January 13, 2022
There is much at stake when considering where to locate a manufacturing facility. The choice of a location locks in years, if not decades, of production capacity. At best, the selected location enables start-up time savings, one-time and ongoing cost savings, and long-term operational advantages relative to other location possibilities. At worst, a location can bring hidden costs, delays, and operational headaches that erode success. Hiring a qualified advisor is a good first step towards making the right location choice and avoiding an inexperienced team’s mistakes. The following is a brief list of some of those missteps, or pitfalls, commonly made by companies as they approach location decisions.
(1) Unnecessary Search Area Constraints. Location searches often begin with the simple question of “Where should we look?” Not having a systematic or defensible process to pick the initial search area can sub-optimize the location selection process from the start. An example of a sub-optimal search area choice includes looking only at trending locations. While there may be a good reason to consider these locations, one downside could be increased start-up risk due to workforce competition from other companies choosing to locate in the area. Another example of a sub-optimal search area choice includes defaulting to competitor locations, which assumes the competitor’s location choice at the time they made it would still be a good decision today. Instead, consider a broader and more comprehensive evaluation of a larger area. Generally, it won’t take much more time, and it can and has allowed for the discovery of better-suited locations. A skilled location advisor will be able to design a process that balances time constraints and search area choices appropriately.
(2) Poor Interpretation, or Lack, of Data. With the abundance of readily available location-related data in the U.S., companies might feel confident in self-performing location evaluations. However, if done by an unqualified analyst, that approach can lead to focusing on certain factors at the expense of more relevant ones. An experienced location consultant knows the strengths and limitations of the various available datasets and when and how to incorporate them into the analysis. For example, companies will often emphasize specific statistics such as unemployment when beginning to qualify a local workforce. A qualified analyst would consider unemployment as well, but only as one of the dozens of equally, if not more important, statistics. Consider a situation where one location has a high unemployment rate, and another has a low unemployment rate. It might stand to reason that the high unemployment location might be more attractive because more people are looking for work. However, by that single statistic, nothing is known about the skills of those who are unemployed. Therefore, emphasis should be placed on characterizing the skills present in the employed workforce as a measure of overall community fit with the proposed operation. A qualified location advisor can help companies sift through the data to place the right weight on the appropriate statistics.
(3) Over-Reliance on the Past. An often-used Wayne Gretzky quote is: “Skate to where the puck is going, not where it has been.” An example of skating to where the puck has been is relying only on data analytics. While examining datasets is an integral part of the site selection process, data on its own cannot account for the whole story. Experienced location consultants will also place a high value on primary or real-time data gathering activities such as community visits and employer interviews to help understand where the puck is going. These activities can uncover information that positions two otherwise comparable communities very differently. For example, we recently interviewed employers in one location that painted a picture of a more difficult hiring environment than what the data appeared to indicate. This was partly due to multiple new entrants to the labor market that the data didn’t capture. On the other hand, employers in a similar, competing location generally expressed more favorable experiences. Investments in training and workforce development partly drove this. A qualified location advisor will integrate field observations with data analysis to produce a balanced evaluation.
(4) Misguided Incentives Focus. Incentives can sometimes make or break a location decision among a shortlist of candidate sites. However, incentives generally should not be considered a primary decision factor too early in the location decision process. At all times, incentives must be framed in the appropriate context. Companies are often surprised to learn that the answer to “Where can we get the most incentives?” is often different than “Where is the lowest cost location?” Incentive assessments generally add more value after a shortlist of locations has been identified. They are especially important after specific properties along with their structural shortcomings have been vetted. To that effect, a successful strategy for some communities can be to position their sites with incentives that address the structural weaknesses of the site early in the process. A qualified location advisor can help place the true value of incentives in the appropriate context at the relevant points in time.
(5) Minimizing the Importance of Site and Infrastructure Development. Perhaps no greater hidden risk exists in site selection for manufacturing facilities than the development viability of the land and its attendant utility infrastructure. Without a thorough vetting of the development challenges associated with each site, companies may find themselves unable to meet their timeline and cost objectives at best or with an unviable location decision at worst. In one instance where two similar properties were being considered, a construction and development assessment revealed millions of additional dollars and months of extra time for site development in one location, but not at the competing location. Selecting a property quickly and without understanding the requirements of developing the property and corresponding utilities infrastructure can result in significant loss of time and hidden costs that far outweigh the investment in a thorough qualification exercise. A qualified location advisor will thoroughly address the site and infrastructure development process and risks.
(6) Lack of Timeline and Process Flexibility. Companies often face pressure to quickly make a location decision without knowing how long the evaluation process should take. While each company’s situation is different, a general rule-of-thumb is that it takes at least six months from the time a greenfield location project begins to when the property and incentives have been secured. This timeline can be shortened based on various factors and tradeoffs specific to each situation. In all cases, optimal project planning allows for flexibility and discovery throughout the process. For example, during a recent project, one community proposed a unique utilities infrastructure development solution that saved the company millions of dollars but at the cost of several additional weeks of time for evaluation and approvals. Some companies might need to forego these savings due to timeline pressure. Nevertheless, the companies that approach the site location process with timeline and process flexibility—and in a collaborative, iterative fashion—are the companies that experience optimal results. A qualified location advisor can help companies navigate the discovery process within timeline constraints.
In summary, manufacturing location choices are often more complicated and time-consuming than they initially appear and are fraught with pitfalls. Having the expertise to avoid these missteps leads to success and can pay dividends operationally for years to come.