Editor’s Note: This article comes from Steve Wright who works for Whirlwind Steel and shares his knowledge on manufacturing plant site selection.
There are a number of factors to consider in manufacturing plant site selection to ensure you have the best location for your new plant. Unlike retail, office, or residential locations, a manufacturer must also consider various environmental regulations, workforce issues, and raw material availability, among other things.
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Once the plant is built, there is no way to move it short of selling or abandoning it for a new location. Selecting a location is likely the most important decision you will make as you move forward with your business plans.
What should you consider in your manufacturing plant site selection? Let’s take a look at the various considerations. Notice there is a certain amount of overlap and interdependency between these sections.
Local Geography and Climate Play a Large Role in Your Manufacturing Plant Site Selection
Regions of a country are often identified by the local geography, signified by being in the mountains, near the coast, or on the plains. Local geography includes the topology and drainage as well as soil conditions, all of which impact the cost of construction in one way or another.
The climate also differs according to proximity to different topology and nearness to large bodies of water or wide open spaces.
- Coastal areas are prone to high humidity, moisture, and salt, all of which speed corrosion of unprotected metals. Hurricanes and severe storms are driven by ocean currents are potential downsides.
- The central plains have plenty of open space but can be subject to extreme weather from tornadoes to blizzards, droughts, and floods.
- Mountainous regions can be problematic with rocky soil and difficult transportation conditions.
- Extreme cold in the north and extreme heat in the south also play a role in determining a manufacturing location.
The United States offers a variety of climates and geography, both of which impact land costs, construction, operations, cost of living, and the quality of life for the workforce.
Environmental and Ecological Issues
Closely related to the issue of local geography and climate, environmental and ecological issues tend to be more about regulation. Depending on what your plant produces, a local, state, or federal regulatory agency will be involved in your decision on location.
Regulation is not the only environmental issue you may face. Any other facilities nearby could affect your manufacturing activities or products.
- Do nearby factories emit dust?
- Are there toxic or noxious elements in the air, water, or earth?
- Is the site contaminated with lead or other heavy metals?
Food manufacturers, in particular, must be sensitive to contamination from bacteria and cancer-causing agents. You also have the health of your workforce to consider.
Aside from potential environmental issues already present, you must consider any waste materials your own facility may produce. A variety of regulations can increase the cost of permitting, disposal and mitigation depending on the state and federal laws.
Governmental Policy and Political Climate
Speaking of regulations, your location choice can be based on the structures, or lack thereof, that local, state, and federal government have placed on activities.
- Check for incentives and subsidies offered for doing business in the areas. If you sell to the federal government, there may be preferential set-asides.
- Analyze the local laws, regulations, and taxes for businesses like yours.
- Consider your tax domiciles if you have multiple locations, and pay attention to exchange rates if you work with global partners or customers.
- Monitor trade agreements, such as NAFTA, and customs issues in all countries with which you trade. New trade agreements may also be in negotiations, such as the Trans-Pacific Partnership.
Regulatory and permitting requirements may also influence the choice of location by their impact on construction as well as daily operations. Speak with a local contractor or regulatory agency to learn about permitting, inspections, and other compliance issues for building there.
When you select a location to build a new plant, you and your contractor must consider the implications of nearby infrastructure and geography for equipment and material delivery. The same issue must be considered regarding raw material procurement and delivery, proximity to your markets, labor availability, supply chain infrastructure, and logistics.
- How far will your vendors need to transport materials?
- How far will you need to transport finished goods to warehouses and distribution centers?
- Are there enough skilled labor and professional workers nearby to staff your plant?
- Can you reach your customers easily and cost-effectively?
There is a balancing game between locating your plant where land is cheap and having the necessary workforce available to staff it.
The cost of daily operations is ongoing and fluctuates according to utility rates and infrastructural maintenance. Real estate costs such as property tax also enter into the equation. Distance considerations also require a look at the local transportation networks. Will you need access to rail or air?
There are costs in the human resource sector as well. Besides wages and benefits, you may deal with unions and an organized workforce. While nearly half of the states in the nation are “right to work” states or open shops, the rest have various organizations impacting or negotiating for work conditions and pay.
Beyond the manufacturing plant itself, you also have the costs of providing and maintaining outdoor lighting and parking for your employees, roadway access to and from your property, and supplies for offices and manufacturing among other ongoing expenses.
Potential for Expansion
As you ponder the previous topics, you also want to look to the future. Conditions and regulations change, and economic conditions fluctuate but when you decide where to locate your manufacturing facility, also think about the potential for future expansion of that facility.
If you buy a parcel of land that is hemmed in on all sides, you are limited to the size facility you first build. If you need more space in the future, you will have to search for another parcel and split the work between two plants or construct a larger plant and move all operations there. Both are expensive, and costs of land, materials, and construction rarely decrease.
Unless there is a compelling advantage to the smaller site, or you do not foresee any expansion for your company in the future, find a location where you have room to grow.
Determining the location in your manufacturing plant site selection depends on a large number of factors and variables, all of which you must analyze before coming to a decision. You may need to weight the various factors to help you find a location that is acceptable when some requirements are met while others are unavailable for a particular location.
Don’t forget to consider the quality of life issues for your workers, the availability of professional and skilled employees, and the general community around your new facility. There is more to a business than creating a finished product out of raw materials. You have environmental and regulatory compliance issues to handle as well as the well-being of those who work for you and around you.