Make Better Logistics Site Decisions

Over the last six years, Logistics Today and Expansion Management magazines have worked together to develop and evolve the Logistics Quotient as a usable tool for site selection. The driving force behind the tool was the trend toward more frequent network re-view and optimization, which came about with the evolution of supply chain management and increased globalization.

In the end, every logistics site selection decision is regional. A company doesn't locate a distribution center (DC) in Seattle to serve the southeastern United States, nor do many companies operate a single massive distribution center to serve the whole North American market.

There are two sides to a logistics operation: inbound and outbound. Increasingly, inbound means import, and that suggests being close to an ocean port or having good connections to a port. With China presently dominating most companies' sourcing the U.S. West Coast plays a major role in most logistics networks. If that facility is primarily a deconsolidation center or cross-dock, many companies opt to outsource those functions, often blending them with the transport portion of the supply chain operation. But from there, the goods will enter a domestic distribution network that will vary in size and type of facility based on the service requirements of the market or specific customer needs.

One issue under discussion in distribution circles is the use of smaller regional distribution operations established to maintain consistent service levels in key markets or with major customers. The mega DC hasn't disappeared, but its reach may soon be extended by smaller DCs closer to the customer.

Smaller satellite DCs close to an end market can reduce the real estate and manpower requirements in markets where both may be scarce or expensive. But DCs, which typically sit on less expensive real estate near metropolitan areas, have been doing double duty as hosts for other business functions such as customer service call centers as companies find ways to reduce their requirements for high-priced urban office space. While the actual distribution needs for the facility may be less, the space requirements can be increased by the need to provide office space. Some of the data and telecommunications requirements this adds actually coincide with developments in logistics, so the needs are complementary.

The Logistics Quotient has also changed. Some of those changes involve subtle shifts in data sources or elements supporting the conclusions in the 10 major categories for which each metropolitan area is ranked. Some more noticeable changes may be visible when comparing past rankings to the current list. For instance, in the past six years, the U.S. Census Bureau has redefined some standard metropolitan statistical areas (SMSAs), dividing some former SMSAs along new lines or combining some metro areas to create new SMSAs (there are now 362 vs. the 328 when the Logistics Quotient started).

One major change in how we present the data lies in the elimination of the overall numerical ranking in the national and regional lists. Past regional versions displayed a national ranking for each SMSA included in that region and then later versions added a ranking within the region. This was somewhat confusing because it inferred a greater difference between some of the cities than actually existed. This edition groups cities among their peers. For instance, there may be 20 cities in the top rank (5 stars). The qualitative difference between the number one city and number 20 is relatively inconsequential overall. The difference between cities in the 5-star category and those in the next group (4-stars) does have an order of magnitude, but specific needs and opportunities may out-weigh those differences. For example, a heavy user of air freight will naturally put greater emphasis on good air service and access to airport facilities than a bulk shipper who depends on rail.

To overcome some of the bias the numerical rankings may carry, the cities are listed alphabetically within the broad rankings from 5 stars (top) to 1 star (lowest). Numerical values are still used in the 10 principal categories, and those numbers refer to a position on a national scale of 362 SMSAs where number one is the highest rank and number 362 the lowest. Thus, the New York/Newark SMSA is ranked number one in air cargo in the nation based on measures such as capacity, frequency and volume. Some rankings are based on a broader or statewide regional rank and so some cities will have the same rank for a category like rail.

One reason for using numerical rankings within the core categories and not adopting the star rating in each is the role the individual distribution center may play in a particular supply chain. A northeastern distribution center may provide regional service, but it may also be the principal hub for imports. This could add emphasis to air and ocean connections that would not be factors for regional distribution. By the same token, an import hub that also performs regional distribution depends more on highway infrastructure and local road density, safety and congestion than an international gateway might.

As with any guide this large and all encompassing, the Logistics Quotient is intended to support decision making. Its emphasis is on logistics-related factors. It can aid decisions to locate manufacturing or distribution facilities when combined with input from other functional areas and incentives offered by the state or municipality.