Warehouse Relocation, Site Selection and Site Selection Models
INTRODUCTION
Warehousing has been a part of civilization for thousands of years. Warehousing is the function of storing goods between the time they are produced and the time they are needed [Ref. 1]. In practice, goods are sent to storage points close to the market and are issued to consumers from these points easily and in small amounts when needed. Although warehousing was initially a means of storing foodstuffs, today it is a broad and complex issue [Ref. 3, 4]. For example, there are more than 300,000 large warehouses and 2.5 million employees in the United States alone. The cost of American warehousing is more than 5 percent of the gross national product [Ref. 2].
A warehouse is a distribution factory. The warehousing functions far exceed the mere provision of a building to protect the stored goods from the elements. Furthermore, any warehouse is a complex, constantly evolving center, which must be able to cope with a myriad of expansions and expectations and must do so cost effectively. Adequate space, customer service, favorable traffic connections with suppliers and key markets, easy freeway access, proximity to trains and airports and a qualified work force–these are only some of the factors that a warehousing study must evaluate [Ref. 5].
In order to succeed in certain demand areas, organizations must have a warehouse presence [Ref. 11]. Naturally, capital investment, operating expenses, and customer service are all affected by decisions regarding site and structure [Ref. 5]. As a result, storage should be considered as a resource. Investments in storage facilities should be identified through an initial study and must be followed by a feasibility analysis. The location of warehousing must be studied carefully prior to undertaking the other complex issues inherent in a storage study [Ref. 5].
Before a site is selected, all management levels and business entities must participate in the analysis. Unfortunately, warehouse location projects frequently are understaffed, under-funded, and fail to consider fully the entire distribution network’s current capabilities and future requirements. The process of selecting a site requires a
clear understanding of the underlying strategy to be developed and must communicate this research to all the stakeholders involved. Obtaining buy-in from all levels and departments of the organization to ensure a successful analysis and decision is necessary [Ref. 11]
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Warehouse design begins with determining the best warehouse location. The design process also includes the layout, storage methods, equipment and automated systems, source and nature of the supplies, zones, and order receiving methods [Ref. 4, 6].
Clearly, owing to its complexity, site selection is one of the most challenging and important responsibilities of logistics managers. The task of site selection literally involves art as well as science. Site selection has a major impact on logistics costs and operational efficiency. A warehouse poorly located can deal a costly and even a mortal blow to the life of an organization heavily involved in physical distribution [Ref. 2, 3, 9]. The site selection process begins at the highest strategic (macro) level and descends until a specific real estate parcel is chosen [Ref. 9]. Then the site selection process usually involves weighing priorities, determining the critical features, and eliminating inadequate sites. Since every location has advantages and disadvantages, the final selection of a site is likely to involve some compromises [Ref. 2, 3].
The first step to consider is asking why one is seeking a new warehouse site. The following are four common reasons [Ref. 2, 3]:
• Relocating to an existing warehouse operation is necessary.
• Inventory must be moved to a new location due to expanding responsibilities.
• Additional warehouse space is needed to accommodate a growing inventory.
• Contingency planning requires decentralizing existing warehousing.
Depending on which of the above reasons is the primary motive for seeking a new warehouse, the site search can assume many different forms.
RELOCATING A WAREHOUSE OPERATION
Ackerman [Ref. 3] states that the user should develop a functional outline for the supply center, which includes a review of the existing customer service needs and how best to achieve this service level. Simulating the costs of operating the center may be a beneficial tool to employ. Simulations of any kind should be employed to the highest extent possible. Finally, the user should develop a detailed plan for opening the facility to allow proper lead times and to minimize confusion during the startup phase [Ref. 3].
Although the actual relocation of a warehouse operation is beyond the scope of this research, the basics of the subject are presented in the following paragraphs.
1. To Move or To Stay This question may arise when a more desirable building or location becomes available. Some other changes in transportation or other customer service considerations may also be the reason [Ref. 3]. In the case study of this research, selecting an alternative location and evaluating potential changes in the current location are the main reasons for this question. Chapter IV furnishes necessary data about the case.
2. Initial Planning
Pre-planning is essential when building a warehouse from the ground up [Ref. 10]. Early in the planning stages for the supply center, communications, packaging, transportation, security and perishability of the stored products must be considered [Ref. 3].
3. Good Timing
A target date must be set before the actual relocation. This date may be changed, but for planning purposes a target date is essential. Short-term weather forecasts, seasonal and climate factors and seasonal inventory level variations should be considered in time to set the date. The target date can also be essential because estimating the costs of the relocation may vary depending on the proposed relocation period [Ref. 3].
4. Movement Cost Estimation
After a target date is set, an on-hand inventory assessment of that date is necessary. This estimate can simply be calculated as a percentage of the existing inventory level. An important point is to plan the moving date to coincide with a lower inventory level period or to a period when shipping activity is minimal [Ref. 3].
Additionally, how to load trucks, the cost of transferring the load, and the total time needed to move are other issues that require prior considerations. Second in importance to the question of whether or not to relocate is deciding whether to continue services or whether to suspend operations during the move. Customer service considerations and communications are priorities in a warehouse move [Ref. 3]. The final phase of relocating a warehouse always ends with opening the new warehouse and the supply center according to careful planning.
SITE SELECTION CONSIDERATIONS 1. Project Team and Site Selection Strategy
Once it is determined that a warehouse is needed, the next step is to find the right location. Proper selection of the warehouse location is a highly important and complex task [Ref. 3]. Before beginning the project selection, the organizations must assemble a dedicated facility planning team. This team should be formed of qualified personnel according to the project’s specific requirements. First of all, this team should define the factors that affect the selection of the site, including service requirements, transportation and inventory costs. The team’s site selection strategy usually consists of three levels: macro–analysis, micro–analysis and the specific site selection [Ref. 9].
The macro–analysis determines in what parts of the country the warehouses should be located and defines the significant trade-offs and constraints. The organization can benefit by using various models, including spreadsheet cost calculators, network simulators, and mathematical optimization models [Ref. 9].
The outcome of the macro–analysis should be a set of alternative scenarios, and identification of a region or regions, which will meet the site selection objectives [Ref. 9].
The micro–analysis defines a geographic area of the country to locate the new warehouses. The micro–analysis addresses the trade-offs involved in comparing the potential sites within a geographic region. The project team weighs such regional factors as zoning laws, government investment incentives, accessibility to highways, air and rail transportation, utility services, land values, and climate [Ref. 9].
Specific site analysis identifies the particular location where the facility will be. The selected site must meet the objectives. After selecting the final location, the project team must determine whether to erect a new structure or to adapt an existing one [Ref. 9]. .
2. Selection Consideration and Constraints
Once all the required data has been collected, the actual analysis can take place. The actual site selection task consists of three steps: Setting priorities, determining the
critical features, and selecting the best location among alternatives that may have both advantages and disadvantages. The final selection of a location will probably consist of some trade-offs [Ref. 1, 2].
The first step is identifying the reasons for a new warehouse location. Sometimes the reason is the need to relocate an existing warehouse because operational objectives change or because stock is increasing [Ref. 3]. The reason may even be security or transportation problems. Determining these reasons defines or narrows the search for a new warehouse location.
Selecting a site is usually difficult and finding an outside consultant may be necessary. Real estate offices, sales representatives, railroad companies, utility companies, government agencies, and also engineers are possible consultants. In addition, assigning a project manager to oversee the location selection is wise [Ref. 2, 3]. Stated succinctly, for a decision of this importance, the best method is often accepting the least risk.
Geographical factors can also substantially affect the utility of a warehouse site. Access conditions can be even more critical when a supply center uses different modes of transportation, such as rail, airways, highway, and water. While roadways offer possibilities for the most extensive geographical coverage, the ability to extend waterways and railways is usually constrained by geography. Climate is another important factor, especially for the energy costs. The possibility that climate will disrupt transportation is also a major consideration. If airfreight service is critical to the operation the service record of the nearest airport under consideration should be analyzed [Ref. 2].
Eventually, for a successful site search, carefully defining user requirements is vital. A requirement list is a very helpful guide for location decision. Selecting critical features is the next step in choosing a warehouse location [Ref.2, 3]. For example, if reaching customers rapidly is crucial, then the location should be very close to the customer center. On the other hand, if security is more important, choosing a location far from population centers will probably be a better decision. Finally, preparing a list of
alternative locations and the characteristics of these alternatives are other critical considerations.
Transportation highly influences the selection and success of warehouses and is an essential part of the warehousing concept: Goods must be brought to the warehouse and from the warehouse to the customer [Ref. 5]. All warehouses use trucks or railroads, airlines, and waterlines to perform their distribution duties [Ref. 3]. The shipping time and cost heavily depend on the warehouse location and its ability to use various means of transportation easily. Consequently, the specific delivery-time requirements of the organizations must be established before any warehouse locations are determined.
Naturally, connected to the issue of transportation is the distance of the warehouse from each customer center. Normally, the customers served by the warehouse are separated in a region randomly. Creating a model based on optimization methods may minimize the total distance from all customer centers to the warehouses. In addition, while considering the location of the warehouse, forecasting new potential customers should be included in the decision process.
The availability of a rich labor market for the alternative site has usually minor importance, if the proposed operation has a high degree of automation and relatively little touch-labor. On the other hand, labor can be very important in other warehousing operations [Ref. 3].
Taxes can be a critical competitive factor for civilian companies when the warehouse inventory has high value. Variations in taxes, particularly inventory taxes, for different sites, can make the site costly [Ref. 3]. An example of this variation may be seen in free-trade zones and in some metropolitan areas.
Safety and security reasons are also common features for choosing a location. The probability of natural disasters should be researched. Many universities, private companies or government agencies have site safety test services that may be used [Ref. 7].
Security, somewhat different from safety, usually addresses physical security, such as protection against theft. For military and government warehouses, security has more priority than for private warehouses. At times, selecting a site far from a city center may help reduce such problems. Since the value of goods stored in warehouses can be significant, all necessary precautions must be taken before determining the location.
In searching for a supply center warehouse site, finding one that fits a general construction plan is more effective than attempting to adapt construction to the site. For instance, warehouse buildings with odd-shaped walls designed to fit a railroad curve or some other site constraint are usually more costly to operate. Enlargement opportunity of the site is also a critical factor in the planning and selection processes [Ref. 2].
Public utilities around the warehouse location area are becoming very important. Utilities include electricity, water, phone, or sewerage services, etc. Utilities not only affect operating costs, but also influence the risk of spoilage.
Industrial and technological environments are other influential characteristics for warehouse locations. To have the flexibility of easily applying new technologies to the warehouses and of keeping the education level of personnel high, the location should be near industrial or technological centers.
Every site seeker should also carefully study community attitudes toward the new warehouse. This is more important for military facilities since there may be an opposition against military installations in the proposed area. In most communities today, a clean and quiet warehouse development is considered preferable to operations that may cause pollution, congestion or other conditions perceived as detrimental to a community’s quality of life. Nowadays, some communities are opposed to any new industrial development, even warehousing [Ref. 3]. This kind of opposition obviously should be considered when one selects potential sites.
Preparing a list of the various constraints is the next phase before starting to eliminate the alternatives. Economic factors are usually the most essential constraints. The most important economic factor to measure in site selection is the cost versus the
value of a new warehouse site [Ref. 2]. Since companies do not have infinite resources to invest in a warehouse, they try to satisfy their needs within their available resources.
With all requirements and critical features defined, the user should now move through the selection process [Ref. 3]. By combining all these considerations, constraints and the advice from consultants, inadequate alternatives can be eliminated. The important issue here is to crosscheck the final proposed location from multi-sources to be sure that it is the best-choice location [Ref. 3].
SUMMARY OF SITE SELECTION PROCESS
One of the toughest decisions for a logistics manager is selecting the best location to establish a new warehousing facility. No manager wants to be remembered for locating a new warehousing facility in a ludicrous area, such as the vicinity of a toxic waste dump [Ref. 9]. The first step in the site selection process is to determine the macro-location and reduce it to the micro-location. Doing this is important since it forces the analyst to pursue a specific process of elimination. First, one should determine the largest possible universe that could be considered in selecting the site. Then one must, through elimination, systematically narrow the field as specific alternatives are considered. In narrowing the location from macro to micro, the decision makers should always keep in mind the main reason for seeking a new warehouse site [Ref. 2].
Sources of information must be crosschecked with other sources so that analysts are sure about the final site. If one consultant states that a specific site is earthquake safe with a good history of durability during past earthquakes, at least one other opinion from a trustable, objective and independent consultant should also be obtained.
Other general issues to be considered are zoning, topography, existing buildings or other improvements on the selected site, landscaping, access to the site, storm and sanitary infrastructure, water, sprinklers and other fire protection systems, power, and fuel [Ref. 2]. If any of these issues are ignored, serious problems could develop in the future.
Contingency plans are always quite valuable. Aside from the preferred site, selecting an alternative site, which is almost as good and equally available, is wise. Then
in the event that the bargaining for the preferred site should fail, letting the seller discover that an alternative site exists can improve one’s leverage during negotiations [Ref. 2].
As stated previously, site selection for warehouses is one of the most important decisions the related managers ever make. Although most of the decisions are correctable, a poor choice for a warehouse location is a very costly decision to correct [Ref. 2, 3]. In conclusion, before choosing a warehouse location, priorities are set, critical features are determined and finally, alternatives are eliminated. In other words, warehouse location decisions must be taken very carefully.
Appendix A contains a Location Analysis Checklist, a useful aid in analyzing a location [Ref. 3].
WAREHOUSE SITE SELECTION MODELS
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