FACILITIES SIZE, LOCATION, AND LAYOUT:PROCEDURE

PROCEDURE—THE MACRO ANALYSIS (LSMP)

As Figure 2 illustrates, the macro analysis methodology is comprised of ﬁve parts:

• Organizations must envision themselves as an element of a supply chain that requires continuous improvements among all of its links, as opposed to the siloism of the past. Future competititve advantage hinges on examining the continuous improvement process as it relates to the aggregate supply chain.

• Customer satisfaction is the understanding that customers’ perceptions and expectations rather than the organization’s idea of what the customer wants, are key to proﬁt maximization.

• Network analysis is the determination of the distribution plan that will provide the customer with the right goods in the right quantity at the right time and place while minimizing distri- bution costs through the correct balance of warehouses and transportation costs.

• The strategic master plan is the expression of future space, labor, and equipment requirements in order to analyze and justify alternative plans.

• Team selection is the establishment of a cross-functional group of people, internal and external to the organization, who bring their talents to the process.

2.1. Supply Chain Needs

The vision for the future of the site and for the aggregate supply chain must address the concepts of change and integration. Customer requirements, commerce structures, and market demands ﬂuctuate faster than organizations can adapt to them. By understanding the impacts of change and integration and designing facilities around these concepts, organizations can improve chances for competitive advantage.

• Total integration: An ultimate customer focus where material and information ﬂow will be designed into the system and the supply chain will be fully optimized.

• Blurred boundaries: Traditional customer / supplier and manufacturing / warehousing boundaries will be shifted to simplify, add value, and increase responsiveness.

• Consolidation: Efﬁcient and effective transportation infrastructures will allow for high levels of customer satisfaction from fewer points along and throughout the supply chain.

• Reliability: Robust, redundant, and fault-tolerant systems will enable organizations to increase up time.

• Maintainability: A 24 / 7 schedule will mandate increased predictive maintenance and self- assessment.

• Flexibility: Addressing change in product variety and rate of new product introductions through soft, friendly systems that handle products of different sizes and weights.

• Modularity: Accommodating the change in product volumes through systems that operate at a variety of rates.

• Upgradeability: Gracefully incorporating technology, process, and methodology changes into current systems.

• Adaptability: Responding to systems requirements on the ﬂy.

• Selective operability: Operating in segments without degradation of the overall supply chain.

• Supportability: Maintaining the system while automated and nonautomated elements are brought online.

2.2. Customer Satisfaction Standards

Customer requirements are changing constantly, and the one-size-ﬁts-all philosophy is obsolete. The growth of e-commerce has affected the size (decreasing) and frequency (increasing) of orders. In the end, customer perception of quality, which may or may not be an accurate depiction of organizational quality, drives the success of the business. The needs of the customer must be the focus.

Customer satisfaction is a means by which companies attempt to differentiate their products, keep customers loyal, improve proﬁts, increase sales, and thus become the supplier of choice. Customer satisfaction is not based on what the supplier does; rather, it is based on what customers think the supplier does. Since customer satisfaction is an ongoing process of meeting and exceeding expecta- tions, organizations must embrace continuous improvement and always look toward the consumer for afﬁrmation.

How does customer satisfaction factor into the macro analysis stage of site selection? Beyond product quality and price, it impacts such processes and methodologies as:

• On-time delivery: From where is the customer order originating? Is the network conﬁguration such that the customer is receiving a shipment as quickly as possible?

• High ﬁll-rate percentage: Is the site large enough to accommodate a distribution / warehousing / manufacturing center that promptly produces, stores, and ships merchandise?

• Ability to adapt: Does the site have the potential to adapt to peak / seasonal shifts?

Customer satisfaction is achieved through an understanding of requirements and expectations. Or- ganizations should ask themselves the following questions when deﬁning their strategic master plan:

• What are the pipeline requirements and expectations?

• What is the organization’s impact on achieving customer satisfaction in the supply chain?

• How do the customers perceive current operations, processes, and resources?

• Are there gaps between what is currently possible and what is currently being done for customer satisfaction?

• What service offerings can be created based on pipeline requirements?

• How will the organization measure, track, and improve performance?

2.3. The Strategic Master Plan and Establishing a Baseline

The strategic master plan (SMP) is a seven-step process from which a baseline, or foundation on which costs are analyzed, is developed. Without a baseline, site selection is based on ‘‘crystal ball’’ methodology, and crystal balls are known to give wrong answers from time to time.

Step 1: Document the existing operation:

• What are your operations costing you now?

• What are your current throughput and storage requirements?

• How much safety stocks does your operation keep now?

• What are the documented standard operating procedures? How do they compare with what actually happens in the warehouse?

• What policies are in place to govern the acquisition, the utilization, and the disposal of resources?

• Establish a baseline against which recommendations for improvements can be mea- sured.

Step 2: Determine facility requirements for a speciﬁed planning horizon:

• What will your operations cost in the next three years? Five years?

• What will be your processing, material handling, and storage requirements in the next three years? Five years?

• Is there sufﬁcient safety stock to meet the forecasted demand?

• What are your ﬁrm’s objectives? What resources are needed to meet those objectives?

• How do your ﬁrm’s objectives take into account the dynamic, global business world?

• What is the impact of customer ordering changes on order picking requirements?

Step 3: Identify deﬁciencies in current operations:

• Are your ﬁrm’s customers requiring faster delivery, more variety, and more adapta- bility?

• Does your ﬁrm succeed in delivering on-time?

• Are existing facilities, methods, equipment, and / or labor the most efﬁcient and effective means for handling capacity requirements and forecasts?

Step 4: Identify alternative plans:

• What alternate sites and operation methods can be considered? What are the quanti- tative and qualitative issues connected with these alternatives?

• How do these alternate sites and methods reduce or eliminate the deﬁciencies in the current operation?

Step 5: Evaluate alternative plans:

• What are the after-tax costs of the alternatives? The returns on investment?

Step 6: Select and specify the recommended plan:

• What are the space, equipment, personnel, and standard operating procedure require- ments of the facility over the planning horizon?

Step 7: Update the SMP:

• How will changes in the business climate affect the ﬁrst six steps of the SMP?

Note: The process of developing a SMP is continuous; completion of the ﬁrst six steps is no cause for celebration, since your business continues to evolve. Recognize that a static plan is as good as no plan at all.

2.4. Network Analysis

Basically, a distribution network is a series of nodes and transportation links. Distribution networks can range from direct shipments from the source to demand points for job shop items to complex multisite networks. The design of a distribution network is dependent on factors such as the type of products, range and volume of products, geographic spread of service area, the level of service required, and the number and type of customers. However, since distribution is a dynamic environ- ment, it is challenged by business issues such as the global marketplace, the level of government involvement, the environment, and energy. At the same time, the customer requirements of increased pace, variety, and adaptability while reducing costs must be understood. Of course, these issues impact the internal pressures of distribution requirements to centralize, utilize third parties, improve infor- mation systems, increase productivity, and more fully utilize people. Therefore, the only way to enhance distribution excellence is to pursue the integration of distribution by applying strategic plan- ning.

Strategic planning is the process of deciding on objectives of the ﬁrm; changes in the objectives; resources to attain these objectives; and policies to govern the acquisition, use, and disposition of resources. The objective of strategic planning is to deﬁne the overall approach to stocking points, transportation, inventory management, customer service, and information systems and the way they relate in order to provide the maximum return on investment.

Strategic planning is an offensive tool designed to guard against a predictable change in require- ments, the timing of which can be anticipated. Strategic planning is directed at forecasting future needs far enough in advance of the actual requirements to allow sufﬁcient lead time to meet those needs efﬁciently. Granted, forecasting with a long planning horizon is a risky business and distribution plans based on such forecasts often prove unworkable. Nevertheless, the forecast is the best available information concerning the future, and it is foolish not to use that information to one’s advantage. In fact, the only way to survive the rapidly changing distribution environment today is to have good strategic plans that address the future needs of distribution and the factors inﬂuencing distribution. These factors are:

• Global marketplace: The global marketplace is a distribution issue. In fact, in today’s world there is no choice but to understand the global strategy implications on all distribution decisions. As shifts occur in the world’s trading patterns, this changes the distribution requirements, alters the location and number of warehouses, increases pipeline inventories, and creates new trans- portation opportunities and problems.

• Government involvement: A global trend is for governments to deregulate many activities, most notably transportation. It is important that distribution professionals understand that just as government involvement has an impact on distribution, distribution leadership has an obli- gation to have an impact on government on behalf of distribution.

• Reverse distribution: An issue that is closely tied to the issue of government involvement is the issue of reverse distribution. Reverse distribution is the task of recovering packaging and shipping materials and backhauling them to a central collection point for recycling. Handling the mechanics of reverse distribution will require signiﬁcant attention by distribution profes- sionals. Not only will they need to understand a diverse set of state and federal laws, but they will have to deal with backhauls, handling the waste packaging in their warehouses, and the customer satisfaction issue of recycling.

• Off-highway vehicles: The EPA is pushing to regulate off-highway vehicles; this effort will include lift trucks and will further push warehouses in the direction of electric vehicles. The internal combustion lift trucks that will be sold in the future will need to meet much stricter emission standards, but in many applications these vehicles will be replaced by electric vehicles.

• Energy: Another issue, like the environment, that has not been a major topic of consideration by distribution professionals is the issue of energy. Nevertheless, the cost of energy is a major concern to transportation companies. In the United States, 60% of all energy consumption is for transportation. Although these costs tend to be buried in the overall cost of transportation, any signiﬁcant shift in the cost of energy could have an impact on the costs of transportation and therefore on distribution. It is therefore important that, at least as a sensitivity issue, the issue of energy costs be viewed in making all distribution decisions.

• Pace: There exists an accelerating rate of change in all aspects of human endeavor: social, political, economic, technological, ecological and psychological. It is not surprising, then, that the reduction of lead times, shorter product lives, and increases in inventory turnover are re- sulting in signiﬁcant increases in the pace of change in distribution. Distribution must be more responsive because the demands being placed upon it by customers.

• Variety: The variety of tasks to be handled by distribution will continue to increase. Special packaging, unitizing, pricing, labeling, kitting, and delivery requirements will become the norm. Distribution will be required to perform operations that traditionally have been viewed as man- ufacturing operations. Systems and procedures will be put in place to handle information con- sistent with the desires of the customers.

• Flexibility: The most important aspect of ﬂexible distribution is versatility—in equipment, systems, and workers. The design, speciﬁcation, and implementation of versatile equipment is required to achieve ﬂexible distribution. Warehouse storage rack and material-handling equip- ment, as well as transportation equipment, should be selected with sufﬁcient versatility to handle today’s distribution requirements and, when justiﬁable, future requirements. Similarly, versatile systems have an impact on adapting customer labeling, automatic identiﬁcation, communica- tions, and documentation requirements. We never want to ﬁnd ourselves saying to a customer, ‘‘I am sorry, our system does not allow us to accommodate your request.’’ Lastly, we must have multiskilled personnel to achieve ﬂexible distribution. Overly restrictive work rules, excessive job classiﬁcations and labor grades, and insufﬁcient training have often resulted in a lack of ﬂexibility in distribution. Multiskilling eliminates barriers between tasks, and workers can better understand the implications of their performance. Throughout distribution organizations, there is a need to destroy the traditional barriers between tasks.

• Modularity: The three most important aspects of modular distribution are modular distribution assets, modular work assignments, and time modularity. The issue of modular distribution assets has to do with the expansion and contraction of warehouse space and the increase or decrease of transportation equipment. Similarly, for transportation equipment, purchase and lease deci- sions, as well as contract terms, should be evaluated while considering both the long-term and short-term ﬂuctuations in trafﬁc. The challenge of modular work assignments has to do with the daily balance of work within a warehouse. Once people have been given multiple skills, it is important to be certain that people are assigned in such a way to allow for a continuous ﬂow of materials through distribution. Lastly, to provide modular distribution is the issue of time modularity. Creativity in employee work schedules can have a signiﬁcant impact on an opera- tion’s output. Many distribution operations have been signiﬁcantly improved by adjusting work schedules so that there is a balance between the staff on hand and the tasks to be performed. Not addressing the issue of time modularity often results in distribution operations having very low productivity.

• Price: A prerequisite for the success of free enterprise is efﬁcient, effective, and low-cost dis- tribution. Although the cost of distribution is less than 10% of the price that the customer must pay, it is of the utmost importance to the customer that even this price be reduced. As a percentage of Gross National Product, distribution costs are down from a high of almost 15% to 11%, and as a percentage of Gross Domestic Product, they are down from a high of almost 18% to below 12%. Thus, it is very important that the cost of distribution be even further reduced.

• Centralization: There will be fewer large centralized warehouses in the future to replace the more numerous, smaller, decentralized warehouses of the past. There will be fewer managers and administrative people involved with distribution as integrated distribution is pursued and distribution staffs are centralized. Along with the centralization of warehouses and staffs will come the centralization of order entry, customer service, and data processing. The increased responsiveness of transportation at lower costs, the focus on the total cost of distribution, the realities of customer satisfaction, pace, variety, and adaptability—all are pointed toward the centralization theme. The trend toward centralized distribution will result in higher inventory turnover, which will in turn lead to new opportunities for automation and sophisticated infor- mation systems.

• Third-party logistics: Third-party logistics (3PL) is the utilization of an outside ﬁrm to perform some or all of the distribution functions presently performed internally. As companies better understand integrated distribution and as distribution leadership better understands the costs of distribution, there will be an increasing trend toward the outsourcing of portions of the distri- bution function.

• Information systems: Information technology is impacting everything from business to edu- cation to entertainment. It is not surprising, therefore, that information technology is having, and will continue to have, a major impact on distribution. It has become clear that all distribution documentation must be electronically transmitted and not mailed. All distribution paperwork needs to be scrutinized and eliminated whenever possible. It is important for distribution lead- ership to realize that paperwork means delays, errors, additional work, and therefore wasted time and money. Distribution information systems must be real-time and paperless and stan- dardized throughout the distribution supply chain.

• Productivity: Accountability for performance in distribution must be increased. Distribution management must establish standards, identify opportunities for improvement, measure per- formance, and take action to ensure continuous distribution improvement. The entire distribution function must realize that productivity must be increased. The option of maintaining the status quo is totally unacceptable. The improvement of distribution productivity includes labor pro- ductivity, but it goes well beyond labor productivity.

• People: Customers drive the business of distribution, but performance depends upon distribution people. Customer satisfaction results from contact with distribution people, and so an important, ongoing distribution issue remains in people. In the past, distribution people were narrowly focused, having a specialized skill or technical strength. These distribution people do not con- form to today’s distribution needs. The people needed in distribution today must adopt a broader view of distribution, a more integrated understanding of distribution, a team-based, participative organization culture, and a total dedication to the supply chain and to customer satisfaction.

2.4.1. Strategic Distribution Network Planning

Distribution network planning is one of the main areas to which strategic planning is applied. A strategic distribution network plan is developed to meet a speciﬁc set of requirements over a given planning horizon. A good plan will determine the best network that will provide the customer with the right goods, in the right quantity, at the right place, at the right time, and minimize the total distribution cost. As the number of warehouses increases, delivery costs decrease and warehouse costs increase. The opposite is also true: as the number of warehouses decreases, the delivery cost increases. Therefore, to minimize total distribution cost it is important to ﬁnd the best balance of these costs.

The objective of strategic distribution network planning is to determine a plan that indicates the most economical way to ship and receive product while maintaining or increasing customer satisfac- tion, 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 center(s) 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 3 through 6 before collecting and understanding the most important steps, which are 1 and 2. The answer to distribution network planning is only as good as the data put into the analysis. The steps taken in distribution design are listed below:

1. Document distribution network.

2. Identify delivery requirements.

3. Establish database.

4. Develop alternative networks.

5. Model annual operating costs.

6. Evaluate alternatives.

7. Specify the plan.

2.4.1.1. Document Distribution Network The steps for documenting the distribution network, identifying delivery requirements, and establishing the database can be done simultaneously. The main goal of these steps is to gain an understanding of the current system and deﬁne the requirements of the future system. In order to document the existing systems, information must be collected on the distribution centers and the transportation system. In gathering information on the distribution centers, it is critical to collect from all existing sites considered, since the study could result in making recommendations on closing, moving or expanding the facilities. The following information needs to be collected for each site:

• Space utilizations: Determine the utilization of the distribution center. This will allow you to determine the amount of physical inventory space that will be required if this facility is to be closed when the analysis is complete. It also identiﬁes how much more inventory can be com- bined into this location.

• Layout and equipment: List the equipment and layout of each facility. If you have a list of equipment available, it will be easier to determine the investment requirements of a new or expanded facility.

• Warehouse operating procedure: Understand the order picking and shipping procedures. If there are two product lines in one location, are they picked and shipped together? Understand the differences in operating methods between facilities. This may explain why one facility achieves a higher throughput efﬁciency per person. Understand how replenishment orders are placed or pushed to the distribution center.

• Stafﬁng levels: Document levels by position. Understand which jobs could be consolidated. Collect labor rates by level, including fringe beneﬁts.

• Receiving and shipping volumes: Understand the number of incoming and outgoing trucks and the number of docks. This will be important if the facility is required to increase throughput.

• Building characteristics: Collect building characteristics such as clear height, lighting levels, column spacing, etc. Collect this for the same reason as layout information, but keep in mind to review expansion capabilities.

• Access to location: Review the access to main highways. Determine whether this will have an effect on freight cost.

• Annual operating cost: Collect lease cost, taxes, insurance, maintenance, energy cost, and other facility cost.

• Inventory: Collect information on inventory turns and levels, ﬁll rates, safety stock levels, and ABC analysis. By having this information, the savings of consolidating facilities can be deter- mined. Also collect which, and how much, stock is slow moving or seasonal to help determine if it should be centralized in one location or whether public warehouse space should be used. Get future inventory goals.

• Performance reporting: Understand the performance measures for service requirements, order completeness, shipping accuracy, etc.

The following information should be collected for the transportation system:

• Freight classes and discounts: Collect the freight classes and rates used. In addition to freight classes, get the discounts by carrier or location. It is also important to understand where the discounts apply (under which parameters, i.e. routes, minimum weights).

• Transportation operating procedures: Understand how a certain mode of transport is selected and how a carrier is selected.

• Delivery requirements: What are the delivery requirements (days of delivery) to the customer in days, and how is carrier performance measured? Is order completeness measured?

• Replenishment weight / cube: At what weight is a trailer cubed out? Get this information from each replenishment point and for a typical load of general merchandise.

At the end of the site visits, a project team meeting should be held that summarizes the data collected and the assessment of each site. This assessment will give the team insight into its operation, and more than likely they will discover information unknown to management that will be useful in developing alternatives.

To document the future distribution network requirements, it is not only important to understand the factors inﬂuencing distribution but also to understand the marketing strategies and sales forecast. The following list identiﬁes questions that should be answered by marketing and sales:

• Are there any new products coming out? From where are they sourced? What is the target market area (geographically)?

• What are the ordering parameters right now? For example, what is the minimum order size? Are they changing any terms of order (i.e., charging for expedite service)?

• What is the direction of the market? (Packaging changes, wholesalers, mass merchants having more volume.)

• Are sales increasing each year?

• Are customer shifts becoming apparent? Are fewer customers handling more volume?

• Have geographic shifts emerged? Have sales increased by geographic regions?

2.4.1.2. Identify Delivery Requirements One of the key data requirements in analyzing a dis- tribution network is that of the delivery requirements (time order placement to receipt of the ship- ment). If the requirements are not identiﬁable, a customer satisfaction gap analysis must be undertaken. The gap analysis is a series of questions directed at internal staff and customers. The purpose is to identify discrepancies between customer perception of satisfaction and satisfaction requirements. At some point, the sales sharply decline because competition exceeds both your delivery and your cost (assuming equal product quality). The key is to ﬁnd the best customer satisfaction that maximizes proﬁts.

2.4.1.3. Establish Database The database of orders that are to be modeled can be established while the existing network is being documented. This information should include ship-to locations, weight of the shipments, products ordered, and the quantity ordered. Once the data are established, the next step should be to validate the data. In order to ensure that the information was transferred properly, print out a few records of invoices and compare these to hard copies. Also, it is a good idea to prepare a summary report (sales, cases sold, weight shipped) for a sanity check to ensure all the data in the ﬁles were transferred. Once the data are valid, various analyses such as ABC analysis by picks, location (geographical), volumes, and product volumes by regions of the country should be run. These reports should be used to help determine alternatives.

2.4.1.4. Develop Alternatives Once the data have been collected, the next step consists of de- veloping alternative site locations and operating methods. The input used to determine alternatives consists of site visits, future requirements, database analysis, and customer service surveys. The methods used for the selection of each site will vary.

Sites are not the only option to consider as alternatives. Operating methods must also be consid- ered. Consideration must also be given to criteria such as consolidating vendor shipments, centralizing slow-moving items in one place, keeping company divisions separate, and direct shipment by vendors. Once alternative sites are determined, data must be collected on freight rates, warehouse cost, and labor cost for the alternative sites.

2.4.1.5. Model Annual Operating Cost Modeling software doesn’t guarantee the right answer. Modeling should only be used as a tool to aid in the decision process. The real value in distribution planning is the knowledge gained from understanding the working of a company’s distribution system, knowledge on distribution planning, and the imagination to use the model in ways to really beneﬁt the distribution network. Alternatives can be close in cost but have a wide range in number of facilities; therefore, it is important to have some other criteria to judge the modeling runs, such as:

1. Central administrative costs and order processing cost: Typically, these costs increase with the number of warehouses. It takes more effort to coordinate and manage a larger network of facilities.

2. Cycle and safety stock carrying costs: More warehouses means more total system inventory.

Inventory theory supports that safety stocks will increase with the number of facilities.

3. Customer order size effects: Customers who are close to a warehouse generally tend to order more frequently and in smaller quantity than customers who are farther away. This implies that delivery costs tend to increase on a $ / cwt basis as the number of facilities increases.

4. Interwarehouse transfer cost: The more distribution centers there are, the greater the coordi- nation problems and the more likely the tendency to transfer inventory between facilities due to imbalanced inventory availability.

5. Negotiated reduction in warehousing and delivery costs: The fewer facilities, the greater their individual volume, and hence the more opportunity there is to negotiate more favorable ar- rangements for warehousing and delivery service.

No matter what modeling method is used, the overall approach should closely resemble the following steps:

• Validate the existing network: Run computer model to simulate the existing cost. Compare this cost to actual cost.

• Run alternative networks: Once the model is valid, alternative networks should be run for present volumes and forecasted volumes.

• Summarize runs and rank: Create a table to summarize cost by alternative. The table should list distribution center cost individually.

• Summarize all annual costs and satisfaction factors: Create a table that indicates by alternative all the cost and service factors.

• Perform a sensitivity analysis: Sensitivity analysis is based on the idea of setting up runs that ﬂuctuate some components of the data. This could be a cost that is uncertain or has potential to change. By modifying this single parameter, the effect on the run can be determined.

• Determine all investment costs associated with each alternative: Such as cost of new warehouse equipment required to save space, expansion, and construction cost or any building modiﬁcations such as adding dock doors. This information will be of use in the next step.

2.4.1.6. Evaluate Alternatives The economic analysis compares the recommended network plan to all alternatives. To do this analysis, you must determine all the investments and savings associated with each alternative. Costs such as new warehouse equipment, construction cost, and any building modiﬁcation should be included. Additionally, the following information must be identiﬁed: personnel relocation, severance, stock relocation, computer relocation, taxes, equipment relocation, and the sale of existing land and buildings.

The result of this step should be a return on investment of each alternative compared to the baseline. Once this step is completed, a sensitivity analysis that ﬂuctuates various costs and savings to see which alternatives are the most stable should be performed. To round out the analysis, a qualitative analysis should be performed, looking at such factors as customer service and ease of implementation. Once a conclusion has been reached, a time-phased implementation schedule should be drawn up listing the major steps involved in transferring the distribution network from the existing system to the future system.

2.4.1.7. Specify the Plan The ﬁnal step in the distribution network planning process is selling the results to top management. This must be expressed so that management can understand the impact of the strategy on the total business. This communication should express not only the ﬁnances relating to transportation and warehouse costs, but overall sales and customer satisfaction.

2.4.2. Do Not Underestimate the Importance of Distribution

Distribution is the management of inventory to achieve customer satisfaction. Today, many companies have realized that distribution is a major frontier for both customer satisfaction enhancement and cost reduction. It is important to remember that a good strategic distribution network plan is a requirement of success and that it should not be composed simply of ideas, thoughts, or possibilities whose validity has not been researched. The distribution network plan is based upon a set of premises concerning future sales volumes, inventory levels, transportation cost, and warehouse cost. Require- ments should be deﬁned, analyzed, and evaluated and should result in the development of a speciﬁc set of strategic requirements. A good distribution network plan is action oriented and time phased and keeps the ultimate customer’s requirements at the forefront at all times.

2.5. Team Selection

Once the need to identify a site is realized, an in-house selection team should be established. Facility management can make the site-selection process easier by also establishing alliances with external resources such as:

• Brokers

• Economic developers

• Government agencies

• Utilities

• Consultants

Once a prime geographical area for the new facility has been settled on and management has approved the SMP, the job of selecting the best community and site begins. This is the most difﬁcult and time-consuming part of the process; support from outside sources will help the in-house team narrow down the list of potential candidates.

2.5.1. Real Estate Brokers

Real estate brokers are typically tied into a multiple-listing service that lists all available property in an area. Many agencies also employ state-of-the-art technology so prospective buyers can see many views of a particular site without leaving the broker’s ofﬁce. Be careful to select a broker comfortable with industrial site searches; many advertise commercial expertise, but industrial requirements are different from generic commercial ones, especially insofar as environmental regulations. Remember that brokers are compensated only for successful transactions, and hard-sell approaches may or may not create pressure for the selection team.

2.5.2. Government Agencies

State and local government development agencies, as well as chambers of commerce, are reliable information sources. Economic developers are sometimes hired employees of a city or county to promote area growth; they can also be commercial real estate brokers. A good economic developer will be able to save you time by showing you only properties that meet your needs; they will also steer you away from properties that may have watershed or zoning restrictions that would prohibit locating your facility. An economic developer most likely will have important political connections that can help cut through ‘‘red tape’’ and therefore speed up the process of site selection. Since government staff is motivated to attract new industry to its area, make certain that the area is com- patible with company objectives before relying on this information source. A plus is that economic developers are usually aware of all incentive possibilities.

2.5.3. Utilities

Once a general area has been chosen, gas and electric companies can provide useful information on speciﬁc sites. Utilities are unbiased sources of advice and often work with brokers on speciﬁc land and building details.

2.5.4. Consultants

Facilities planning consultants provide an unbiased source of advice on each facet of the site selection process. With a wide breadth of knowledge and accessibility to time-saving planning tools, consult- ants make for an efﬁcient and effective means of establishing important quantitative information such as the baseline and for ‘‘ﬂushing out’’ all possible and feasible alternatives.

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