A Quick Guide To Strategic Siting

April 15, 2008
A look at the decisions manufacturing executives need to make when considering new locations.

The sluggish economy and looming recession shouldn't prevent manufacturers from relocating or expanding, if the time is right. It also doesn't mean companies should stray from their tried and true site selection processes. When conditions are uncertain, the greatest risk is to assume there will be a surplus of sites, buildings, workers and support services available, and that the company can afford to delay decisions and take shortcuts, according to Kate McEnroe, principal of Kate McEnroe Consulting, a firm that specializes in site selection and business location.

She notes that creating and sticking to a strong decision-making process, which can take as little as a few weeks, saves time and money. The following is a basic outline McEnroe shared with IndustryWeek that manufacturers can follow when considering a site expansion or location.

Keep It Simple

A site selection process doesn't need to be complicated. One of the keys to success is focusing on issues that will narrow the field and distinguish one place from another rather than simply collecting a laundry list of data without a plan to apply it. In general, most projects can move forward by:

  • Defining required and preferred criteria and setting a realistic timeline
  • Creating a format for organizing and analyzing data
  • Gathering objective data
  • Eliminating areas that fail to satisfy required criteria
  • Ranking the remaining areas on their ability to satisfy preferred criteria
  • Visiting short-listed communities to add qualitative assessments of sites, workforce and business operating conditions
  • Conducting property and incentive negotiations.

Once the weed-out process is completed, it's time to customize the criteria beginning with a blank sheet of paper. While there's mountain of data to consider, too much information can make it difficult to maintain focus on the project's purpose. To that end, location factors that are easiest to measure often get more attention than those that are less quantitative, but equally important.

That's why it's important to remember that criteria and data are two different things. Criteria identify conditions to be met, while data, either statistical or anecdotal, measure how well those conditions are met.

Some of the questions to ask that will lead to the right criteria list are:

  • What local workforce skills are crucial to our success and in what quantity?
  • What geographic limits do our inbound and outbound logistics considerations put on our search area?
  • What are our financial objectives?
  • Who or what do we need to be close to, and how close is close enough?
  • What physical environment do we require in terms of site, utilities, and support services?
  • What risk factors do we need to avoid?

By developing criteria in this manner, a company is forced to challenge assumptions about what is required and what is merely convenient or familiar. Some examples of how this can play out in a location study are:

Community size. Defining the size of the skill base required rather than immediately establishing a minimum population threshold can lead to including communities that would otherwise be overlooked.

Competitor presence. Competitors can either be a source of trained labor or a threat to workforce retention, depending on an honest assessment of your company's training program, relative pay rates, job design and working conditions.

Creating a realistic timeline is also an important part of establishing the project criteria. This is where the adage "you can have it good, fast or cheap: pick two" applies to site selection. Great opportunities are often overlooked by companies that impose a time-related restriction on a project, such as requiring an existing building.

Create a Format for Analysis

Knowing that information in a location study can come from many different sources and often in very large quantities, creating a framework at the outset for the factors that will be used to evaluate the criteria puts more focus on the data-gathering efforts.

By using a tiered approach manufacturers can organize factors according to how critical they are in moving the project from one phase to the next. The first tier could consist of pass-fail criteria. For example, surveys of the most important factors often identify freeway access as one of the top five location criteria. These results are absolutely accurate but misleading.

The reality is that when access to an interstate is required, only those areas with that access make it to the search list. After that condition is met, however, that factor is no longer useful in making further judgments about which communities to eliminate or retain for further analysis. Additional tiers are designed to successively raise the bar that areas must meet in order to survive to the next round of analysis, moving from factors required for the project, to those preferred for the project, and finally to those that fall into the category of "all things being equal."

Gather Only the Data You Need

Databases and economic development organizations have proliferated to such a great extent that gathering statistical data is in some ways the easiest part of a location analysis, and it is a key part of working through the process of elimination. Demographic and salary databases are available for purchase; state and community Web sites provide a wide variety of input, and calling a development organization directly will result in a flood of information sent via every means possible.

One of the most important tips to keep in mind when gathering data is to be aware of the averages. Comparing average wages, for example, is sufficient for a first-tier elimination, but at later stages in the process it is far more effective to focus on prevailing wages for two or three companies that would be direct competitors for labor. The same is true for average rental rates, average tax rates, average education rates and other factors.

Another tip is to be wary of assuming that Web site information is complete and always up-to-date. Missing announcements such as the sale of an existing building, a new project that will increase labor competition, or a plant closing that would make a trained workforce available can make all the difference in the experience your company would have in the area.

Time for a Visit

The proliferation of statistical databases and economic development Web sites makes it tempting to try to reduce the site selection process to a mathematical equation. But once the first and perhaps second tier criteria have been satisfied it's essential to augment the statistical comparisons with qualitative and anecdotal input, and community visits are often the best way to flesh out the analysis.

Statistical databases, consultants, real estate professionals and economic development organizations are designed to provide quick responses to project inquiries, but some of the best information can come from people and places that may not be able to drop everything and respond to a manufacturer's timeline. The one part of the schedule that can't be completely controlled is when input from other companies will be available -- yet this can be the most valuable information in making final decisions.

Make the Deal

In most cases, it is wise to enter into negotiations with at least two alternatives, preferably in different communities or in different states. If the selection process has proceeded in an organized fashion, the final two candidates are often close enough in their ability to satisfy the project requirements that the outcome of the negotiations will influence the final decision. Negotiations work best when property and incentive negotiations are co-coordinated, preferably with the same point person working on behalf of the company. The local landlord or land owner and the local economic development organizations should be motivated to act together to create a competitive offer.

Once a decision has been made, the company should retain control over how and when the information is communicated internally and externally. Allowing a community to participate in the public announcement and be recognized for support they have offered is a wise move for a company that will be a long-term corporate citizen, and will raise the local profile for future recruiting.

States, regions and communities want the project, and they are investing their resources to provide information that will convince a manufacturer that they can meet its needs.

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