Editor’s Note: This is Part 2 in our 2-part series on locating your distribution centers (distribution center (DC)s). In Part 1 we focused on optimizing the over-all distribution network. In Part 2 we address the more specific task of finding the best site when the network study calls for the addition of a new warehouse or distribution center.

It’s a common scenario: Sales are going through the roof, but so are the pallets of product in your overcrowded warehouse where you’ve spent years just getting by with antiquated storage solutions and labor-intensive order processing procedures.

You know it’s time for a change. Management knows it too and has just completed six weeks of intensive study on your distribution network. With new markets opening in different parts of the country and more and more suppliers shipping product from beyond the Atlantic and Pacific, computer models indicate that a new distribution center (DC) is definitely in your future. But where do you put it?

Well, the good news is that by tracking inbound and outbound transportation costs, customer service levels, and other pertinent cost data, today’s location modeling software can spatially and mathematically pinpoint the optimum location of a distribution center (DC) to within an area specified by a three-digit zip code.

The bad news is that you just can’t stop there. “Three-digit zips may get you into an area,” says Geoff Sisko, senior VP of Gross & Associates, a material handling consulting firm based in Woodbridge, N.J., “but these three digits can also put you in the middle of Manhattan.” Sisko adds that warehouses and distribution center (DC)s need access to roads, railroads, ports, a dependable labor pool, affordable utilities, and—something Manhattan sorely lacks—available land, buildings, and infrastructure that can sustain a cost efficient and effective storage and distribution operation.

“These models may give you the bulls-eye, but they cannot explicitly examine trade-offs such as the savings in labor costs in one area versus tax incentives, credits, or grants in another area in pursuit of minimizing overall logistics costs,” says Chris Steele, president of the Real Estate Consulting Services Division for TransSystems, a logistics consulting firm based in Kansas City, Mo.

Mindy Lissner, senior VP for CB Richard Ellis, a global real estate services company, agrees with Steele’s assessment. As a commercial broker, she specializes in the sales, leasing, and tenant representation of industrial properties in the New Jersey area. “The goal is to help design and locate the most efficient building possible and at the same time understand where the costs are coming from, says Lissner. “To do so, you need a thorough knowledge of all of the markets of all of the sites—and location modeling software can’t do that.”

Over the next few pages, our panel of experts outlines the specific steps they take for finding the best site for a client when a network study calls for the addition of a new warehouse or distribution center (DC). Everyone is in agreement; now, let’s nail down the location.

A typical site selection process uses an educated, data-driven weighting and grading system that compares quantitative and qualitative issues pertaining to specific candidate sites.

This first step also defines the final building specifications, and you can begin your journey toward those specs by answering the following questions:

And if you have a highly automated facility, you’re going to need to specify your power requirements as well as a building’s preferred clear height. “Today’s trend is to use the cube and build 36-foot clear buildings because building a little extra height costs less compared to building wider or longer facilities requiring more foundation and more floors,” says Sisko.

But the overwhelming theme in today’s warehouses is flexibility. This is evidenced by the increase in trailer parking requirements. “With more parking, you can drop trailers and move them in and out as you need them,” explains Sisko. Additional trailers can also be used for short-term overflow storage.

It’s also helpful to have a material handling consultant create a final prototype of your proposed distribution center (DC). The prototype should include your ideal storage layout based on your company’s inventory profile, a picking layout, and should include preferred column spacing. Layouts and high-level operating procedures should already be in place before any sites are selected—this keeps the whole team focused on one plan.

Identify other criteria and prioritize each by applying a weighting system with more critical criteria given higher weights. For example, if you’re a shipper whose orders are shipped in parcels, one of your higher-weighted criteria might be to be near a UPS, FedEx, or USPS parcel hub.

“The closer you are to the hub, the later your cut-off time will be,” says Sisko. “One client actually located their facility on the airport grounds, next to a major hub for their parcel company.” In this particular example, he adds, the cut-off was 2 a.m.; and when the orders were picked up they went right to the hub and shipped out that day. Customers can presumably place orders up to 6 p.m. and see them on their desks the next day.

Good brokers typically have a feel for what’s available in their market, but they can also find available sites in multiple listing services such as CoStar.com and LoopNet.com. These sites provide information on all commercial properties—not just warehouses.

For this first pass, however, Steele suggests keeping the number of candidate sites at a manageable 15 to 20. Ultimately, timing and available resources will determine the best number of “first pass” sites that should be investigated by your team. “Keep in mind that this step is a data-driven exercise,” says Steele. “It starts to identify a short list of places that make some sense.”

For each site, apply a grade to each criterion and gather relevant data points such as rent/cost of land, labor force quality and quantity, utility costs, highway accessibility, carrier availability, state of roads, traffic conditions around the site, and government incentive programs.

Real estate professionals use a number of data sources when researching each site. Most depend on state and local economic development authorities—some even have Geographic Information Systems (GIS) analysts on staff. GIS is an excellent tool that allows users to create interactive queries and searches, analyze spatial information, edit data, maps, and display geographically referenced information. Other data sources include Internet sites such as Nasda.com, Esri.com, Globexplorer.com, and Google Earth.

Set up meetings with utility companies, carriers, and labor agencies to get an accurate determination of costs for each site. But nothing compares to seeing each site first hand. “Take detailed notes and photographs. While at the facility, take your time to talk about what you like about each facility or site,” adds Sisko.

During this step it’s important to develop detailed financial models of the remaining sites. Determine capital costs and recurring operating costs, and calculate returns on the investment and payback periods. If possible, fit the prototype design into the candidate sites, so you can more accurately gauge the site’s suitability.

Final Words of Advice: Don’t take numbers at face value. “Drive around the site and understand the story behind the numbers,” adds Steele. “Keep in mind that you’re making a 10 or 15 year decision,” says Sisko. “Let’s say you move into a 100,000 square foot building with an annual lease of $14 per square foot. Your site selection decision just translated into a 14 million dollar decision over that 10 year period. That’s huge,” adds Sisko. “You have to make sure you’ve picked the right site.”