One major consideration involved in facility location is proximity to suppliers. why is this?

Choosing the right warehouse location can make all the difference in how effective, efficient, and profitable a company is. Leasing or purchasing a warehouse is a major decision, and choosing the right location can significantly enhance a company's ability to compete and effectively serve customers.

When it comes to selecting a location, it’s important to take the time and consider all of the following criteria, take some notes, and then compare your notes against all the available options. Only after all the data has been compiled and analyzed should the final decision be made.

Let’s review the 7 selection criteria for the best possible warehouse location.

Rent Rates & Taxes

Cost will remain a key criterion when selecting the right location of a warehouse, but it must not be the only one. Hidden costs could offset any savings on cheap rental rates and therefore must be considered.

The rental rate of a warehouse in the US is normally based on square feet (SF) per year or month depending on the landlord. Average prices in the US can range from as low as $2.56 SF/Year and as high as $16.50 SF/Year. See the table below for the top 6 low & high-cost markets.

Data Source: Industrial Market Outlook 2017

In addition to rates, attention must also be given to local governmental regulations, tax structure, and tax incentives. You could also benefit from special local government programs intended to promote your industry segment, so it pays to consider this as well.

Workforce Availability, Labor Skills & Costs

Workforce availability, skills, and labor costs are directly associated with local demographics. Not every geographical location offers a workforce with the right skills at the right price. Pay attention to the local demographics of the state/city being considered.

When evaluating workforce availability, consider supply and demand: Low workforce availability and high demand will drive salaries up (meaning operating cost will be higher). The opposite is also true. High levels of workforce availability and low demand will drive salaries down.

Besides workforce availability and costs, skills are also critical. A workforce skill gap will result in a low quality of customer service and a reduction in both competitiveness and productivity.

The following chart demonstrates the impact of a qualified/trained workforce in the logistics industry.

Improvements Noticed as a Result of Undertaking Training or Qualifications

So, when choosing a warehouse location, research the demographics and focus on educational attainment, population characteristics & income levels. A quick Google search for “[city or state] demographics” should pull up the needed information. City and state government websites are also likely to provide this information.

Roads, Highways & Traffic Flow

Accessibility to roads and highways as well a local traffic density must also be considered, especially if trucking is the main mode of transportation.

Transportation costs are affected by some or all of these variables and can impact the competitiveness of the company or the attractiveness of the warehousing facility to customers. Consider the following points:    

• Accessibility to highways & exit ramps

• Highway inter-connectivity

• Public transportation penetration

• Average traffic speed

• Average traffic volume

• Traffic peak hours

• Road safety & conditions

• Proper roads signs & signals

Factors such as congested highways and surface roads as well as poor signaling systems will increase fuel consumption, accident rates, and time wasted.

Proximity to Airport, Railway Stations & Ports

In this case, the main mode(s) of transportation used to receive or ship goods to and from the warehouse must be prioritized. For example, if most of the cargo is imported/exported via air, then you will want to be as close as possible to the airport. If this is not possible, you should at least explore facilities with easy access to highways and roads that offer a direct connection to the airport.

You want to be as close as possible to the point of the most predominant transportation mode in order to control drayage costs and have the highest possible velocity level – the maximum number of containers per month.

The following info-graphic contains data from the Department of Transportation displaying shipments weights by transportation mode for 2013 and the expected volume for 2040.

Data Source: Bureau of Transportation Statistics

Markets & Local Environment Factors

Proximity to suppliers, producers, and the market(s) being served as well as local environmental factors must be also considered.

Any new warehouse should be as close as possible to major suppliers, producers, and/or customers. This will help reduce lead times, decrease transportation costs, and enhance responsiveness.

The factor to consider here is who is/are the major supply chain partner(s) and how you can make the supply chain more efficient by strategically selecting the warehouse location.    

Also, local environmental factors such as weather conditions and risk of exposure to natural disasters should also be considered.

Would the warehouse be exposed to hurricanes, tornadoes, or earthquakes? Is it in a flood zone? For any of these risks, the warehouse must meet specific building requirements.

Other local environmental factors that should also be considered include proximity to neighbors (warehouses can be noisy – avoid disputes), traffic congestion, and peak traffic hours. Consider how these variables could affect regular operations.

Building Availability & Utility Costs

If the business grows or shrinks, you will need to adjust accordingly. If this is the case, you will want to minimize your need to re-evaluate all these factors if moving to a new warehouse is your only option. By moving within the same area, you will be able to retain your workforce, utilities, etc., and minimize the frustrations of carriers/truckers and customers trying to find the new location. 

One last aspect: utilities. You will want to double-check the availability and cost of utilities. Some warehouses are more demanding/dependent on one utility than another. For example, refrigerated warehouses are more dependent on electricity and water.

But there is one utility that almost everyone ignores: the internet and communication services. Remember to check not only the availability of internet services but also the speed and link type (Cable, T1, Fiber, etc.) available as well as all associated costs. Also, remember that on occasion, the installation of internet services can take up to 3 months – or more.

Summary

Please, take the time to properly plan and understand the most strategic warehouse location for you and your customers. The impact of this decision is much more significant than just opening a warehouse somewhere. The location of your warehouse will have long-lasting effects on the financial, operational, and competitiveness aspects of the company.

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