Top Mistakes Manufacturers Make in the Site Selection Process
by Josh Bays, on Apr 23, 2019 3:24:51 PM
Site Selection Group, an independent location advisory, economic incentives and real estate services firm, completes more than 100 corporate projects per year for a variety of deals including manufacturing plants, distribution centers, headquarters, call centers and data centers. Although we counsel companies to approach site selection in an objective and process-driven manner, we have seen companies make unnecessary mistakes as they navigate their expansion, consolidation or relocation projects. As the old saying goes, you learn more from your mistakes than your successes.
In an attempt to save companies, especially our manufacturing clients, from the mistakes that we’ve witnessed their predecessors make over the years, we’ve compiled the top five mistakes we routinely see manufacturers make in the site selection process. Consciously eliminating these mistakes from your next site selection project will result in more effective location decisions.
1. Assembling an incomplete internal project team
Properly navigating the site selection process can be a complex endeavor that requires a high degree of cooperation and coordination across multiple disciplines. Although most manufacturers understand the need for vendors to possess the skill sets along the entire value chain of site selection, some companies make the critical mistake of not applying the same philosophy when assembling their internal team. Whether it is confidentiality concerns, lack of resources or siloed business units, we frequently see key stakeholders missing from our clients’ internal teams.
Based on Site Selection Group’s experience, a complete project team should include stakeholders from operations, supply chain, finance, human resources, real estate and tax. In addition, it is imperative that all stakeholders be informed throughout the entire process even though their individual involvement might ebb and flow as the project progresses. Furthermore, Site Selection Group recommends companies designate an internal project manager that has the authority and internal respect to keep the project moving.
2. Loosely (or incorrectly) defining project specifications
Speed-to-market is a common concern for most manufacturing site selection projects. Understandably, companies are typically anxious to commence the process, but unfortunately, at times, their hastiness sacrifices the accuracy of their project specifications. Because each site selection process should be highly customized based on that project’s technical requirements, starting the process before these are properly defined (or blatantly changing specifications mid-course) can have a costly effect on the ultimate location decision. At a minimum, Site Selection Group recommends spending the proper time and resources to tighten up headcount, wage and capital investment figures, as well as technical real estate and utility requirements prior to starting the search. In fact, we often help clients engage technical design and engineering resources to aide in the process.
3. Letting economic incentives drive the project early in the process
Some companies can become enamored with the topic of economic incentives to a fault. It is natural for companies to enjoy being monetarily rewarded for creating jobs and investing capital into a community. However, the early stages of the site selection process is not the time to let economic incentives drive location decisions. Overtly emphasizing the importance of economic incentives too early can likely have a counter-productive effect on the various issuing bodies (municipalities, counties, states, utilities, etc.). In addition, it is the objective of almost all companies to have operations far outlive an economic incentives package. Therefore, there will come a time when operations are not subsidized by these incentives.
One of Site Selection Group’s core philosophies is to find the optimal locations that ensure our clients’ on-going operational successes, and to only use economic incentives to draw meaningful distinctions between a set of competitive semi-finalist locations. There is a delicate balance to maximizing economic incentive opportunities while making sound location decisions.
4. Understating the tightness of the industrial real estate market
Due to a variety of macro factors, most manufacturers have a speed-to-market concern. In most cases, the most effective way to shorten the timeline until a project is fully operational is to locate in an existing or retrofitted building. In Site Selection Group’s experience, most production-oriented projects are not able to find an existing building suitable for their operational needs. It’s not for lack of effort; rather, these buildings simply do not exist. The market for second-generation, quality, production-oriented buildings is as tight as ever.
Due to these conditions, it is not uncommon for projects to be forced to extend timelines to accommodate a build-to-suit scenario. Site Selection Group recommends that companies run an independent, yet parallel search for shovel-ready land sites. Therefore, in the event the real estate strategy changes mid-process, the company does not need to take steps backwards thus costing time and money. It is cheap insurance against a very competitive real estate market.
5. Not benchmarking existing locations in the site selection process
Site Selection Group strongly recommends companies benchmark their existing locations throughout the site selection process. There are two fundamental benefits that are derived from employing this practice. First, it enables the company to understand what options they have in expanding (or shifting) capacity within their existing footprint prior to making a new location decision. Logistics and risk mitigation notwithstanding, it is usually more cost-effective to expand an existing operation than commence a greenfield project. Secondly, it provides companies a relative sense when comparing qualitative and quantitative data points of new candidate locations. It is always easier to make sense of a new candidate location when comparing it to somewhere in which you have operational experience.