the things that you must compare are:

• Proximity to your customers.
• Proximity to your manufacturing sites.
• The price of reaching customers from a particular market.
• The potential quality of a workforce in a given area; as a rule, larger markets tend to have a larger and more diverse labor infrastructure.
• Access to a good selection of transportation providers.
• The quality of a market's transportation infrastructure.
• The quality and availability of a market's distribution real estate.
• Weather.

Evaluating all of these factors can take weeks or months, especially if you do your homework the way you should.

Fortunately, there are some excellent logistics site selection software packages out there that can help. These packages can run several scenarios - such as a two- or three-facility network - to help build the distribution network that enable you to be the most competitive. And they can help identify the most ideal distribution markets based on your preferences, performance standards and budget parameters.

Compare facilities within markets
With these things done, you're getting in the home stretch, because now it's a matter of searching for and comparing individual facilities.

Right now there are about 250,000 such facilities located throughout the United States. But not all are available - and not all offer the same degree of quality.

Here are just a few of the things you should compare:

• Access to roadways. Most products move by truck at some point - even if that truck goes straight to an airport or seaport. It's essential to find a facility close to interstates and highways, unless you enjoy paying more for your transportation.
   
• Number and size of truck doors. A surefire way to slow up your distribution is to get a facility that doesn't have enough doors for the smooth flow of pick-ups or deliveries. We recommend one door for every 7,500 square feet of the facility. Additionally, look carefully at the size of the dock doors. The once standard size of 8' by 10' has now been replaced by a new standard of 9' by 10' or 10' by 10', which gives distribution center employees more room to maneuver when loading and unloading trailers. Dock door extras like dock locks, pit levelers, shelters or seals are considered standard requirements or amenities.
   
• Size of truck courts. For purposes of definition, a truck court is the distance between the edge of a distribution facility and the end of the asphalt or finished surface. Logistics professionals used to consider 120' as the acceptable minimum. But now that many trailers are getting larger, 150' is more reasonable. This may sound quite large. But when you consider that rigs are about 18' in length and some trailers are as long as 57', it makes sense. Even the most experienced driver needs a little extra space to make a safe and efficient turnaround.
   
• Facility height. When you look at the size of a facility, you have to compare more than just the raw square footage, because product isn't just stored horizontally, it's stored vertically. In most cases, higher ceilings equal better potential cube utilization, which translates into more storage per square foot. Most new facilities are being constructed with 30' clear ceilings. However, depending on how high your product can be stacked, that may not be necessary for you (unless you think you might want to sell that facility at some point in the near future). At a minimum, look for a facility with 24' clear ceilings.
   
• Dimensions. There are some things you can change about a facility through renovation. There are others you cannot. One good example is the distance between dock doors and various parts of the facility. Measure these distances carefully, because the time it takes for your employees to cover these distances will dramatically impact your productivity. (A few extra seconds hundreds of thousands of times in a year can really add up.) Additionally, look carefully at the space between columns, because this will affect how well employees can maneuver machinery like forklifts through a facility. Adequately spaced columns also are more conducive to accommodating industry-standard rack and aisle plans.
   
• Structural integrity. You don't necessarily have to buy or rent a brand-new facility to get a quality distribution center. Just make sure any building you consider has been well maintained and is structurally sound. Telltale signs of poor maintenance may include voids in panels, inadequate caulking and worn seals.
   
• Ventilation. Maintaining the quality of the air within a distribution facility should be one of your top priorities, because dozens or hundreds of people's health depends on it. This is particularly true if you use propane lifts within your facility. Few warehouses have windows, so a quality air rotation system is essential. This will help maintain a safe working environment in accordance with OSHA standards.

Get down to dollars and
cents - within reason
The next recommended step in distribution center selection is the one where a lot of companies get into trouble.

Naturally you should always compare the cost of various distribution centers. But don't let that drive the decision either.

For one thing, low prices aren't always what they seem. A facility's additional expenses like taxes, insurance and utilities can have a substantial impact on the actual cost to operate it - as can factors like its shape, age and height. For example, it will cost a lot more money to heat a 30' high facility than it would to heat one that is 24' high.

In addition, your customer service could suffer if you automatically choose the cheapest facilities and markets.

To get the distribution center that is truly the most cost-effective, factor in all the potential costs, not to mention all the potential benefits. And remember that cost per square foot isn't the only thing that is negotiable; most prudent landlords are willing to work with you to do things to keep their total occupancy cost competitive in the market such as capping expenses or appealing property taxes.

Once you do this, you may end up selecting a completely different facility than your original top choice. Go to plan B if you must

There are some occasions when your search for the perfect distribution center in a particular market will come up short - for example, if you're looking in popular distribution markets such as Atlanta, Dallas or Los Angeles, where larger-sized facilities are in great demand, or in emerging markets in places like South America, where particular kinds of facilities don't even exist.

You have a few choices when confronted with this situation: You can search in another, comparable market. You can build a facility in that market. Or you can choose the best facility in that market, though less than perfect, and use technology to help improve it.

In the case of the latter method, software can help you optimize a facility's productivity by determining the best layout for the facility, the optimum methods of storage and the most efficient number of shifts.

Of course, your choice of facilities doesn't have to be permanent, either. You can always lease a distribution center instead of buying one. Or you can use one operated by a public warehousing or contract logistics provider. This will buy you more flexibility to re-evaluate and reconfigure your distribution center network down the road - which could prove advantageous in light of the fact that many experts recommend re-evaluating logistics configurations and centers every couple of years.

A distribution center that is superlative today may be only adequate tomorrow- because there are always fundamental shifts in how people buy and what they expect, and because companies themselves are always changing.

Good logistics, like success, will always be a journey, not a destination. As a result, you can never assume that your site selection job is complete - only that it's through for a while.

Russ Dixon is director of marketing communications for GATX Logistics Inc. - soon to be APL Logistics.