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Supply Chain Priorities

When it comes to choosing a new location for your next distribution center, creating a strategic distribution network plan is a first priority to address today's logistics challenges.

Article by Donna Clapp

Motorized forklifts are essential to warehouse distribution operations Motorized forklifts are essential to warehouse distribution operations. (Photo Credit: Digitalvision)

T

he world economy is uncertain, fuel costs have been riding the same roller coaster as the stock markets, and customers, when they are buying, are demanding shorter delivery times and reduced inventories. In the United States, approximately 60% of all energy consumption is used for transportation, according to Tompkins Associates, a leading provider of supply chain consulting. Although these expenses tend to be buried in the overall cost of transportation, any significant shift in the price of energy has an impact on the costs of transportation and, in turn, on distribution. Therefore, to minimize total distribution cost, it is important to find the best balance of these costs by prioritizing what's most important in your supply chain.

"The best approach to pinpoint your supply chain priorities is to start with a comprehensive assessment of your supply chain to find out exactly where you are," says John Spain, senior partner at Tompkins. "Then, by benchmarking your supply chain against others, you can find the gaps in performance and identify areas that need improvement."

This is the first step to creating a strategic distribution network plan. According to a Tompkins report entitled "Designing a Distribution Network to Address Today's Challenges," the objective of strategic distribution network planning is to determine a plan that indicates the most economical way to ship and receive products while maintaining or increasing customer service requirements, or simply put, to maximize profits and optimize service. Strategic distribution network planning typically answers the following:

1. How many distribution centers should exist?

2. Where should the distribution centers be located?

3. How much inventory should be stocked at each distribution center?

4. What customers should be serviced by each distribution center?

5. How should the customers order from the distribution center?

6. How should the distribution centers order from vendors?

7. How frequently should shipments be made to each customer?

8. What should the service levels be?

9. What transportation methods should be utilized?

Planning a distribution network is a sequential process that continually needs updating. Some companies run into the pitfall of performing steps three through six before collecting and understanding the most important steps, which are numbers one and two.

The answer to distribution network planning is only as good as the data put into the analysis. One of the key data requirements in analyzing a distribution network is that of the delivery requirements (time order placement to receipt of the shipment). In general, is it more important to have the goods faster or at a lower price? This will determine how close your distribution center must be to the client. If a lower price is more important to the client, then perhaps it's more important to have the distribution center in an area that is less urban, closer to a major rail line or in a state that's a non-union state, as opposed to being right near the client.

Given that question number two, "Where should the distribution center be located?" is considered to be one of the most important questions according to Tompkins, the selection of a site for your distribution center takes time and community due diligence. The best way to narrow your selection to a few regions or communities is to create a checklist of your key requirements. Some potential considerations, according to Tompkins, include:

  • Workforce Labor unions, availability of qualified personnel, wage levels, accident rates in area, community education or training programs, employment laws, right-to-work laws, local safety and health costs, and the availability of management personnel
  • Utilities History of outages, rates, off-peak rates, discounts or penalties, residential rates, water condition and chemical analysis, water sources, refuse and trash collection costs, pick-up frequency, and disposal methods
  • Community Availability of shopping, housing markets and costs, travel and meeting facilities, news media availability, traffic levels, organizations, communications, mail service, health facilities, protective services (fire and police), education, recreation, religious activities, and cultural facilities
  • Existing Industry Major operations in area, possible suppliers and customers, civic participation, union affiliations, environmental conditions, support to the community, and number of plants gained and lost in the last five years
  • Local and State Voting record of incumbents, annual budget, sources of revenue, annexation policies, attitude during strikes, property taxes, sales tax, financial health of state and community, amount of tax free property, and any community taxes
  • Miscellaneous Weather conditions (temperature, rainfall, snowfall, humidity, days of sunshine), planning and zoning history and makeup, and commercial services in area (banks, industrial distributors, office supplies, industrial repair shops)
  • Rail Access Railroad stop-off privileges for partial loading/unloading en route, demurrage charges, reciprocal switching arrangements, pick-up and delivery services, and freight schedules
  • Highway and Truck State laws as to truck size and weight, toll roads and bridges, and condition of roads
  • Other Transport Air: site near airport, schedule of airlines, personnel transport schedules; Water: channels width and depth, terminal facilities, seasonal limitations;
  • Other: bus service, taxi service, rapid transit, and auto rental agencies.

According to Tompkins, if a community doesn't meet these requirements, then it should be eliminated from further consideration. Once the community list is narrowed down, site visits to view alternative lease facilities, land, or buildings for sale should be made. Before you visit each site, create another checklist. This checklist should cover considerations such as zoning, topography, landscaping requirements, access to site, storm drainage, floor loadings, lighting levels, clear height, and utilities. These considerations should be prioritized and then each site should be graded based on how well it meets the criteria. Many of the items on the list may require extensive investigation before a final evaluation can be made.

Now that you know what to evaluate, here are some of the communities vying to be on your shortlist.

Mississippi: The Right Location for Success

Mississippi offers the right combination of location Mississippi offers the right combination of location, workforce, and business climate for the growing distribution and warehousing sectors. (Photo Credit: Courtesy of MDA)

Selecting the right location is a key component of any business' strategic model. In fact, it can make or break a company's outlook. Companies have to look for the right blend of resources, workforce, quality of life and business climate. A Mississippi location offers these advantages plus easy access to the top regional, national and international markets.

BMW understands the significance of the right location. "There are more than one million BMWs on the road now, and whenever possible, we are committed to providing next-day parts delivery to BMW retailers," said Hans Duenzl, vice president of service, parts and engineering for BMW, when the company announced the location of its Senatobia regional parts distribution center. That goal is possible because of Mississippi's central location to major markets in North America.

Mississippi has attracted approximately 2,300 warehouse and distribution facilities to the state, employing more than 29,000 workers. Recently, Creative Logistics and Warehousing announced 133 new jobs and a $2.15-million investment, and Exel, Inc. announced an $11-million expansion. Both companies are located in north Mississippi, along with FedEx Ground, Williams-Sonoma, Future Electronics and many more.

Central Mississippi also is attracting major distribution concerns. Belk, Inc. invested $20 million in a 174,000-square-foot distribution facility in Jackson that will serve 110 Belk department stores. Tim Belk, company chairman and CEO, says, "We expect that our new distribution center in Jackson….will meet our current distribution needs and accommodate our growth over the next five years."

Mississippi is in the heart of one of the fastest growing regions in the nation, which offers warehouse and distribution facilities easy access to much of their market. The state offers distributors a number of location options, including an abundance of land available in industrial and technology parks throughout the state, as well as locations in close proximity to major airports, particularly in the Jackson and Memphis metropolitan areas. With Toyota, Nissan, PACCAR and other automotive manufacturers and suppliers flocking to the South, Mississippi has some major strategic advantages for that industry sector as well. Memphis, home to FedEx and a hub for UPS, is just north of the Mississippi/Tennessee state line. The state's location, which is central to both U.S. coasts, is within a day's drive of more than 50% of the U.S. business population. The state's transportation systems—railways, roadways, airports and waterways—are fully integrated to maximize transport options. Today, 758.6 miles of new four-lane highways are in use by the public. Additionally, Mississippi highways were ranked as the fourth best in the entire country in a national transportation study. Mississippi also is home to 75 airports, and 17 rail systems serve the state with more than 2,800 miles of track. Mississippi's 15 ports include two deep water ports on the Gulf Coast that provide access to worldwide commerce.

These advantages create significant cost reduction and improved operational control for automotive companies and other manufacturers seeking warehouse and distribution solutions. With a skilled workforce, flexible incentives and on-time, under-budget project management, Mississippi is the right location.

Baton Rouge, LA: Outpacing the Nation in Transportation Employment

Transportation and warehousing employment activity in the Baton Rouge, LA region far outpaces the trend in the nation as a whole. In the U.S., the logistics industry accounts for just 3% of total employment, while in the Baton Rouge region it accounts for 7% of regional jobs.

The Port of Greater Baton Rouge The Port of Greater Baton Rouge is the furthest inland deep-water port in the U.S., ranked 10th in the nation by cargo volume. (Photo Credit: Baton Rouge Chamber of Commerce)

Perhaps that's why Kellogg's North America Company recently signed a lease to move into the Sealy-Ashland Distribution Center in Gonzales, LA. Kellogg's has chosen to lease 75,000 square feet of space and is consolidating its local warehouse space. The Baton Rouge Area Chamber, in partnership with the Ascension Economic Development Council (AEDC), worked diligently to locate Kellogg's new Southern Regional Distribution Center, which will be used to distribute cereal, cookies and snacks to retail stores in Louisiana, Mississippi, and Alabama. The center will create approximately 30 jobs and the company is investing $500,000.

The logistics industry comprises 9% of the total number of establishments, representing over 140 companies and approximately 20,020 jobs. Water transportation, pipeline transportation, and support activities for transportation are particularly robust in the Baton Rouge region. This specialized capability stems from pipeline transportation of refined products, support activities for rail transportation, marine cargo handling, and navigational services to shipping.

More than 50 freight carriers service the area including SAIA Motor Freight Line, Roadway Express, Red Ball, Consolidated, Jones Truck Lines, and Yellow Freight Lines. Current employers in the warehouse and distribution industry rated the following positions as having "satisfactory to good availability:" forklift operators, machine operators, administrative assistants, accountants, and office and accounting clerks. There are two truck-driving schools located in Baton Rouge—the Diesel Driving Academy and Coastal College Truck Driving School. The Coastal College Truck Driving School also has a second location just across the regional border. There are six technical schools in the region, offering training in the following disciplines: diesel-powered equipment technology, electromechanical technology, industrial instrumentation technology, industrial maintenance technology, machine tool technology, ship-fitter fabrication, welding, and outdoor power equipment technology.

Important trends in the logistics industry are higher customer expectations and the subsequent growth in demand for more services. The Baton Rouge MSA's logistics workforce has a high level of computing and technology skills, allowing it to respond effectively to new and expanding applications and devices found in daily logistics operations.

Joplin, MO: Logistics Advantage Near the Nation's Largest Retailer

With Wal-Mart's headquarters in nearby Bentonville, AK (just 45 miles away), Joplin is well positioned geographically to serve as a distribution center for suppliers who have a directive to provide just-in-time deliveries. Joplin is located within two hours of six of Wal-Mart centers, which gives the region a logistics advantage for supplying the Wal-Mart system, the largest retailer in the United States.

Joplin has an excellent location for distribution based on the population within 150 and 250 miles. A market of 5.2 million people can be reached within a 150-mile radius of the Joplin area. Among its competitors within that radius, Joplin's population is the largest. The population in the local market has as much of an influence on distribution costs as the overall population within the distribution radius, as it is far cheaper to distribute to local customers than to customers that are at least two hours from the distribution center.

The Joplin Metro area's position for serving national markets is nearly as advantageous as Chicago or Kansas City. Interstates 40 and 44 (east-west) and US Highway 71 (north-south) connect to every region in the country. Four airports within 110 miles serve the region, providing commercial and cargo service to markets throughout the world. Two Class 1 and one local railroad are important parts of the transportation system. Both UPS and FedEx offer daily early morning deliveries in Joplin and Neosho through their regional hub in Springfield, MO.

There is an available workforce of 93,668 in the Joplin labor pool. Of those workers, more than half have at least some college education, while 94% have at least a high school diploma.

The Joplin area already has several back office operations that have prepared a large pool of full- and part-time workers in this industry. Companies such as La-Z-Boy, General Mills and Owens-Corning transport their finished products from the area. In addition, there are numerous large freight companies located in the area that provide logistics services.

City of Hesperia, CA: New Rail Spurs New Opportunities in Logistics

Hesperia’s Industrial Rail Lead Track Hesperia's Industrial Rail Lead Track will serve in excess of 200 acres. (Photo Credit: City of Hesperia)

The business-friendly City of Hesperia in California's Inland Empire North is a leader in supporting the long-term development of the regional economy. Having secured $2 million in federal grant funding from the Department of Commerce Economic Development Agency, the city is ready to build the G Avenue Industrial Rail Lead Track Project, consisting of approximately one mile of new railroad lead track and a parallel runaround track. Construction is slated to begin in January 2010 and take approximately one year to complete.

Hesperia's proactive Economic Development Department, and its Redevelopment Agency (RDA), the wealthiest municipal RDA in the High Desert, are two powerhouses fueling Hesperia's current growth. The addition of the rail track, one of the city's far-reaching industrial development goals, will facilitate operations for a greater number of warehousing and distribution centers near Interstate 15. The new track will offer many opportunities for industrial users to purchase rail-accessible properties.

The thriving City of Hesperia exemplifies smart growth, maintaining a healthy balance between population and development. The rail project is guided by Hesperia's efforts to create sustainable development that includes locally created partnerships and focuses on regional solutions for economic development. It is tied closely to Hesperia's strong commitment to grow its economy, attract new businesses and development, and provide jobs for its residents.

The completion of this project will stimulate the development of 210 acres, and will indirectly impact the attraction and expansion of other businesses into the 1,300-acre I Avenue Industrial area. In addition, the project fosters entrepreneurship by making rail accessible throughout the region to smaller businesses without rail access to ship and receive goods with the use of a team trans-load facility. The city has found it is in its best interest to collaborate with local businesses to make sure they continue to be viable and successful entities.

The planned track is expected to bring economic results that will match or exceed the advantages of the neighboring, soon-to-be build-out, Foxborough rail industrial park, which has helped create many long-term jobs by attracting national and international companies.

Strategically positioned for logistics and distribution, the fast-growing City of Hesperia is conveniently situated within easy access to the logistics network that serves the combined ports of Los Angeles and Long Beach (LA/LGB), the nation's largest international cargo trade area. Hesperia is sited on Interstate Highway 15, and Highway 395, a major corridor linking Southern California with Northern California, Nevada, Oregon, and Washington to the Canadian border. The rail project will make Hesperia one of the few viable locations in Southern California able to provide new rail accessibility.

Some of the most important distribution centers in the world are regional facilities in inland Southern California markets; many, like Hesperia, in San Bernardino County. Completion of the rail spur project will provide a strong incentive for businesses that recognize Hesperia as a prime place to relocate or expand, but that otherwise could not afford a dedicated rail spur for their private use.

Hesperia's Economic Development Department also maintains an aggressive program to attract a diversity of businesses to the city, offering many services to site selectors, business owners and entrepreneurs who are looking for the right place to expand or locate. The second largest city in the High Desert, Hesperia encompasses nearly 75 square miles of space, offering an abundance of land at a fraction of Los Angeles' costs, a healthy and pleasant desert climate, and clean air quality, free from the congestion of Los Angeles and Orange County.

Luxembourg: Putting Europe at Your Fingertips

Hesperia’s Industrial Rail Lead Track

Luxembourg, located at the crossroads of Europe's main consumer markets, provides U.S. companies with many strategic advantages for conducting successful business in Europe. The country has an open, export-driven economy based on sound fundamentals that allow the government to pursue a growth-oriented and business-friendly tax policy. The availability of a highly skilled, multilingual workforce, easy access to decision makers, and efficient communication and transportation infrastructure reinforces Luxembourg's position as a competitive European hub for the export of goods and services.

Luxembourg is fully integrated into the European Union (EU) common market, yet offers commercial neutrality. It is the ideal gateway to the European market and its 500 million consumers. As much as 79% of the EU's GDP lies within a 500-mile radius—a day's truck ride.

During the past 10 years, Luxembourg has continuously improved its ability to capitalize on those opportunities by establishing itself as the European leader for contract, air freight-based, and value-added logistics.

Luxembourg is a location where companies can provide value-added services, including pre-positioning, assembly, market specific packaging, kitting, quality control and certification, documentation management, labeling, and invoicing. Cargolux, China Airlines, DHL, Kuehne & Nagel, Nippon Express, Panalpina, and Schenker have chosen Luxembourg as an operating base for value-added logistic activities.

The Ministry of Economy and Trade has developed and owns logistics parks in the immediate vicinity of Luxembourg Airport (Eurohub Centre) and major railways and highway corridors (Eurohub South). Value-added activities include third-party logistics (warehousing, packaging, processing and shipping operations), fourth-party logistics (organization of production and distribution flows, supply chain management, invoicing services), and reverse logistics (handling of overstocks, recovery, recycling and reselling of non-sold products).

Troy, OH: An Automotive Hub

The automotive sector in Troy, OH, continues to grow. Troy has become the East Coast consolidation center for Honda's parts distribution. Honda's expansion created nearly one million square feet of warehousing, repackaging and procurement operations. "[Our] success has been driven by the very unique public-private initiative that combines the efforts of the Troy Development Council (TDC) with those of the city of Troy," notes Charles Cochran, TDC president.

During the past four years, Troy has added nearly 2 million square feet of manufacturing space. New companies in Troy include Precision Aero, Clopay, Komyo, F-Tech Research & Development, U.S. Kushin, Prex and Novacel. Companies with recent expansions include Goodrich Aerospace, American Honda, Faurecia, F&P America, Hobart Brothers and Freudenburg-NOK.

To fill its new jobs, the TDC's workforce development committee partnered with area educational leaders to create an advanced manufacturing training program specifically designed to support immediate needs of the manufacturing sector. Identified as "Skill-Trac," the program already has more than 120 students enrolled in courses at Edison Community College, Sinclair Community College, and Wright State University.

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