Dean Barber

Beyond the World of Sic ‘Em

In Site Selection on September 22, 2013 at 6:14 am

Anyone with a cursory knowledge of corporate site selection is aware that workforce transcends nearly all industries.  Having knowledgeable workers is paramount to functioning and competing on a global stage.

On the manufacturing side, skilled brains have replaced unskilled brawn. The days of high-school dropouts working in factories, and actually making a good living at it, are over.  Now de facto junior engineers increasingly populate the floors at most manufacturing plants as thinkers and problem solvers are required.

But even if company executives, site selection consultants, and economic developers acknowledge and agree that this human resources component is hugely important, they will too often underestimate the value of a location in terms of logistics and transportation.

Why Intermodal Matters

Later in this blog I’m going to tell you about a friend and colleague who has expert knowledge on how this extremely important factor figures into site selection. But first a short primer on intermodal, which is a growing trend in logistics.

As the word implies, intermodal involves moving goods via multiple modes of transport – say ship, rail, and truck — without any handling of the freight itself when changing modes. For example, standardized steel containers are lifted from a ship and put directly on a truck to be put on a rail car.

The method reduces handling, damage and loss and allows freight to be transported faster. As our friends at the railroads like to remind us, intermodal shipping takes a large number of big trucks off our already clogged interstate highways and thereby reduces greenhouse gas emissions.

Double-stack rail transport is becoming more common in trying to make intermodal shipping even more productive. As implied, containers are double stacked on rail cars.  I saw this firsthand while touring the Port of Virginia at Hampton Roads last week.

To make the double stacking of trains possible, Norfolk Southern Railway had to raise the vertical clearances of 28 tunnels on a NS rail line between Hampton Roads and Chicago. By enlarging these tunnels through mountains, double-stacked trains can now move from Hampton Roads, an East Coast port into the Midwest, which is called the Heartland Corridor.

There’s got to be a song there.

But the more important point is this: The use of intermodal hubs can dramatically lower costs for shipping freight and that cost element of transportation should play an important role in the site selection process. Robert Martinez, vice president at Norfolk Southern, said he was “amazed” that it is frequently overlooked. He’s right.

As you might imagine, the modeling and the factoring of costs involved in moving freight is a science unto itself. There are now university programs offering degrees in logistics. But it is clear to me that this specialized area of knowledge is beyond that of most site selection consultants, many of whom are real estate brokers or tax accountants.

Now I actually know for a fact that tax accountants can and do display personality as I got one to smile once. And as I said in my recent blog “Do What You Do Best: Why Companies Should Outsource Site Selection,” brokers are largely a vacuous bunch who have little business knowledge beyond that of their narrow world of chasing down the deal.

The World of Sic ‘Em

I had coffee this past week with a commercial/industrial real estate broker who called that world “sic ‘em,” as in sic the dogs on ‘em. He was not offended by my characterization of most brokers. Indeed, he was much tougher on them than me.

But we agreed that sometimes site selection is misnomer at best. If you know you need 30,000 square feet of Class A office space in North Dallas, then by all means put the hounds on the trail. And in many cases, that is all that is probably needed. Sic ‘em. Go get ‘em, boys.

But I considered this broker an anomaly in that it was quite apparent that he had business knowledge that extended far beyond that of buildings and dirt or the chase. He had a better handle on logistics than me, and it was also clear that he had been studying (and acting upon) mineral lease opportunities in Eagle Ford Shale Play in South Texas and had thereby accumulated knowledge (and some corresponding wealth) about energy.

In short, I was impressed with this man, even if he was a broker. This is proof that I am capable of being surprised even at my age.

Tim is Nice. Me, not so much

Tim Feemster, principal of Foremost Quality Logistics, is an almost neighbor, living about 20 minutes from me. I knew Tim well before I moved to Texas, having taken a logistics class from him when he was a consultant (not a broker) for Grubb & Ellis, which is now Newmark Grubb Knight Frank.

Besides being a very nice man, Tim is well steeped in logistics and transportation, having spent most of his career in that field. He, too, does corporate site selection work, although I do not see him so much as a competitor than as a colleague.

That’s probably because I like him, and the fact that I will turn to him at times for reasons of his expertise. Indeed, my modus operandi is to serve as a general contractor on a site selection project and hire trusted subcontractors who have specialized knowledge that I do not have and which would bring great value to a client company.

I explain my operational philosophy on site selection further in the same blog (Do What You Do Best) in which I was being dismissive of brokers. I really should have been nicer.

Unlike me, Tim is always nice. And, he has this subset of specialized knowledge that I can employ on certain projects. For it is my belief that all too often, this thing called supply chain optimization is all but ignored or given short shrift during the site selection process.

Preach it, Reverend

For me to harp on that, however, is nothing short of a member of a congregation preaching to the preacher. For years now, Tim, the right reverend of transport (he is also a Presbyterian), has been preaching “to anybody who will listen” on how logistics and transportation should figure in on corporate site selection.

In short, both corporate executives trying to do their own search for their company (big mistake) and most site selection consultants (brokers but others as well) are so caught up in finding that critical location that they will often discount the total cost structure that comes with a supply chain.

“The element that is overlooked is the magnitude of the cost implication. Many times we will identify the fact that as to whether the potential infrastructure is available but they won’t take it to the point of actually calculating the cost differential,” Feemster said. “They will not show the magnitude of the differential, because they don’t have the modeling capability to do it.”

And that, ladies and gentlemen, is why Mr. Feemster is my friend. (Plus the fact that I like him.)

Despite the trend toward more automation and a digitized workplace eliminating the need for people, companies still need people. For a manufacturer seeking a location for future operations, finding, attracting, and keeping a workforce remains the No. 1 criteria or priority, which is probably a correct assessment.

But keep in mind that transportation, moving the product out of the plant into a distribution network, will eat up anywhere from 5 to 20 percent of a plant’s overall cost of goods sold. Maybe even higher. And here is where things can get rather dicey.

A Flawed Ratings System

Companies and site selection consultants will often concoct a rating system via an Excel spread sheet that will rate a location by various categories. But it’s a crude method at best.

“What site selectors don’t do is look at that total cost structure and actually calculate it typically, the entire profit and loss to the company in one city versus the next. What they do is put these Excel spread sheets together, and they rate a whole bunch of criteria across the top of the spread sheet and they go over this with the client.

“The availability of labor is one of them. Cost of labor is another one. Transportation and infrastructure is another one. Incentives is another one. They give them a one to five rating across the top and by doing so they dilute the transportation down to maybe 20 percent of the overall decision.”

Big mistake. For example, in a hypothetical project using a ratings system (don’t read anything into these numbers), Nashville may be rated a “five”, Atlanta a “four” and Charlotte a “three,” but the differential separating a five from a four in terms of transportation costs on an annual basis could be in the millions of dollars.

Special Ops

In short, what Tim is saying is that most in-house managers and external consultants will not go that extra mile to properly calculate this significant supply chain cost of moving product.

“If they are doing a data center project, they look at the electricity cost structure. All they have to do is essentially call up the electric utility and get a rate quote. But they can’t do that in the supply chain world. They really have to delve into the company and spend time with it and do work and most of the time that is not in their pricing.”

For any given corporate site selection project, I put together special ops teams, although we will not come to your town in a black helicopter. I serve as the general contractor, managing the project.

In doing so, I will bring in my GIS specialist, my tax accountant, provided that he or she has a personality, and my trusted logistics and transportation guru. I think you know who that might be.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas.

If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

Telephone: 972-767-9518. Email: dbarber@barberadvisors.com  Visit our website at http://www.barberadvisors.com

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, but only if expressed permission has been granted.

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