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PMay 27, 2014

Planning Your Facility: In the Right Place

Every year billions are spent by companies embarking on a location for their business.  Yes, businesses are still investing in bricks and mortar!  But how one conducts site selection could have far reaching implications on overall strategy.  Far too often we hear stories of companies that selected a site because they thought “that was all that was available at the time” or “it came with the greatest set of financial incentives” or “we think the CEO would want to be close to the golf course”.  While those factors are important, it’s more important to construct a balanced scorecard so that all strategic factors are evaluated, based upon their appropriate weighting.  There will be plenty of time to delve into the tactical details of a site’s regulatory requirements and local politics.  We suggest a focus upon:

shutterstock_133067006The Customer:  A scorecard should begin with the customer.  Retail businesses need to be visible and safe to access, service businesses need to be within a short commute to the target market and manufacturing needs to be accessible to major roads, rails and ports.  A thorough examination of the new location should always begin with asking the question, “Will this location serve as a competitive advantage for us and for our client?  Can our location give our customers a competitive advantage?”

We recently assisted a major industrial company who decided that their customers could lower their cost basis if the manufacturing facility was placed in a market that dramatically reduced shipping costs.  They saw our selection of a site near the Port of Wilmington as one that would not only put them closer to customers but would actually reduce their customers’ cost of shipping.

Similarly, we can reflect on the decision of a Philadelphia based law firm who wanted to make their service simpler for their customers who were traveling back and forth to Delaware from the law firm’s Philadelphia headquarters.  They ultimately selected a Class A office suite in Wilmington, DE.

shutterstock_132830531The Culture:  It is common that at least 50% of a company’s annual overhead is comprised of personnel expenses.  Therefore, a site that can improve productivity or quality of life for your employees should be part of the equation.  Great companies are gravitating towards great places as a way to support this strategy.  Yes, you will need to find a site where there is a highly trained workforce.  But once that is established, we highly encourage you to consider putting the site to the, “What will it do for our people” test.  As an example, have you considered the commute?  The cost of an automobile lowers your employee’s pay by approximately $13,000 annually.  Therefore, finding sites that are walkable, bikeable and accessible to public transportation should be considered.  In addition, judging the surrounding amenities is critical.  Can your staff leave the office and take a walk?  Can they meet friends for lunch, by foot?  Can they see nature to reduce the stresses of the day (no, the storm water pond in the middle of a parking lot doesn’t count)?  A 10% improvement in productivity because of the site can have an astounding impact on the bottom line.

We recently worked alongside a site selection consulting group who located a Canadian banking company along Wilmington, Delaware’s riverfront.  They selected a site that required the rehabilitation of an old warehouse because it fit the 30-something culture they were looking for, it was immediately accessible to I-95 and it was adjacent to public transportation.

Check out my blogs on the impact of place: https://www.ediscompany.com/blog/developing-place-a-case-for-economic-development/

shutterstock_182175542The Cost:  There is no doubt that costs are important. Some firms see real estate as a long-term strategy and have land and buildings on their balance sheet.  Others are real estate averse and prefer to lease.  Regardless, the cost of the land, the entitlements (land use approvals), improvements, building and operation are critical.  Where you put your emphasis depends on your organization.  And when it comes to seeking incentives from landlords, sellers or municipalities, it is clear that incentives to offset costs can be a helpful shot in the arm.

As an example, when we work with manufacturers, they are most sensitive to locating in municipalities that offer incentives with lower energy costs. Professional services firms often look for incentives that will lower their rents so that they can over-invest in designs that support their brands.  And start-up companies often look for regulatory and tax relief to help them reach a stable business platform.

While seminars are given and white papers are written daily on the topic of site selection, we hope to simplify the topic by suggesting you create a balanced scorecard to match up your business strategy to the candidate sites.  And we strongly suggest that “gut”, “search exhaustion” and “CEO drive time” give way to “Customer”, “Culture” and “Cost”.

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