The typical first step for manufacturers evaluating options for increasing production capacity is analyzing their supply chain and logistics network. There are a fair number of growing manufacturers rooted in the eastern half of the nation that conclude they need a more effective strategy for serving customers in the western U.S. Site Selection Group, a location advisory, economic incentive and real estate services firm, helps manufacturers develop their overall supply chain strategy, as well as weigh the cost-benefit tradeoff that optimizing their logistic network will have on their overall bottom line.
After countless, and very recent, projects helping clients optimize their ability to serve the West Coast, Site Selection Group has identified five themes that manufacturers should be aware of when developing a western U.S. site selection strategy.
1. California, Oregon and Washington are rarely realistic options
Although not a very kind acronym to our friends in California, the term “ABC” is something you’ll often hear in the site selection and economic development industry. It’s meaning, “Anywhere but California,” is an indictment the state’s high operating cost structure and burdensome regulatory climate. Those projects that Site Selection Group has located in California have been purely driven by California-centric supply chains or unique workforce requirements that favorably outweigh the other headaches of manufacturing goods in the Golden State.
Although they do not receive as much negative business press as California, Oregon and Washington rarely present a reasonable solution. In addition to their less-than-ideal operating climates, there are other western U.S. options that better serve the population bases in southern California and the Bay Area than these two states in the extreme Pacific Northwest.
2. The western U.S. has surprising limited options
Because of the expansive geography the western U.S. represents, many companies that do not have operational experience west of the Rocky Mountains are surprised to find that the list of location options to serve the West Coast is not as extensive as other parts of the country (i.e. – Southeast, Midwest, etc.).
There are three large markets in Phoenix, Las Vegas and Salt Lake City that typically appear on the radar, as well as a handful of mid-sized markets such as Reno, Nevada; Boise, Idaho; and Tucson, Arizona. When the few tier 3 markets like St. George, Utah, and Yuma, Arizona, are added to the list, manufacturers quickly realize there isn’t much screening required to develop their field of candidates. However, these field of candidates can have significantly different value propositions as it relates to workforce, real estate, business environment and economic incentives.
3. Competition abounds, but demographics are largely positive
The lack of viable options coupled with growing demand in the western U.S. has had a dramatic effect on workforce dynamics in popular markets such as Phoenix, Las Vegas and Reno. As workers with production-oriented skills in these markets typically have many employment options, most manufacturers are forced to invest heavily in their training programs. While developing and executing a successful workforce training strategy can be a costly endeavor, manufacturers in these markets are rewarded with favorable demographics. Largely speaking, population growth of critical working age brackets in these markets typically compare favorably to the overall nation, which is a positive indicator of raw workforce supply.
4. Private developers dominate the industrial real estate market in the large metro areas
Due to the high demand for industrial buildings in the western U.S., most of the large institutional developers can justify investing billions of dollars for speculative development in this region. This heightened development activity has a constraining effect on the availability of quality greenfield sites. Many manufacturers that intend on constructing and owning a purpose-build facility find the competition for land that has adequate infrastructure to be frustrating. Further, many companies feel a bit of sticker shock when comparing industrial land prices to other regions of the U.S., especially regions known for granting land to industrial projects free of charge.
5. Different shipping lanes can have a material impact on a company’s bottom line
When optimizing logistics costs, evaluating the service and cost differences of various shipping lanes is critical. In the eastern half of the U.S., especially in more densely populated areas, shipping lanes can be relatively homogenous as compared to those in the western U.S.
Due to the large geographic distribution of population centers, the lack of major highways outside of the interstate system, and topographical challenges presented by various mountain ranges, many manufacturers are surprised to find the variance in cost and service of shipping from one western market to the next.