Where Rubber Meets the Road: How Supply Chain Logistics Shape Industrial Site Selections

By James A. Schnur, CCIM
President and Designated Managing Broker
Integrated Real Estate Solutions

Since the pandemic, businesses have become painfully aware of supply chain challenges. At the same time, the rise of online commerce presence and social media have heightened consumers’ expectations for rapid product delivery. Whether selecting a site for its manufacturing facility, for its warehousing needs, or both, a business must consider supply chain logistics in its decision.

Supply chain logistics encompasses the management of the flow, storage, and delivery of goods and services between the originating location and the place where customers consume those items.  From the acceptance of parts and materials to the delivery of finished goods, effective supply chain logistics plays a vital role in the success of an organization.

Understanding the importance of supply chain logistics in industrial site selections is critical to creating a well-thought-out strategy for finding the right location. Supply chain logistics can make or break a company’s ability to meet customer demands and remain competitive. Industrial site selections should be based on factors such as proximity to suppliers, customers, transportation networks, labor markets, and economic incentives. Companies also need to take a holistic approach to supply chain logistics and consider the entire value chain when selecting an industrial site.

Proximity to Suppliers, Customers, and Transportation Networks

Transportation costs for industries remain their largest expense. Balancing proximity to suppliers, customers, and proper transportation networks is a critical factor in supply chain logistics and site selections.

For most industries, more cost comes from transporting goods and materials from warehouse to customers versus the movement of materials from supplier to warehouse or manufacturing facility. In those cases, for efficient distribution, businesses should consider to locate near the largest concentration of their customers when possible.

Transportation networks are vital in supply chain logistics and industrial site selections. Companies need to consider the availability and quality of transportation infrastructure, such as highways, railways, airports, and seaports, based on their supply and distribution needs. With the increased speed-of-delivery expectations of customers and anticipation of business growth, companies should locate near multiple transportation options when possible. This can impact the cost and speed of transportation, as well as provide flexibility to adjust to changing market conditions, new vendors, and new distribution areas.

Labor Markets

Labor markets are another critical factor in industrial site selections and supply chain logistics. Companies need to locate industrial sites in areas with a qualified and available workforce and understand the needs of your workforce. Consider the surroundings of a location—the cost of living, the community, surrounding school systems and businesses, and accessible employee commute options (highway, bus, train).

Many distribution centers and manufacturing facilities require specialized skills such as logistics, operations management, and engineering. Companies need to consider the availability of skilled labor in the area when selecting a site, as it can impact the cost and quality of labor, as well as the ability to attract and retain skilled workers.

Regulatory Environment

Companies also need to understand the regulatory environment of the area they are considering. Different states, counties, and local municipalities have different regulations around taxes, permits, and environmental impact, which can impact the cost and timeline of opening a new facility. Having a professional tenant representative broker can help you navigate the complex nature of government regulations.

Economic Incentives

Economic incentives can also play a role in industrial site selections and supply chain logistics. Governments and economic development agencies may offer tax incentives, grants, or other financial assistance to companies that locate in certain areas. Companies need to evaluate these incentives carefully. Will the financial incentives offset the potential increased transportation costs of locating in that area? What will be the long-term impact on their operations? Answers to these questions will help bring clarity to whether that location may be right for your business.

Transportation Versus Real Estate Costs

“Location, location, location” is the mantra in residential real estate; “logistics, logistics, logistics” is fast becoming the chant for commercial and industrial properties. Families will pay more for a home in a comfortable neighborhood where they assume their purchase will hold its value. Similarly, a company should consider budgeting for higher real estate costs for a site offering less expensive and better transportation options.

You know the supply chain needs of your organization; you have determined your distribution model. But are you prepared to tackle the challenging site location planning process?  It is important to find the right tenant representative broker to work with you, one who will understand your business and your unique supply chain logistics needs, and who will work with you to find the optimal site for your operation. The team at Integrated Real Estate Solutions, Inc., with their in-depth knowledge and years of experience, are the ideal partners to walk through this process with you.

Integrated Real Estate Solutions, Inc. provides clients with the in-depth knowledge and experience that is critical to determine the right path to your next move, lease renewal, or strategic repositioning of your real estate portfolio. Contact us or call 847.550.0160 today about your needs, and put our success to work for you.

Author: Jim Schnur

Jim Schnur is the President and Designated Managing Broker of Integrated Real Estate Solutions, Inc. Jim started the firm in 2003 after almost 20 years negotiating and overseeing real estate transactions at Hewlett Packard Co. and Agilent Technologies, Inc.