The Warehouse or the Where House?

The Warehouse or the Where House?
Long before the diggers arrive on site, the wise logistics operator will have committed a great deal of time, effort and energy in deciding just where to locate the new warehouse. Anyone contemplating a move without thorough planning and research however may find they are stuck with a white elephant that may adversely affect the business for years, or maybe for decades to come. Laurie Sice from sbh considers the various factors involved in reaching the most informed and sensible decisions when considering a new storage facility.

“Sharp-eyed readers will have noticed in the introduction that we referred to the ‘most informed and sensible decisions’, as in reality that is all one can hope for. There is no ‘right’ decision, because when considering a new capital project such as locating a warehouse, the team responsible will be faced with a number of conflicting factors which may each favour different locations. Their skill will lie in their ability to judge and evaluate the relative importance and risk attached to each factor at that time and to decide on the trade-off value each represents. In short, whatever is decided will have a large element of compromise.

To move or not to move?
In many cases however where a company has decided that relocation to a new site will provide the extra space needed, it is worth taking some time to examine what could be done to avoid, or at least postpone, a move. Even the most efficiently organised move will involve heavy costs, upheaval and disruption to business and the loss of some key staff. If these problems can be avoided through better use of the existing site, the commercial advantages may be critical. Among the strategies worth considering are extending the premises to provide more storage space, and examining the storage medium to see if higher density storage can be obtained if stock holding is the issue.

A local storage facility to handle seasonal or long-term overspill might ease the pressure. Increasingly companies are investing to make better use of the cube space by installing mezzanine floors, or some of the more advanced automated storage and handling systems such as Carousels and Lifts that use overhead space for storage, particularly over marshalling and dispatch areas, while leaving the floor level free for production, assembly or other functions.

Know your warehouse
Given that the new location is imperative, the first step is to determine the role the facility will play in the company’s current and future logistics scenario. A detailed dossier on the warehouse, its parameters, role within the company and function will provide essential information that may rule in – and rule out – potential geographical locations or specific sites.

The ideal warehouse should be able to accommodate your current levels of business, yet have the flexibility to adapt in years to come; it should have low running costs, with the latest cost-effective heating, lighting and risk management fire engineering systems; materials will be durable, low-maintenance and aesthetically pleasing, and it will incorporate a range of other features individual to your business needs. And the occupier will want to measure the benefits for business in terms of costs, customer delivery performance and other key performance indicators.

Each business will have its own unique set of requirements, but most projects will need to address the following factors in some detail:
• It should provide a best fit solution for the business in terms of resource, costs and location relative to manufacturing, assembly, import/export locations and geographical customer distribution
• The overall size and dimensions required, based on the usage pattern – whether the unit is for storage only, order preparation and fulfilment, a bonded warehouse or cross docking.
• Nature of materials to be stored, as for example chemical and hazardous products may need to be sited further away from other buildings than non-hazardous products.
• Volume and frequency of goods arriving and being dispatched will affect access – both from the nearest highway and into the building via loading bays.
• External vehicle storage, reflecting staffing levels and the number of goods vehicles expected on site.
• Staff levels and facilities: the modern warehouse will need to accommodate offices, in some cases laboratories and test areas and increasingly a high standard of staff facilities including canteens and rest areas.

Transport issues
With high and increasing fuel costs, road congestion and the shortage of drivers, one of the most powerful influences over the location of any warehouse will be the cost and operation of external transport. Should the site for example be closer to the manufacturing or import location or the end user – whether a factory, wholesale distribution, retail or a home delivery point? What type of vehicle is currently being used, and would a different location provide the opportunity to switch to a different, more cost effective mode? If the new location were rail-linked or close to an inland rail terminal, would this enable the business to move from road to take advantage of the potential of the growing rail freight sector? And might this be the time to consider transferring some road freight and delivery to a 3PL and cutting the cost of capital tied up in vehicles?

None of these issues will necessarily help to find the most suitable location – but what they provide will be vital in enabling the management team to assess the viability of a short list.

Traffic routes
Despite the best efforts of many local authorities and regional groups, the majority of warehouses and potential sites are located within a few minutes’ reach of the central “H” motorway network formed by the M1, M6, M42 and M5, and to some extent the M4. Haulage vehicles can reach the motorway network in a few minutes where conditions permitting, they can travel at high and predictable speeds, reaching most of the country within a few hours.

Nevertheless, if being close to a point of import is strongly advantageous, locations close to the M3 near Southampton, the East Coast for Felixstowe or the M180 serving the Humber and Immingham zones, or alternatively close to the Channel Tunnel, may be worth considering, and if air freight plays a significant part in good movement being within easy reach of the relevant airport will be an important factor.

Land and build costs
The cost of land – either to rent or purchase – is such a significant factor that it can often outweigh less easily identifiable or tangible factors, such as improved customer service or finding the most suitable location for the size of the premises required.
But there is no doubt that the cost of land, which is higher in the UK than elsewhere in Europe, is a prime factor.

Currently West London, with rental rates running at between £6.50 and £8.50 per ft², is more expensive than the West Midlands at around £6.00 per ft² or the North where costs are as low as £4.00 per ft². Heathrow can lay claim to some of Europe’s highest rents at well over £10 per ft². These variations can make a difference of several hundred thousand pound annually to rental costs.

Buying the land, while a sound investment in the long term, shows even greater variations, from as high a £1m per acre in Heathrow down to a third of this value in some part of the Midlands and North.

As well as focusing on the cost of construction, the plan needs to ensure that the budget takes account of the cost of fitting out the building with storage, handling and other facilities, including security and fire protection systems, as well as running costs.

The dawn of the Megashed?
Warehouses have been growing progressively in size over the past few years, both in height and footprint. Like the US, the UK market is moving to fewer, but larger distribution centres. Ultra-tall structures of 40m or more are feasible, such as Kimberly-Clark’s new 160,000 sq ft (14,700sq m) distribution centre in Northfleet, Kent, with an eaves height of almost 42.5m; while sheds nearing a million square metres have been built, such as B & Q’s new 870,000 ft² (80,000 m²) high bay distribution centre in Worksop – both projects in which sbh was closely involved.

This is not to say that such leviathans are right for everyone, but projects of this scale should not be automatically excluded if they seem to fit the bill.

Getting the right workforce
Even the most modern warehouse requires a significant number of staff to operate efficiently. Running 24/7 operations or anything beyond a 37-hour week will require both more staff and public transport systems that may enable staff to arrive and depart conveniently out of normal working hours. Paradoxically more automated and computerised operations - while designed to run with fewer staff - may need a higher number of skilled operators to handle IT and electronic engineering functions.

Naturally the major distribution centres such as Magna Park in the East Midlands, Warrington and Milton Keynes may already have absorbed much of the local labour. But with the increasing availability of labour from Eastern Europe and other areas, labour availability is becoming less of a problem in many parts of the country.

Ease of Planning Approval
Finding the right location that fits the bill is a key step, and ensuring you have suitable planning permission by choosing a local authority area keen to encourage new investment, is just as critical. A major retailer was strongly influenced in its decision to invest in a new distribution centre in Luton recently by the active support and encouragement of the local authority, providing some 400 much-needed jobs to the local community.

The Government’s Sustainable Distribution Strategy provides guidance to Local Authorities on how they should approach planning requests from business and the criteria to be applied. Each council has its own plan to show how the national guidelines are to be applied locally, and any plans submitted must be reviewed to make sure that they meet local requirements.

While each Local Authority will have its own specific policies, they will follow the core Government policy framework which will address a number of key issues. Local Authorities should allocate sites for distribution and warehousing purposes, bearing in mind road access and potential for rail and water-borne freight.

Buildings which are likely to attract high levels of freight movement should be located away from congested areas with good access to local and regional road networks.
Environmental issues of all kinds will weigh heavily for or against a project and be addressed in the local authority’s Green Transport plans. Presenting a strategy to minimise the impact of vehicles on the locality will help overcome possible objections from residents. A project employing few staff may minimise the impact on traffic and rush-hour congestion, but additional employment may be welcome in areas of high unemployment.

Getting to know your local Planning Officer early may well pay dividends. You can get a view on whether there seems a reasonable chance of approval, what specific problems may arise such as roads and access, water courses, risks to schools and hospitals and whether council will impose conditions rather than not approve the request.

No substitute for research and expertise
As with any project, having all the possible facts and figures to hand enables the management team to make more sound and well-advised decisions. However as many or most of those involved may not have tackled such a project before, there is considerable merit in seeking outside expertise at an early stage. sbh and other specialist property companies will have worked on many such projects and will be able to guide the client around some of the more abstruse pitfalls and enable them to benefit from others who have followed a similar path.

June - 2008