Opening a new distribution center (DC) is a major event for any company, but—unless you're Amazon—it's typically not something that you do every month. So it's all too easy to overlook some issues or concerns that could affect the success of the facility (and your entire supply chain) for years to come.
One key to avoiding that trap is to ask the right questions. For example, at the start of the process, when you're considering general locations, these questions would be ones regarding the site's suitability from a distribution network perspective, such as how close you'll be to your customers and suppliers, how good the existing logistics infrastructure is, and how easy or hard it will be to find the right type of employees.
But what about when you have narrowed your search to a few specific sites within your target region? What information do you need to make sure you pick the best possible spot and end up with the best possible DC layout? After talking to a few experts, we have compiled some examples of the kinds of questions companies should ask themselves before breaking ground or signing the lease.
1. Are you sure you have executive buy-in? It may seem obvious that you need executive approval before embarking on a capital project like building a new DC. Yet time and time again, site selection projects are put on hold or delayed because project leaders did not get approval from high enough up the food chain, according to John Morris, who leads the industrial services group for the real estate firm Cushman & Wakefield. For example, Morris remembers one client that had to stop and make its pitch for a new DC three different times—first regionally, then to the company's headquarters in North America, and then again to the world headquarters in Europe. To make sure this doesn't happen to you, get the support and approval of someone at the C-level from the start.
2. Is everyone on the same page? When it comes to designing the building itself, you need not just an architect and a general contractor but also a team of specialists to plot out the work processes and determine the facility's layout. The facility design team should work closely with the operations, finance, and IT (information technology) or systems group to make sure it is accurately capturing the company's existing processes and business. It may also want to consult with your systems integrator and/or equipment suppliers to make sure it has up-to-date info on the equipment's specs and power requirements.
Similarly, it's critical that the design team work hand in hand with the architect, says Mike Kasperski, who leads consulting company enVista's design build team. Otherwise, you might end up having to settle for suboptimal processes or equipment simply because that's what will fit in the building. For example, the type of racking that you'd like to use might work better in a building that's designed with columns that are spaced 52.25 feet apart rather than 50 feet apart. Or the equipment that you're using may require concrete flooring of a certain thickness to ensure that it can support the machines' weight. These things can be changed relatively easily at the design phase but not after the concrete has been poured.
3. Do you have all the data you need? To determine the size and shape of the building, the design team will need access to a vast amount of data, such as annual sales, whether there are seasonal variations or spikes in demand, what your receipts are, and what types of product you have on hand and how much of it. (Some advice on the information that is needed can be found in an enVista white paper titled "Optimum Facility Design.")
4. What are the current processes in your distribution center? It's unlikely that your new facility will be an exact replica of an existing DC. However, it is still crucial to know exactly what processes are followed in the current facility and how product flows through it, says Kasperski. Otherwise, you risk leaving something critical out of the new design.
Furthermore, the information on the current processes should come directly from the employees on the warehouse floor, says Kasperski. Management, he says, is often unaware of exactly how the work is actually done. For example, employees on the floor may know that orders for a particular customer require a special process, but that information might never have been formally documented.
5. Do you expect your business to change in the next five to 10 years? We've all heard of newly constructed facilities that were out of date or at capacity the moment they opened. To lessen the likelihood of that happening to you, find out everything you can about your company's business plan for the next five to 10 years, advises Kasperski. Before you break ground on a new DC, you'll need to know what products you may be selling in the future that you're not selling now and whether they'll have different space or handling requirements. You also should know what markets you may be entering; what types of stores, channels, or businesses you will be serving; and where you expect growth to come from. For example, do you expect a greater percentage of your sales to come from e-commerce five years from now? How could the DC accommodate that? What space or equipment will you need to handle this growth?
6. Is your facility designed to be flexible? Even with all that documentation and planning, your business is bound to encounter unforeseen challenges and opportunities. Will your new facility be flexible enough to meet them? For example, Kasperski recommends making sure that your facility is designed with some free operating space. "If you fill up your DC with a whole bunch of material handling equipment," he says, "then there's no space for special projects or seasonal spikes or promotions that you may have."
Similarly, think carefully before committing to a highly automated DC, he says. While the automated equipment may save you labor costs, it may make it harder to adapt to business changes such as new products or an increase in e-commerce sales.
7. Can your existing IT system handle the new facility design? As you design your facility, it's important to know what your systems—whether they're warehouse management systems (WMS), enterprise resource planning systems, or order management systems—can and cannot do, Kasperski says.
"If you are not planning on spending a couple million on a new WMS, you'd better understand the capabilities of the current one," he warns. "Because you can design the most beautiful left-handed flapjack turner ever, but if your WMS doesn't support it, it doesn't do you any good."
8. What risks is the site vulnerable to? If companies were not already concerned about their facilities' risk of flooding, hurricanes Harvey and Irma certainly put the issue top of mind. Similarly, companies should know about the risk of earthquakes, fire, high winds, and other natural and human-caused disasters in the area.
"It's not so much that these factors get overlooked, as companies try to cut it too close," warns Carl Solly, vice president and chief engineer of the insurance company FM Global. "Sometimes, companies see that they are six inches in elevation outside of the 100-year flood zone and declare victory. But flood zones are an approximation, and flooding can get much more severe."
For this reason, FM Global currently recommends to its clients that any new facility be at least a foot outside of the 500-year flood zone.
If it's not possible to locate your facility outside of a risk area, consider what alterations can be made to the site or building to minimize the risk. In areas at high risk of flooding, for example, companies could bring in fill to raise the building up two or three feet, use flood barriers or gates, or even just make sure that product is not stored on the floor.
9. What kind of infrastructure and resources does the community have in place? Local infrastructure and resources can make a big difference in how quickly a DC rebounds from a disaster or event, Solly says. For example, what are the roads into and out of the facility like? Are they prone to flooding? What is the local fire department like; could it handle a high-challenge fire? How would firefighters access the site? If you're outside the flood zone, are you protected by a levy? If so, is that levy adequately maintained?
According to Solly, it is good practice to consult with your insurance company on possible risks and hazards once you have narrowed down your search to two to three sites.
In addition to evaluating the quality of local infrastructure and resources, companies need to find out what ordinances or regulations may apply to their new DC. For example, is there a height restriction due to a nearby airport or other local ordinances? Are there limitations on road access? What are the fire regulations in the community?
10. Who are the people in your neighborhood? Companies need to look not only at what is on the land they plan to acquire or rent, but also at what is happening on adjacent properties, says Solly. For example, are you next to a chemical plant that could release hazardous materials? Does your neighbor store highly combustible materials—such as big stacks of empty pallets—in its yard?
"There is likely no way to clearly understand the neighbors' risk or risk management plan, but it makes good sense to consider the potential based on publicly available information and make an informed choice," Solly says.
11. Have you given yourself enough time? According to Morris of Cushman & Wakefield, this is one of the most important questions companies should ask themselves before they start the site selection process. "[Not giving yourself enough time] is one of the most common mistakes, and it is certainly the most impactful," he says.
For a typical warehouse or distribution facility, Morris recommends giving yourself three months after you've selected the building site to properly vet the location and property before you sign the certificate of occupancy or the initial lease. For more complicated facilities that involve manufacturing, that timeframe can extend to as much as two years.
Many of the other problems that crop up can be resolved as long as you've allowed enough time in the schedule. If you start the process and then discover you don't have all the information you need to design a facility, you can stop and conduct a more thorough analysis ... as long as you have enough time. Likewise, if you find that you haven't gotten buy-in from all the appropriate parties, you can stop and "resell" the project ... but again, only if you have enough time. A much more difficult obstacle is adding more time to a project timeline, Morris says.