For companies evaluating prospective manufacturing sites, transportation cost and service considerations are paramount. Here are five critical supply chain issues businesses must consider when evaluating sites for expansion or relocation.
Fuel costs. The price of U.S. diesel fuel has remained higher than $3 per gallon for more than three years, with no sign of dropping. The resulting increases in motor freight rates have prompted many businesses to consider operating more, smaller distribution centers closer to customers, as well as investigate alternative transport modes that may prove more economical.
For example, U.S. freight rail rates are nearly half what they were 30 years ago, according to the Association of American Railroads. This cost reduction helped increase rail usage across domestic and import/export transportation lanes.
Home goods retailer The Container Store transitioned to all-rail service in 2012, which reduced transportation costs by more than 20 percent. Now, when the company opens a new store, it looks for rail access to service the operation.
Driver and equipment shortages. The trucking industry's driver and equipment shortage sometimes translates to higher prices, particularly for specialty equipment such as tankers and refrigerated trailers. This shortage is also driving companies to seek properties with rail access, or in close proximity to intermodal facilities.
Proximity to customer base. Original equipment manufacturers, and manufacturers serving large retailers, can reap big rewards when they locate near clients. At the same time, some suppliers are striving to diversify their customer base—meaning they require a location that allows them to serve multiple customers effectively at the same time.
For example, G&B Global, an automotive supplier based in Michigan, moved its manufacturing operation to Alabama in 2012 after the recession sent many Michigan plants into closure.
The move not only allowed the company to serve automotive plants in the Southeast, but also enabled it to become a supplier to the region's aerospace industry.
New product development. With the ability to capture consumer data and track products faster than ever, companies are able to respond to demand sooner with new, improved products. In addition, businesses are increasingly able to segment their products by region, producing only those items in demand in each area. In some cases, this is driving manufacturers to consider smaller, regional manufacturing operations.
Sustainability. Whether driven by customer requirements or corporate sustainability goals, the push to reduce carbon emissions is prompting companies to re-route or tighten routes to cut overall truck mileage.
Tyson Foods worked to reduce greenhouse gas emissions by cutting transportation miles, increasing rail usage, and shipping direct to customers instead of through distribution centers. The company eliminated more than 64 million over-the-road miles in 2012, and closed DC facilities, which allowed for even more operational savings.
There is no one-size-fits-all supply chain strategy for companies seeking a new location. But transportation considerations will remain at the forefront for manufacturing and distribution operations into the future.