C. F. Lynch & Associates

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By Clifford F. Lynch

DC Velocity, May 2004

Forty years ago, when you wanted to expand your distribution network and build a new DC, you didnít call an industrial real estate broker; you called a railroad. Most large companies shipped their product Ė whether it was boxes of cereal or rolls of carpet Ė by rail, which meant they needed access to a rail siding. The nationís railroads owned plenty of raw land, much of it located along the rail rights of way, thanks to government land grants handed out in the mid 1800s to encourage development in the nationís heartland. And the railroads were only too eager to sell off plots for nominal amounts in exchange for a contractual promise of so many carloads of freight. Some even threw in extras like extended rail sidings, rate discounts and extra services to snag a desirable account.

But those days have vanished with the steam locomotive. Todayís DC site selection teams want to know about a siteís access to highways, not railroads; very few distribution centers today even have rail sidings. And most of these teams are more concerned about labor supply and tax incentives than about transportation rates and availability. Unless they have experienced transportation professionals aboard, theyíre likely to see "transportation access" as just another entry on an extensive A to Z site-selection checklist that runs the gamut from "availability of labor" to "zoning requirements" (see sidebar).

That would be a mistake. "Transportation access" is about much more than the distance to the nearest interstate highway, and a potential siteís transportation profile deserves careful review. For most corporations, transportation still remains a big budget item Ė freight bills account for anywhere from 70 to 85 cents of every dollar spent on logistics, depending on the product mix.

With that kind of money at stake, you donít want to stumble. Yet all too often, thatís what happens. Many times, for example, companies compare the pros and cons of potential locations by running a sophisticated network analysis model using current transportation rates to and from the sites. Sounds like a reasonable place to start, but thereís one problem: Although the model will crank out a fairly accurate analysis of the situation as it stands today, it tells them nothing about how things will look in the future. For that, logistics and DC managers need to do some digging. Once theyíve gotten to the shortlist stage, managers should arrange to meet with the carriers serving the cities under consideration. These meetings often yield some unexpected information and may even result in price breaks. Itís important to keep in mind that almost any traffic lane represents some truckerís backhaul, and your ability to fill those empty trailers could prove a powerful bargaining chip.

Another trap for inexperienced site selection teams is failure to consider transportation equipment availability. Even cities that are widely considered to be major distribution points and boast service from a large number of carriers may be plagued by equipment shortages. Thatís particularly true if the local DCs handle large volumes of products that originate offshore and are hauled to the cities in ocean containers rather than trailers, creating an imbalance between the number of trucks going out and the number coming in. Analyzing the market dynamics in advance could keep you from signing a contract youíll live to regret. It could also give you more clout when negotiating rates if you can demonstrate that your inbound traffic will help correct that imbalance.

In the end, of course, the decision will hinge on more than transportation. Real estate, environmental, labor, community and other site location factors must be brought to bear on the choice. And it would be foolhardy not to investigate tax structures and zoning regulations. But keep in mind that in the final analysis, itís all about getting your products into the facility and then on out to your customers.


Site Selection from A to Z


Your team thinks itís found a great DC location. But is it the right site for you? Here are some factors to consider:

Availability and cost of labor

Availability of industrial support services

Availability of special financing; i.e., industrial revenue bonds

Building restrictions, if any; i.e., height, setbacks, landscape requirements

Availability of community services; i.e., commercial, churches, medical

Educational facilities

EPA requirements; i.e., water retention

Fire codes/protection

Land or building availability and cost

Location and volume of customers to be served

Origin of products and materials flowing into warehouse

Tax incentives

Tax structures Ė property, income, inventory, sales

Telecommunications availability and cost

Transportation access Ė rail, motor, package carriers

Transportation unique requirements

Unemployment rate

Union environment

Utilities, availability and cost

Zoning regulations



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