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Logistics is playing an increasingly important role in site location decisions. Among the issues is the decision to be close to sources or close to customers. In many cases, it is the customer service side that is driving the location decision on distribution centers (DCs) and warehouses. That has led to a regionalization in distribution networks as companies strive to position DCs close to their major markets.
A phrase that was repeated more than once at the Logistics Development Forum in Sundance, Utah was “five to fifty five.” It refers to the goal of having distribution centers, and often, manufacturing and assembly facilities within five minutes of highway access – five minutes away from getting their goods moving at 55 miles per hour.
A driving force in site location is shipping costs. Steve Ellett, principal and practice leader at Chainalytics, noted that 80 percent of truckload transportation cost is distance. So proximity to sources (including ports for imports) on inbound shipments and customers on the outbound side is critical.
DCs are costly to locate and operate, said Robert Leak, partner in Leak-Goforth Company. They don’t make money, he said, they are supported by sales and profits. And, he cautioned, no amount of incentives can make a bad location good.
Leak wasn’t dismissing incentives in the case of a DC location, but, as a number of speakers noted, incentives might look a little different. One incentive that was repeatedly mentioned was training. If the available labor pool in a region doesn’t have the specific skills for logistics and supply chain management operations, training is important. Many successful site location projects have included a collaborative effort among local economic development, government, educators and businesses to identify and fill training needs.
If it sounds like a lot of work for a small number of jobs (a few hundred vs. thousands that might be employed by a manufacturing plant), there’s good news. Very few of the positions are filled by relocation. That means nearly all of the hiring is local.
Another factor the industry has not done a good job of measuring is the economic impact of distribution operations. Direct employment numbers are easy enough, but a rise in logistics operations drives a need for ancillary services which tend to cluster near their customers. And, a good distribution location will attract more DCs, providing a density that makes the region attractive to support services like transportation.
All of this is good for attracting other target industries such as manufacturing, life sciences, etc. – all of which need logistics support.