Facility Planning for Success

04/01/2004

Warehouse location and condition have a great impact on a company's bottom line, and choosing where to locate is not a decision that should be taken lightly. It is a process that requires research, planning and professional advice. That's why we decided to ask the experts what you need to think about when choosing where to put one of your biggest assets.



By MARY SANCHEZ
MATERIALS MANAGEMENT & DISTRIBUTION / ASSISTANT EDITOR


MM&D would like to thank our roundtable participants for taking the time to share their wisdom on warehousing best practices. They are: John Planeta, managing partner for CB Richard Ellis's Global Logistics Group's Canadian region; Michael Bellissimo, also with CB Richard Ellis, focused on the warehousing/logistics sector of the GTA's Commercial Real Estate market; Kathleen Hutchinson, vice-president of operations, King & Benton Developments, a Toronto-based real estate company; Alastair Strachan, national practice director, industrial, Royal LePage Commercial Inc; Bob Dineen, president and founder of Toronto-based Dominion Warehousing & Distribution, which operates 700,000 square feet in the Toronto market; and Dave Luton, a Toronto-based consultant and MM&D columnist with over 30 years experience in consulting and in logistics operations.

Location, location, location

No surprise here—location tops the list of considerations in buying or leasing a warehouse. Proximity to major transportation routes—highways, arterial roads, airports, rail yards, ports—and your market, as well as a labour pool are paramount in selecting an optimal location.

CB Richard Ellis's John Planeta and Michael Bellissimo emphasize the importance of ensuring access to labour: "Locating in an area that gives access to the proper employee demographic creates a flexible environment for hiring and re-hiring, should the need arise.. .Access to public transportation routes may be a key factor in the site selection process. Decision-makers should also ensure that they know the wages associated with neighbouring businesses, as these will inevitably compete with your ability to attract and retain employees."

King & Bentons Kathleen Hutchinson focuses on transport access: "The easier it is for trucks to access the facility, the smoother the shipment of product will be. Are there limited truck access routes in the area? Are there turn lanes and multiple lane roads? Is there convenient access to major highways? What access is available to US borders?... Some areas allow for no trucks at all… Study the traffic flows around the building. Are there two many one-way streets? How congested does traffic get and at what times?”

Another question to ask yourself, says Royal LePage Commercial’s Alastair Strachan, is: Does the location offer a competitive advantage in the terms of inbound just-in-time delivery?

Bob Dineen of Dominion Warehousing & Distribution points out that there are areas to avoid – namely, residential areas. “Residents do not mix well with transportation and warehouse operations.”

This raises the question of whether you are even allowed to be in an area. Planeta and Bellissimo note that identifying the proper zoning for the type of use planned will ensure that a functional facility is selected. Many logistics, warehousing and transportation users require zoning that allows for outside storage of trailers or materials.

But in every instance, you must ensure that the municipal zoning is appropriate for your needs. Employment issues such as labour union succession rights and direct competition in the area should be identified before locating in a premises. The presence of a union or its right to operate in a certain facility may or may not conform to your existing business model.

Dave Luton adds to this point: "One issue that people tend to forget is the possible risk that they may inherit a union by default. In some areas of Canada, once a location has been unionized, the union may still retain jurisdiction on that site even if facility ownership changes. This is a highly complex area and requires expert advice."

Optics

For Planeta and Bellissimo there are also more subtle considerations in choosing where to locate: "If clients/customers will be visiting the facility, or corporate image standards are an issue for your operation, be sure to identify who your neighbours will be and what type of business they are in...Locating in run-down but functional buildings or beside heavy manufacturing may create a negative impression of your operation, while being in a building with a strong curb appeal or corporate presence may give the impression of higher prices or make your operation susceptible to theft."

Money/ money, money

Planeta and Bellissimo had this to say: "Paying too much can create a competitive disadvantage."

Bob Dineen agrees: "There is very little room to overrun your building cost budget. The market in the warehouse logistics industry is tight and if your costs are too high you will not compete."

But, Bellissimo and Planeta add, when something is too cheap you should question the vendor's motivation. If you are suspicious, look for hidden costs within the text of the lease document. There may be underlying environmental or financial issues affecting the price or the vendor that may arise during negotiations.

Size matters

The panelists agree that a warehouse should have a minimum of one dock per 10,000 square feet, and most said that the ceiling should be at least 24 feet high.

For a 3PL warehouse, Bob Dineen says "We believe that it takes a minimum 150,000-sqf facility to make money in the third party logistics business. Some feel this number is much higher. In other words, you are not going to run a public warehouse in 100,000-sqf or less and expect to make money; too much overhead needed."

Planeta and Bellissimo note that standard 53-foot highway trailers need a minimum of 120 ft from the shipping doors to the rear of the lot to allow manoeuvring room and to avoid already parked trailers.

Bob Dineen says it's important to have an accurate survey so you are sure to have enough room: "We acquired a property in Mississauga and it looked to have enough yard space as was represented by the amount of paved area. After taking possession, the landlord, who also owned the property next to us, began expansion of the building next to ours and took up a part of our yard for the expansion. We lost six feet of truck access and it is still causing us problems.”

Does the building meet your needs?

Planeta and Bellissimo point out that having the proper floor load-capacity for the type of product being stored is imperative. Insufficient floor loads will result in costly damage and repair to the floor structure. Generally, standard warehouse floors are constructed of five- or six-inch reinforced concrete slabs, with seven- or eight-inch floors being constructed for higher clear height and heavy load requirements.

Floor flatness becomes an important factor as ceiling height increases. A floor slope of one inch can translate to a product overhang dis-tance of nearly one foot if the ceilings are high enough. A floor flatness rating of FF50/FL20 is for products being stored up to 40 ft in height.

The shape of things to come... 

Planeta and Bellissimo also note that shape is just as important as size: Long, narrow buildings are usually less efficient than shorter and wider buildings. The amount of travel time associated with the 'bowling alley' warehouse layout is in most cases significantly longer than in warehouses that are shallower. Facilities that have shipping doors on the longest wall of the building will help to prevent warehouse workers from spending time driving longer distances to place products instead of loading or offloading at the shipping doors. Like-wise, having multiple corners can reduce efficient product flow through the premises.

Kathleen Hutchinson adds, "If you do have to buy a building with supporting columns, make sure that you have at least 30 ft between them."

Construction issues

There are also many signs of a poorly constructed warehouse to look out for.

Bob Dineen: "Check maintenance records for signs of poor construction. Check utility records for signs of lost heat and over-usage of hydro. High heating costs could point to a poorly constructed roof. Cracking floors could be signs of an under-spec floor. Watermarks on the floor could indicate a leaking roof. High cost of maintenance could point to poor HVAC systems."

Kathleen Hutchinson: "Always make sure that you walk on the roof. Check out the materials used, age and construction method. Find out from previous owners when the roof was last replaced or repaired. If possible, view the building after a day of rain. Check for water pooling on the floor. Also, check floor drains to make sure that they are in good repair and draining properly. Make sure that the building is not shifting. Check structural supports for signs of wear like cracks or buckling, or for signs of repairs."

Dave Luton recommends investing in professional building inspection advice because the two key factors in any existing warehouse are usually the floor and the roof.

Planeta and Bellissimo: "When inspecting a facility, ensure that it is viewed in a normal operating condition with all systems being utilized as they would be in the course of a normal business day. Try operating a few of the systems to ensure that they work normally. Make provisions in any offer or contract relating to purchasing or leasing the premises that ensures that the operating systems are delivered in proper working order and a good state of repair at time of occupancy."

Due diligence and the environment

Environmental issues, particularly soil contamination, can create huge headaches for landowners. This is one area where our panellists agree that you must do your homework.

Planeta and Bellissimo: "If the building is new, the only major concerns are environmental soil conditions on the lot where the building is situated and surrounding uses. Contaminants located in the soil do not stop their direction of travel because of municipal lot lines. Inquiring into what the lot was used for before the building was erected as well as what neighbours are doing in the surrounding premises will alleviate any environmental remediation issues in the future."

Bob Dineen adds the following considerations: "Will the site contain a spill? In the case of hazmat operations, this is not only critical but required by the regulations. Does the site meet all up-to-date building and fire codes?”

Kathleen Hutchinson: “Do your homework and always make sure that you have a current Phase I and Phase II environment report for review before making an offer to purchase. Review the Phase I and Phase II for any soil and groundwater contamination issues.”

Room to grow

Choosing a facility that will allow for the growth of your company is also key, according to the panelists. All agree that excess land or additional space are important when buying or leasing a warehouse.

Planeta and Bellissimo say that because of the high cost and disruption associated with relocating, users should select a facility that services their existing needs efficiently while being functional enough to allow for moderate growth in the future. Having excess land or additional space to expand into in an adjacent unit will reduce moving costs and allow for well planned, controlled growth.
Kathleen Hutchinson recommends buying or leasing a warehouse that is slightly larger than your current needs—20 percent is a good rule of thumb, she explains. "You may want to use the warehouse to store obsolete equipment or find other uses for the space until your business grows into it." She also recommends reviewing your inventory system and planning for your maximum anticipated needs, as well as determining the expansion capability of the site. Is there enough land surrounding your building to allow you to build an expansion if necessary? How easily will the building you are looking at facilitate an addition? Will the area support further development?

Dave Luton adds that you should negotiate "right of first refusal on adjacent space."

Alastair Strachan says that another option is to share warehouse space, so the amount of space used by the principal tenant can be adjusted to meet supply and demand.

Exit strategy 

In the event that you do outgrow your space, Planeta and Bellissimo suggest that leasing from a landlord with a large real estate portfolio may also be an asset if your corporation sees growth before the end of a negotiated lease term. Many landlords are happy to assist their existing tenants with relocating into larger premises. However, landlords are usually less flexible when it comes to downsizing during the lease term.

All leases should allow the tenant to sub-lease all or a portion of their existing premises. Finding a suitable sub-tenant can quite often relieve the burden of a significant fixed cost item.