In my always humble opinion, the â€œLâ€ in logistics stands for location.
Many of the uninitiated think that to do logistics all you need is a warehouse, some inventory as well as the right people, equipment and systems to handle it. See the Zen Art of Logistics and Party Planning to learn more.
Well, as youâ€™ll soon discover moving through these articles, thereâ€™s much more to all aspects of logistics than can be seen at the surface. So what are some of the many factors that are important to take into account when choosing a location for your logistics operation?
First off you need to know all of the sources and destinations for the materials you will be handling, along with transportation modes, costs and service level requirements/lead times for all players. This information is utilized to create a logistics location strategy and number of stocking locations model for the business which goes beyond the scope of this article and is covered in detail in our Strategic Logistics Modelling article.
However, once you’ve determined the correct strategic geographic and number of locations there’s still many factors which must be taken into account in ultimate site/location selection.
The first is the availability of a workforce for your warehouse/ distribution center. You can build the greatest warehouse ever, but if you don’t have a half decent pool of quality people to draw from the operation will always be hamstrung by this deficiency. So in your location search, it’s important to ensure a local workforce in the immediate area or that there’s a reliable public transit service within commuting distance to communities with appropriate potential team members.
Please don’t discount this one and just assume if you build it they will come, with today’s low unemployment levels you may get burned big time. In fact I’ve even seen sites having to be relocated from one location to another simply for this reason, which was a very costly mistake and could potentially be your last if you’re the person who made the incorrect initial site selection.
As well, when examining the people aspect of setting up a cost effective operation, you’ll often find significant variances in what the average wage rate is from area to area which should also be taken into account as part of your planning process.
Secondly, your site needs to be either on, or very close to a major highway from a transportation perspective, otherewise you could incur significant extra transport costs to get your shipments both inbound and outbound if you’re too far off the beaten path.
Again while we’re talking transportation, many shippers working nationally or internationally will have alot of intermodal freight, so proximity to intermodal terminals and/or ports also need to form part of the decision process.
Another important aspect of site location selection is the potential need for later site expansion, is there land adjacent that you can put in a “right of first refusal” position to ensure space is available should it be needed later?
Also, what are the building and land tax rates in the area you’re contemplating location of your building? Even in the same metropolitan area I’ve run across some muinicipalities with extremely punitive rates which can negatively impact the overall cost of your operations.
These days, you can often find areas wishing to attract operations with tax holidays or significant rate reductions. Just make sure all the other needed elements described in this article are there before signing on the dotted line or tht tax “bargain” you just got might cost you alot more than you planned in other areas.
Last but not least once you’ve finally settled on a specific area for your operation is the selection of which site in that area. There are many factors at the site level which need to be analyzed and addressed otherwise you could again experience very large “surprise” costs. These aspects of deciding the lot/building for your operation will be discussed in the article Site Selection is Not a Simple Matter, the next article in this series.