Benefits of Conducting an Early Favorable Area Study

By Jonathan Gemmen, Senior Location Consultant with Austin Consulting

For several decades, corporations have compressed the timeline on which they execute the site selection and construction process. We’ve seen that most firms want to minimize the window between the date when their competitors know of their future expansion and the date when production starts. Every day that the market knows of the proposed expansion, is another day they can prepare for and adjust to the upcoming increase in production capacity.

Even coming out of the Great Recession, the desired timelines to be up and running remained tight. Once a company commits to expand, they want to move quickly. This explains why clients are overwhelmingly drawn to viable existing buildings and certified or pad-ready sites, those that can demonstrate that their development can happen quickly. The caveat being: once a company commits to expand.

The last seven years have brought significant economic uncertainty. Each concern, whether perceived or actual, has led to few corporations being totally committed to adding a new production facility in the near-term.

During this period of uncertainty, a tension played out within many boardrooms. In 2009, with interest rates and materials costs reaching some of the lowest points in recent memory, a strong case could be made to move forward. Likewise, the counter argument was made that, like a new dress or flat screen TV, just because something is “on sale” or a great deal, does not mean it’s necessary. Without a consensus of continued sales growth on the horizon, too often, it was decided that the risk was not worth taking.

As the national economy slowly recovered, interest rates remained low, while oil prices (up until the last few months) and other commodity prices headed toward pre-recession levels. This resulted in the concept of facility expansion plans rarely having full consensus among leadership. More often, expansion plans were modest and though moving forward, were not moving “full steam ahead”. It was much easier to take the smaller step of adding onto existing facilities. Therefore, it’s no surprise that on-site facility expansions continue to account for a higher percentage of job growth and capital investment.

The silver lining in this trend of indecision is the opportunity to work with clients who have expansion plans, but who did not need to be up and running tomorrow. Often, they know that adding another production facility is inevitable, yet they have not established a firm start-up date. Some of these firms have engaged in supply-chain and favorable area analysis to understand in which region of the country the next expansion makes the most sense. These principals then have the luxury of sleeping on the idea for many nights, rather than waiting and being forced to make a quick decision. By conducting the broad analysis early, principals give themselves time to mull over the numbers and begin to process the tangible concept of opening their next facility.

As the favorable area study unfolds and as a start-up date becomes clearer, preliminary facility design layout and estimating can begin, relative to certain regions of the country. Appropriate considerations can be made for the facility, such as climate and regional geography. This preliminary work allows principals to see a conceptual facility layout and have a finer point on the proposed facility’s estimated cost. All of this information drives the discussion of the project to a more realistic and tangible outcome.

When the same conversation of “do we” or “don’t we” carries on for years, using the 60 days between board meetings to model a future expansion helps to drive the next discussion forward. Knowing within a 150-mile radius where the expansion would take place, in addition to having preliminary building elevations and a conceptual layout in-hand, helps take it out of the theoretical into the plausible.