Critical Factors to Consider When Developing a Cold Storage Site Selection Strategy
by Josh Bays, on Nov 18, 2020 10:34:23 AM
The lack of cold storage capacity across the U.S. has been well documented in the last several months. As consumer demand in the food & beverage sector continues to soar, vacancy rates for suitable freezer-cooler space is at an all-time low. This imbalance of supply and demand is sending ripples through the entire food and beverage supply chain as it is being felt by manufacturers, distributors, industrial real estate developers and end customers.
Site Selection Group, a location advisory, economic incentive and real estate services firm, specializes in optimizing location strategies in the food & beverage sector. While we routinely work with third-party distributors, the bulk of our work is helping manufacturers and retail/wholesale companies develop and implement their cold storage strategy. As such, we’ve identified four factors for food & beverage companies to consider as they seek to increase their storage capacity.
1. Supply chain and logistic objectives
Typically, the first step in quantifying the need for increased capacity requires a company to thoroughly evaluate their overall supply chain and logistics objectives. The overall capacity requirements of your next cold storage facility could be drastically influenced by conflicting factors. These conflicting factors include relieving constraints in the network, minimizing distance to customers, and/or proximity to future client opportunity. Addressing these factors can start to bring a company’s actual space requirement into focus.
2. Space requirement and flexibility
Right sizing your cold storage needs is not always black and white. Assessing the current needs of existing customers is usually a straightforward task, however a forward-looking analysis can be a bit murky. When looking into the crystal ball, it is important to understand how your size requirement will be influenced by the growth of your current customer base, as well as the future opportunity of new customers. Therefore, building flexibility and scalability into your real estate strategy is absolutely critical.
3. Site selection tradeoffs
In a perfect world, a company’s ultimate location decision for its cold storage facility would optimize all location factors that drive operational success. These factors include logistics, workforce, real estate, business environment and economic incentives. However, it is rare for any location to have perfect alignment with these factors. Practically speaking, optimizing location decisions is all about tradeoffs. However, investing the resources to understand and balance these tradeoffs through objective analysis is a worthwhile endeavor.
4. Self-manage versus outsource
In Site Selection Group’s experience, most companies want to thoroughly explore all alternatives before committing the resources necessary for successfully self-managing their operations. Just like the tradeoffs associated with site selection, there are cost-benefits for outsourcing your cold storage needs. Outsourcing to cold storage third-party logistics providers can offer flexibility and space scalability, but can also come at an added cost.
Determining your optimal cold storage strategy is a complicated endeavor, and It is critical to have an objective process to follow to ensure all options are considered.