Business is growing and future growth projections are strong. Current distribution centers are nearing capacity and will soon be inadequate to service future demand. Customers may be asking for faster delivery times and it is time for expansion. Should existing locations be enlarged or is it time for a new distribution center in a different geography? If it’s best to build a new location, where should it be? The following considerations are critical to the success of a growing distribution network.
Location, location, location – A state of the art highly efficient new distribution center can be a liability to your business if it is in the wrong geography. It is critical to make sure it is placed in the most optimal position to be an asset to your supply chain. An experienced network modeler will consider all contributing factors and inputs to determine the right place for your next DC. Scenarios may be built to simulate the what if questions surrounding your network and provide options and the relative cost differences. Levels of growth forecasts, service expectations, freight carrier availability, inbound sourcing, and a long list of other factors will have an effect on the optimality of the evaluated locations. A comprehensive understanding of the cost differences between scenarios will be key to wise decision making about the location of future facilities.
Design with the future in mind – The location of your next distribution center may seem apparent but is it as future proof as possible? As an example, suppose you have a North American network with customer demand that closely mirrors the US population and your lone distribution center is located on the west coast. To support the growing business you will need another distribution center within the next 3 years but significant growth is forecasted for the 5-7 year horizon as well. Modeling shows that a DC is needed east of the Mississippi River and that an optimal location would be Louisville, KY. While that may be optimal for the next 3 years, it would be helpful to know where the next two DCs should be positioned so that the eastern location does not become obsolete when future growth is realized. In this example it is likely that additional growth would show the optimal two locations in the northeast USA (NJ/PA) as well as the southeast USA (GA/TN). Therefore, it would be wise to consider placing the next DC in either of those locations as opposed to Louisville, KY. A properly performed network analysis that plans for the future through a breadth of scenarios and growth sensitivities will ensure that your new distribution center will not become obsolete in the near to medium term.
Just the right size – Now you know where your next distribution center will ideally be located, but what size is appropriate for your business? You want to make sure it is accurately sized to handle the optimal level of throughput and inventory to benefit the overall network. A properly conducted network analysis will provide high-level DC sizing based on existing network square footage per pallet calculations and the level of expected inventory turnover. A more detailed inside-the-four-walls master planning effort may be needed to precisely measure the need as sizing is sensitive to the clear height of the building, the types of material and storage handling equipment used, and need for ancillary space among other factors. The results of the network analysis will sufficiently estimate the space need and set the course to finding or building the ideal fit.
Introducing a new distribution center into the network is a large undertaking of time, resources, and capital investment. It is always wise to spend a fraction of that expense on the due diligence to make sure it is in the right geography. A professional network analysis can answer those questions and provide the confidence needed to proceed with future expansion.
—Eric Payne, St. Onge Company
