What factors should be considered when selecting a site for a new manufacturing facility?

For most companies locating at the right location, in the right region and finding the right plot of land or building, is becoming even more important. New investments in land, buildings, machines and talent are done for the longer term. This is even more the case for new manufacturing plants. As the global business environment in which a company needs to make a location decision is becoming more uncertain every day it is of huge importance to make a robust and future proof decision on the location for a new production plant.

The importance of a thorough location decision process

Companies can have a variety of reasons for starting the location selection process for a new manufacturing plant: cost reduction, expansion of capacity to facilitate business growth, the entry of new markets, tapping into new labor pools, rationalization after a merger or acquisition, coping with geopolitical developments.
The realization of a new production plant comes with significant investments and internal changes. The investments are done for a long period of time and therefore the impact of the new location should also contribute positively for a prolonged period of time. In other words: in case of a wrong location decision the negative implications will also have a negative impact for a long period (e.g. higher costs, issues in finding the right labor, customs issues).

Location selection criteria for production plants

Location selection by BCI is done based on three types of factors

• Costs - All relevant factors that can be translated into money such as land, real estate, labor, logistics costs, taxes, etc.
• Quality of the business environment - Factors that cannot be translated directly into currencies but that still have a direct effect on the performance of the new operations. Think of availability of labor, accessibility, supplier availability, customs regulations, ease of doing business
• Risk - All external business disruption risk factors that a company itself cannot influence but that still may have a substantial impact on the future operations such as inflation risk, currency exchange rate risk, transparency risk, natural disaster risk, etc.

In the location selection for a new manufacturing plant a key driver is the talent factor for the new plant: is it a highly automated plant where only a limited number of high skilled operators will be working or is it a labor-intensive operation with hundreds of low skilled workers? These varying profile(s) have a large impact on the importance of factors such as labor costs, labor availability, labor market competition, flexibility of working hours, etc.
Investment incentives and tax reduction measures can also be attractive in certain countries/States and regions in Europe, Asia and the Americas. Especially for manufacturing plants with a large number of workers and/or with high investments in new capital equipment, the total financial packages can be (very) interesting for the investing company.

BCI advises companies throughout the world in the selection of the optimal location for their new production plant. BCI, based on more than 33 years of experience, has developed a proven approach for international location and site selection. This approach is based on an integrated assessment of costs, quality of the business environment factors and risk factors.
Our approach is fact-based, utilizing own databases, international reliable sources as well as a unique network of contacts around the globe (recruiters, investment agencies, real estate agents, etc.).
BCI delivers a clear final report with unbiased recommendations as well as a detailed data report showing the complete process of site selection and all data used for comparing the locations in each phase of the project.

Selecting the right location for your U.S. manufacturing plant is a complicated process. It is critical to have knowledge of the process, the stakeholders, the regulators, and the information you should consider in making this decision, to ensure nothing is missed that may otherwise cost you time and money during the site selection process or in the future. This guide will provide you with a foundational understanding of site selection in the U.S. to guide you through the process and identify helpful resources.

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THE IMPORTANCE OF “PROCESS” IN LOCATION SELECTION

Every project is unique, but all require a deliberate, rigorous evaluation process that incorporates consideration of operating environments and costs to ensure a location can meet the company’s current and future needs. You will need to assess many diverse quantitative and qualitative factors – including labor quality, labor cost, utility capacity and costs, availability of real estate, tax climates, supply chain networks, natural and manmade risk considerations, incentives, transportation infrastructure, to name just a few – and you will need to establish an efficient methodology for evaluating these disparate factors to avoid the risk of “paralysis by analysis” due to the breadth of the assessment, and also to avoid team members developing tunnel vision around factors most tangible to their specific areas of the business.

The following information outlines a methodology that will lead you through an analysis of high -level (i.e., state and regional) factors before narrowing in on specific communities and properties. Careful progression through the analysis, beginning with a thorough inventory of location requirements, is critical to arriving at the right choice, as well as obtaining final approval by leadership/stakeholders of your selection. Following a deliberate location selection process will allow your project team and decision makers to feel confident in the final decision, avoiding last minute objections that can derail the project.

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THE SITE SELECTION PROCESS

An efficient site selection process is really more of a site “elimination” process. Location screening and scoring criteria, beginning with high-level, large-geography considerations and then evolving into site-specific considerations, will guide you through a progressively shorter and shorter list of potential locations. While each project will require a customized approach and sequencing of analysis, the following methodology provides a foundation on which to build a rigorous, yet efficient, site selection process.

The Site Selection Process should be built on a methodology that helps you eliminate locations that don’t make sense and allow you to focus and spend more time on evaluating the locations that hold the most potential, such as the five- step methodology shown below.

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Step 1:

Define your facility and operational requirements

Before beginning a site selection project, it is critical to first define the proposed manufacturing facility and its operational requirements in order to evaluate location opportunities. Below is a list of criteria to guide this process:

LOCATION REQUIREMENTS CHECKLIST

• Inbound Shipments – Identify raw material sources, locations, annual volumes, number of shipments, modes of transportation
• Outbound Shipments – Identify customers, locations, annual volumes, number of shipments, modes of transportation
• Labor Requirements – Number and types of jobs, desired skill sets, wages and benefits, shifts and schedules, work ethic, and labor/management relationships
• Building Requirements – Size, configuration, breakdown of manufacturing / warehouse / office space needs, clear heights, truck docks, and other facility needs
• Site Requirements – Size, configuration to support vehicle circulation, on-site storage, employee and truck parking, and other project needs
• Electric Power Requirements – Electric power usage (demand and consumption by month), line size required, service type preference (primary vs secondary), service redundancy needs
• Natural Gas Requirements – Natural gas usage (consumption by month), line size required, service redundancy needs
• Water Requirements – Water usage (volume by day and month, peak usage by hour), line size required, redundancy needs, fire service needs
• Wastewater Requirements – Discharge volume (by day and month, peak volume by hour), line size required, wastewater effluent characteristics
• Telecommunications Requirements – Service requirements
• Air Emissions – Description and estimated volumes of air emissions by type
• Community Preferences – Community characteristics and amenities preferred, training resources available, highway proximity and infrastructure, community culture, sustainability aspects, other requirements
• Project Investment – Estimated value of land and building, equipment purchases and installation, other start-up costs
• Incentives – Desired types of incentives programs including tax credits, loans, grants, and other financing assistance
• Project timeline – Target real estate acquisition date, staffing ramp-up schedule, utility ramp-up schedule, equipment commissioning, production start date, etc.
• Other Factors – Other location criteria factors that are unique to the operation

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Step 2:

High Level Location Screening

Once requirements for the manufacturing plant are defined, the next step is to begin using the criteria to narrow the search, beginning with those that can be measured at a high (state- or regional-) level, allowing for the quickest possible elimination of areas that will not meet the company’s needs. The following factors are typically reviewed at this stage in the process and weighted as appropriate:

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Step 3:

Site and Community Level Analysis and Screening

Once focused in on a small (3-10) list of potential regions (in at least two or more states) that meet minimum search criteria, the next step is to conduct a detailed evaluation of specific properties and communities to select the optimal location for your specific operational needs. The following factors should be evaluated and considered as part of this process:

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Step 4:

Property Due Diligence and Incentives Negotiation

Once the finalist locations are selected, it is prudent to conduct property due diligence to obtain commitments on utility services and other needs, as well as to ensure there are no surprises once the first shovel goes into the ground for development. At this phase, it may be appropriate to engage an engineering firm to assist with the technical review of the site attributes.

If considering a Greenfield site, you may need to conduct a number of site studies – e.g. Phase 1 Environmental Study, Geotechnical Analysis, Hydrologic Analysis, Site Survey, Archaeological Study, Endangered Species Analysis, and other technical site reviews pertaining to the development of the site. Some states and local communities have implemented “shovel ready” or “certified” site programs which typically mean that some or most of these due diligence studies have already been completed for the subject site and the information is available for review upon request. The information should be thoroughly reviewed, but if completed to a satisfactory standard of quality, these sites can save your project money and time in the development process.

This is also the time to initiate formal incentives negotiation for your finalist locations. For maximum leverage, it is recommended you have at least two finalist locations in different states. As finalist locations, both options should be able to meet your operational needs, so at this step, you will want to prepare a detailed financial analysis for each finalist site and negotiate incentive programs that will help “close the deal” by providing upfront and/or ongoing cost savings and risk management. Additional information about incentives is provided below.

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Step 5:

Acquisition and Project Implementation

The final step is to acquire the property and begin detailed engineering of the facility and implementation of the project. Many construction timelines for new manufacturing operations are 12-18 months, or more, depending on the type of operation and the location.

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CONCLUSION

Selecting the optimal location for your US manufacturing plant is a complex process. It is critical to approach the project with a well thought out methodology that incorporates all operational and financial aspects into the decision-making process. Don’t be tempted to let incentives offerings drive the whole decision. At the end of the day, it is important to first find multiple location where the manufacturing facility can thrive, then allow incentives programs to close the deal and add value to the overall project start-up and ongoing operation.

For more information on how to select the best site for your manufacturing facility, please reach out to Michelle Comerford at .

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