A Quick Primer on Site Selection

By Chris Steele, President, CWS Group LLC

With last month’s discussion of reverse site selection, we should spend a little time reminding ourselves how companies make location decisions. By understanding how companies decide where to perform their functions, developers and public agencies can better understand how to attract these activities and investments. What follows is a quick case study of a food manufacturing site selection done a year and a half ago.

Case Study

As a result of both the economy and consumer concerns about food safety, the market for quality, prepared foods has continued to grow rapidly. The client — a West Coast based manufacturer of low-cost gourmet items — had seen tremendous growth over its short history. The company’s customers — mainly upscale grocery chains — saw increasing demand and wanted to bring the company’s products to East Coast markets. However, the fresh nature of the products meant that they would spoil, given the long shipping time from the existing plant. Clearly, an East Coast manufacturing site was required.

The Situation

The company’s CFO acted as the internal project lead due to the overall importance of the project, the likely impact on the company financials, and the fact that he’d been directly involved in other location selection projects at his previous companies.

The company knew the long-term goal was having an East Coast presence in order to have easier access to East Coast markets and prospective clients. However, the immediate goal of this project was to find a location with good logistics, labor, and utilities, as well as access to the company’s main client.

Since the client’s distribution centers were located in the northern states, the search area was limited to a triangle bordered by North Carolina, New York, and Illinois. This triangle gave the company the one-day drive time while also preserving options for a broader service area later.

Desktop Screening

We (the client/consultant team) used other key criteria — proximity to interstate highways and reasonable access to an airport so the company could show off the facility to prospective clients — to narrow the list of candidates to about 150 counties throughout the triangle. Our initial candidate list was set.

Site selection is largely an art, built around narrowing lists and removing less attractive location options. As a result, we constructed a simple Excel-based weighting and ranking model for the 150 counties to get to our next, much smaller list. The model contained a few dozen characteristics on each community’s labor profile, general cost factors, taxation and business climate, access to raw produce, and — most important for this project — timely access to the end customer. The company tested the relative importance of each factor. We ran through several iterations of each model and reduced the list to a dozen finalist locations sprinkled throughout much of Appalachia.

Site Visits

As with any buying decision, it’s important to understand the story behind the data. Given the proximity of the locations to each other and their access through small and mid-size airports, the team decided to drive to all 12 candidate-communities in one week, using two teams. In each community, the team met representatives from the state and regional economic development agencies, spoke with other local employers, and started to examine possible facility options.

In the case of this project, these visits became even more important as we found that one of our secondary criteria — wastewater capacity and costs — was quickly going to become a critical issue. As several of our candidate communities abutted the Chesapeake Bay, some of our location options would require significant pre-treatment before accepting effluent. Ironically, some of the older manufacturing-based communities on our list had excess water treatment capacity and even welcomed our food-based waste as it would allow for better chemical balancing in the treatment process.

Final Selection

With the field teams on the road, the backroom staff prepared reasonably comprehensive cashflow and GAAP models of each finalist option to show the full start-up and ongoing cost profiles for each location. Real-world data from the field allowed for calibrating the model to what the company was likely to experience as they actually established operations.

In the final stage of the project, we were able to narrow the field to two options based on logistics, labor, access, facility suitability, and finally, all in cost. The company’s management team finally had all of the information needed to select their new manufacturing site.
As credit and traditional funding sources dry up, development becomes more and more difficult unless non-traditional funding can be secured. Next month, we’ll talk more about public-private partnerships and how these can be used to “unstick” the process.

In This Issue

News, Trends & Analysis
New Items

Glimmer of Recovery

Supply Chain
A Quick Primer on Site Selection

Managing with the Supply Chain in Mind

Compliance Corner: Trade Compliance Requires a Focus on Information Gathering

How to Green Up Your Logistics Operation

Supply Chain product review
Trucking Software

Special Section
Creating the Extraordinary — the Prince Rupert Story

Features
Building a Future from Drayage Wreckage

Gateway at a Glance – Pacific Northwest

Ports & infrastructure
Stimulus Bill Has Cash for Ports . . . for the Right Projects

What Shippers Need from Inland Ports

Port Product Review
Lift Trucks

Commentary
New Trends Driving Transpacific Trade

Who, What, Where, When

Final Say