National Academies Press: OpenBook

Freight Facility Location Selection: A Guide for Public Officials (2001)

Chapter: Chapter 4: How the Location Selection Process Works

« Previous: Chapter 3: The Critical Roles of Groundwork and Collaboration
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Suggested Citation:"Chapter 4: How the Location Selection Process Works." National Academies of Sciences, Engineering, and Medicine. 2001. Freight Facility Location Selection: A Guide for Public Officials. Washington, DC: The National Academies Press. doi: 10.17226/14594.
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Suggested Citation:"Chapter 4: How the Location Selection Process Works." National Academies of Sciences, Engineering, and Medicine. 2001. Freight Facility Location Selection: A Guide for Public Officials. Washington, DC: The National Academies Press. doi: 10.17226/14594.
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Suggested Citation:"Chapter 4: How the Location Selection Process Works." National Academies of Sciences, Engineering, and Medicine. 2001. Freight Facility Location Selection: A Guide for Public Officials. Washington, DC: The National Academies Press. doi: 10.17226/14594.
×
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Page 32
Suggested Citation:"Chapter 4: How the Location Selection Process Works." National Academies of Sciences, Engineering, and Medicine. 2001. Freight Facility Location Selection: A Guide for Public Officials. Washington, DC: The National Academies Press. doi: 10.17226/14594.
×
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Page 33
Suggested Citation:"Chapter 4: How the Location Selection Process Works." National Academies of Sciences, Engineering, and Medicine. 2001. Freight Facility Location Selection: A Guide for Public Officials. Washington, DC: The National Academies Press. doi: 10.17226/14594.
×
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Page 34
Suggested Citation:"Chapter 4: How the Location Selection Process Works." National Academies of Sciences, Engineering, and Medicine. 2001. Freight Facility Location Selection: A Guide for Public Officials. Washington, DC: The National Academies Press. doi: 10.17226/14594.
×
Page 34
Page 35
Suggested Citation:"Chapter 4: How the Location Selection Process Works." National Academies of Sciences, Engineering, and Medicine. 2001. Freight Facility Location Selection: A Guide for Public Officials. Washington, DC: The National Academies Press. doi: 10.17226/14594.
×
Page 35
Page 36
Suggested Citation:"Chapter 4: How the Location Selection Process Works." National Academies of Sciences, Engineering, and Medicine. 2001. Freight Facility Location Selection: A Guide for Public Officials. Washington, DC: The National Academies Press. doi: 10.17226/14594.
×
Page 36
Page 37
Suggested Citation:"Chapter 4: How the Location Selection Process Works." National Academies of Sciences, Engineering, and Medicine. 2001. Freight Facility Location Selection: A Guide for Public Officials. Washington, DC: The National Academies Press. doi: 10.17226/14594.
×
Page 37
Page 38
Suggested Citation:"Chapter 4: How the Location Selection Process Works." National Academies of Sciences, Engineering, and Medicine. 2001. Freight Facility Location Selection: A Guide for Public Officials. Washington, DC: The National Academies Press. doi: 10.17226/14594.
×
Page 38

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Freight Facility Location Selection: A Guide for Public Officials 29 Chapter 4: How the Location Selection Process Works Communities that want to attract freight facilities should examine themselves as corporate site selectors do before engaging in a full-scale business recruitment process. If a community is going to successfully compete in attracting a freight facility, it is to its advantagetounderstandwhatneedsacompanyisseekingtosatisfy andwhatkindofcriteriatheywillusetoselectasite.Whatarethe key things a planner, economic development strategist, or elected official should know to develop potential or develop competitive advantageforagoodfreightfacilityproject? ; Freightfacilitieswillonlyconsiderlocationsthatfulfillthe primaryobjectiveofmovinggoodsinthemostefficient mannerfrompointoforigintodestination.Thistrumpsmost otherconsiderations. ; Companiesandcarriersrarelybaselocationdecisionson personalrelationships,governmentincentives,orregional promotions.Thesefactorsareonlyaconsiderationaftera locationmeetstherequiredcriteriaforthebusinesstobe successful. ; Localofficialscanmaketheircommunitiesmoreattractiveto freightfacilitiesbyprovidingahospitableclimatethrough appropriatezoning,compatiblelanduse,transportation infrastructure,andcommunitysupport. ; Whencompaniesevaluatesites,somecriteriaarefarmore importantthanothers.Theabilitytoaccesskeymarkets, availabilityofefficienttransportation,sufficientqualified labor,andtotalcostsareconsideredkeycriteria. ; Proximityand/oraccesstomarketsisthemostimportant drivingfactorthatdeterminestheregionorcommunityin whichafreightfacilitywilllocate. Proximity and/or access to markets is the most important driving factor that determines the region or community where a freight facility will locate.

Freight Facility Location Selection: A Guide for Public Officials30 ; Freightlocationdecisionsrarelyrespondtoa“builditand theywillcome”approachbythepublicsector,yetitisalso truethathavingthenecessarysupportinfrastructurein placecanbeagreatincentiveifthelocationisagoodone andotherfactorsarepositive. Thischapterwillbroadlydescribehowcompaniesdecidewhereto placefreightfacilities–beginningwiththeearlyplanningstagesup throughfinalsiteselection.Chapter5willprovideamorein-depth lookat11keycriteria typicallyused toevaluate candidate sites. (Chapter3hasalreadydiscussedtheimportanceofthegroundwork communities can undertake and the collaboration they can build to greatly increase the potential for success for freight facility developmentintheircommunities.) Site selection: the big picture Companieswillfirstinternallyexaminetheircurrentandfutureneeds andthendevelopaplanningframeworktodeterminehowbestto externallyaddresstheseneeds.Locationplanningismethodicaland iterative,usuallyinvolvingateamofindividualswithinacompany. Site selectiondecisions typically involveat least the following four steps: 1. Definingthecompany’sbusinessstrategyandthesuccess parametersforthenew(orrelocated)facility. 2. Developingthesiteselectioncriteria,usuallyphasedinsuch awayastoallowaprogressiveevaluationfrombroadto specific,regiontocommunity. 3. Examiningthecommunitiesandsitesdirectlythroughon-site visits. 4. Involvingthreetofoursitesandcommunitiesindetailed discussionsandnegotiations. Asnotedabove,locationplanningismethodicalanditerative.Factors willvaryinimportancethroughouttheprocess.Forexample,access Location screening is methodical and iterative....

Freight Facility Location Selection: A Guide for Public Officials 31 tospecificmarkets,costs,andpopulationtrendsmaydrivetheearly stages.  A secondary screening may involve examining highway andrailnetworkstodetermineareaswithserviceadvantages.The third screeningmayevaluate total costsofoperation for thefinal candidatesites.Thefinalstagemaytheninvolvemoresite-specific issuessuchasspecificfacilitiesandthelaboravailableinaparticular community. Stages of site selection While these steps are shown above as a sequence, stages often overlap and recycle in an iterative manner.  For example, some organizationscombinethenetworkmodelingandlocationscreening stages.Othersdevelopthefinancialmodelearlyintheprojectto determine overall feasibility and then refine it based upon new knowledge throughout the process. Sometimes location selection needstocyclebacktoapreviousstage. Planningand Strategy Network Modeling Location Screening Field Validation Cost Modeling Final Negotiations andLocation Selection

Freight Facility Location Selection: A Guide for Public Officials32 Planning and strategy Thelocationselectionprocessforanyfreightfacilitybeginswiththe identificationofaneed.Thisneedmayarisefromthedesiretoserve anewmarket,tomergefacilitiesacquiredfromanothercompany,or torespondtoachangeinmarketconditions. Distributionfacilitiesareinextricablylinkedtodistributionnetworks. Achangeatonenodeinthenetworkmayhaveimplicationsupand down the entire supply chain.  As a result, companieswill usually begin site selection planning by revisiting the goals and business context for their distribution network as awhole.  As part of this process,acompanymayaskitselfaseriesofquestions,suchas: Why seek a new site? ExPAnD: To service a new market COnTRACT: To downsize into a smaller facility, fewer facilities, or merge networks CHAnGE: To adjust for changing market or network conditions Who are our customers? Where are they, and what do they want? How much of the supply chain do we wish to control ourselves, and how much of it do we wish to contract to a vendor or set of vendors? Is our goal to optimize cost or reduce time to market? How can the company best balance its customer service goals? What kinds of people do we need, and what do we need them to do? How does this balance with our capital needs? How might any of the above change over time? When might that change occur? How might this impact our decisions? How will we evaluate and adjust our decisions as time goes by? How often will we do this?

Freight Facility Location Selection: A Guide for Public Officials 33 Anyformofadvanceplanninginvolvesacalculatedrisk.Unforeseen businessevents,marketchanges,andotheroutsidefactorsintroduce theriskofsignificanterrorintoanyplanningprocess,andthemargin ofvarianceincreasesthefurtheroutthetargetyear.Nonetheless, anynetworkorfacilityplanusuallyadherestothefollowingrulesof thumb: FACILITy CHARACTERISTICS PLAnnInG HORIzOn Significantinfrastructureinvestment (suchasaportorintermodalfacility) 20+years Capitalormachineryintensive investment 7-10+years Commodity-basedornon-capital intensive 3-5years Oncethecompanyselectsaplanningtimeframe,thesales,operations, and/or supply chain staff can forecast or project the remaining strategicconsiderations: • Salesorthrough-freightvolumebytype. • Demandpointsormarketstobeserved. • Productsourcing. • Productcategories. • Numberofend(orsource)pointstobeservicedbythefacility. • Freightpricing(includingvariabilitybymode). • Facilityownershiporleasingoptions. • Anylikelyexitplanforthefacility. The time frame and forecast of these strategic considerations establish the overall needs to be satisfied by the new facility or network.Thelocationplanningteamwillusethis informationtoset overallparametersfortheproject. During the planning and strategy phase a list of criteria will be developed.

Freight Facility Location Selection: A Guide for Public Officials34 Case Study murphy Warehouses operates nine warehouses in the minneapolis-St. Paul region. When murphy Warehouses requires another facility because of customer expansion or changes in warehouse and distribution demand, the following are key requirements for purchasing another existing facility: • Facility must have access to Interstate or major highway interchanges (within 3 miles). • Facility must have on-site access to rail (reflecting murphy’s market strategy). • Facility must be between 150,000 and 200,000 square feet. • Real estate taxes in community must be reasonable. • Preference toward energy-efficient facilities. • Facility must be in good structural condition including docks, steel joists, roof, and floors. • Stormwater can be handled on-site. Other considerations are: 1) the new site should have access to the markets served and located within the metropolitan area; 2) land prices and development costs to refurbish the existing facility would also factor into location decisions; and 3) any facilities considered would have to be sound real estate investments and sellable in the future. Network modeling and analysis Timetomarketandoveralllogisticscostsareprimefactorsdriving freight facility location decisions.  As a result, the first stage for locating a freight facility is to examine the interplay between locationandfreightcosts.Transportationisalargeconsiderationat thispointintheanalysis. Companies use computerized network modeling programs or equivalentmethodologytoestimatetotalshippingcostandtimeto market forarangeof scenarios. Theseapproachesusecustomer or store locations, sourcingpoints, freight loads, fuel costs, facility operating costs, and transportation modal choices to develop Time to market and overall logistics costs are prime factors driving freight facility location decisions.

Freight Facility Location Selection: A Guide for Public Officials 35 idealized distribution center networks. Modeling programs and other analyses may evaluate a variety of scenarios, examining the sensitivity of issues such as freight volume, population growth, customerchange,sourcing,operationscosts,andfuelcosts. Linkagesandinfrastructureinanymodelingmustbecomparedagainst real-worlddata to reflectactualconditions,whichnetworkmodels sometimes have difficulty incorporating. Congestion and traffic on roadwaysmaycompromisewhatappearstobeanidealnetwork,as maypolicies thatpromotepassenger traffic takeprecedenceover freight on rail networks. Companies often need to make off-line corrections, as networkmodels do not always incorporate on-the- groundissues. The networkmodelsdonot identify final sites,butonly show recommended areas where freight facility nodes would yield the best performance. Companies typically use this information as a startingpointandattempt tofindsiteswithinareasonableradius oftheserecommendations.Thisradiusmaybelarger(50miles)or smaller(10milesorless)dependingonthenatureofthenetworkor facilitiesunderconsideration. In this process, non-transportation factors such as workforce, regulatoryenvironment,utilities,andthecostofrealestatebecome importantfactorsinthelocationsearch.Thelocationplanningteam willtypicallyconstructeitheragridoraweightingandrankingmodel that uses demographic, socioeconomic, workforce, tax, regulatory, utility,andotherdatatodeterminehoweachcandidatecommunity matchesthecompany’sgoalsrelativetotheothercommunitiesunder consideration. Thelocationplanningteam,inadditiontocollectingavailabledata fromvariouspublicandprivatesources,mayalsosubmitarequestfor Location screening Communities poised with available information or a means to readily provide information may find themselves in a better position to compete for a facility.

Freight Facility Location Selection: A Guide for Public Officials36 informationtoindividualcommunityeconomicdevelopmentagenciesif theteamneedsmorespecializedinformation.Communitiesprepared withavailableinformationorameanstoreadilyproviderequested informationmayfindthemselvesinabetterpositiontocompetefor afacility. Theplanningteamtypicallyconstructsanevaluationmatrixormodel basedonthisdata.Byapplyingtheevaluationcriteriadevelopedin thestrategicplanningphase,theteamcanobjectivelytesthowwell eachof thecandidatecommunitiesorsitesmatches thecompany’s needs.Theteammaytestavarietyofalternativescenariostoreflect changingpriorities.Theteamalsoexamineshowthecommunityor sitelocationimpactsoperatingandcostconsiderationsascompared tothenetworkmodel’sideallocation.Communitiesthatscorewellfor theteam’sidentifiedprioritiesandthatcanalsoadapttoalternative scenariosmakethe“shortlist”forfurtheranalysis. Onceacommunityorregionisplacedontheshortlist,thelocation planningteamwill furtherevaluatespecificsitesorfacilitieswithin thearea.At this stage, the location teammay seek theassistance of localgovernmentoreconomicdevelopmentofficials toexplore possiblesites,findoutaboutpermittingandregulatoryrequirements, andlearnmoreabouttransportationandutilityinfrastructure. This communicationwill allow a better understanding of the actual operating environment in the community and can also serve to begin the negotiation process for land, facilities, and public assistance or incentives where appropriate. At the same time, the company will enter into discussions with land or facility owners on selected properties toascertain: Field and site analysis Communities which score well for the team’s identified priorities and which can also adapt to alternative scenarios make the “short list” for further analysis.

Freight Facility Location Selection: A Guide for Public Officials 37 • Size,configuration,orpermittingabilityvis-à-viscompany needs. • Thesiteorfacility’sabilitytoaccommodategrowthor otherwiseadapttofuturerequirements. • Easeofaccesstoanddistancefromkeytransportation points(highwayramps,switchingyards,intermodalfacilities, etc.). • Cross-dock,ceilingheight,maximumfloorweight,number ofloadingdocks,railaccess,andothermaterialsmovement requirementsofpre-existingfacilities. • Utilitycapacity. • Siteengineeringconsiderations. • Environmentalconsiderations. • Potentialrent,purchase,andoperatingcosts. • Safetyandsecurity. This information, along with the financial analysis described below, allows the planning team to further refine the location recommendations. Cost modeling Companies will typically develop cost models during the site selectionprocesstoprovidecriticalinformationastohowwelleach scenario and/or location will provide an economic payback (and overwhatperiodof time) for theproposed investment in thenew location.Theamountoftimerequiredforthecompanytorecoupits initialinvestmentandtherateofreturnmustbecomparedagainst otheroperational investmentsthecompanymightconsider inorder toprioritizesuchinvestments.Costmodelstypicallyincludestart-up andrecurringcostsandmayalsoincludeexitcosts. Costmodelingallowsforconsiderationoftheimpactofchangingcost environmentsforfuel,labor,networkserviceperformance,revenues, and taxexposure. A location’s flexibility of useandpotential to accommodatefuturegrowthsubstantiallyincreasesthechancesthat anappropriatelocationorscenariowillbeselected.Theseanalyses therefore result in a determination of both absolute and relative feasibilityforthealternativelocationsunderconsideration.

Freight Facility Location Selection: A Guide for Public Officials38 Initialstepswilllikelybemadeduringspecificsiteanalysistowards identifying,negotiating,andsecuringincentivesfromlocalorregional governmentstoaddressanyperceivedshortcomingofthelocation ortohelpoffsetcoststhatnegativelyimpacttheprojectfeasibility. These incentives can include tax incentives, cashgrants, expedited permittingandapprovals,andotherinducements. Theproject teamwill takeextremecare toensure thatanyaction takenbytheteam,thecompany,oritspartnersisnotconstruedasa firmcommitmenttoanycommunityunderinvestigation,asanysuch premature commitment could eliminate the possibility of financial incentivesandinducements. Atthecompletionofthecostmodel,siteanalysisandnegotiations, and the negotiations for public incentives, the location planning teamwillpresenttheirfindingsandrecommendationstocorporate stakeholders. The company then decides on a course of action, completesnegotiations,andimplementsthenewlocationstrategy. Incentives, negotiations, and final selection

Next: Chapter 5: How Candidate Sites Are Evaluated »
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TRB’s National Freight Cooperative Research Program (NFCRP) Report 13: Freight Facility Location Selection: A Guide for Public Officials describes the key criteria that the private sector considers when making decisions on where to build new logistics facilities.

A final report that provides background material used in the development of NFCRP Report 13 has been published as NCFRP Web-Only Document 1: Background Research Material for Freight Facility Location Selection: A Guide for Public Officials (NCFRP Report 13)

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