DC Velocity - January 2017

BY JOHN H. BOYD

SITE SELECTION Special Report

THERE IS A COMPLEX WEB OF FACTORS THAT INFLUENCE where a company chooses to locate a warehouse or distribution center (DC) and how it chooses to operate it. These factors can vary depending not only on the company’s own individual business needs but also on economic conditions and trends in the marketplace. The following are four significant trends that our clients say are affecting how they look at their distribution site selection and operations.

1. FOCUS ON COSTS

Costs have always played a large role in deciding where to locate a distribution facility. But in the face of uneven growth and economic uncertainty on both the global and domestic fronts, many cautious companies are keeping an even closer eye on costs. Hot-button areas include the rise of temporary labor staffing, which was expected to increase by a robust 3. 5 percent in 2016, and industrial rents for warehousing space, up 8. 6 percent nationally and well over 10 percent in markets like New Jersey, South Florida, and California’s Bay Area.

The comparative cost of doing business in terms of labor, land, DC construction, power, and taxes can vary dramatically, even within the same geographic region of the country. For example, Exhibit 1 compares the cost of operating a representative distribution warehouse in various locations throughout the vast consumer markets in the northeastern United States and eastern Canada. Annual operating costs range from a high of $21.3 million in the Meadowlands of northern New Jersey to a low of $13.4 million in eastern Ontario—a differential of over 30 percent. (All figures are in U.S. dollars.)

Companies looking to keep costs low, then, may be tempted to locate their warehouse or distribution center in a lower-cost area. For example, the Boyd BizCosts analysis shows that the least costly location for a distribution center in the northeastern part of North America is eastern Ontario, which is located

As companies decide where to locate their
distribution facilities, they must take into account
big changes in costs, technology, customer
demands, and global economic conditions.
Changing times

This is a slightly updated version of a story that first appeared in the Special Issue 2016 edition of CSCMP’s Supply Chain Quarterly, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media’s DC VELOCITY. Readers can obtain a subscription by joining the Council of Supply Chain Management Professionals (whose membership dues include The Quarterly’s subscription fee). Subscriptions are also available to nonmembers for