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Site Selection
The site location process can be both complicated and intimidating. Selecting the best site for a new manufacturing plant involves knowledge of a host of specialties, including labor market dynamics, transportation services, electric power service, taxes and investment incentives to name a few. Where a new facility is located can determine not only a company's cost structure, but also its ability to recruit key executive and technical employees, meet customers' just-in-time shipping requirements, obtain needed utility services to support long-term growth, and other key issues impacting future success.
As a service to business, the Iowa Department of Economic Development partnered with Fluor Daniel Consulting Services to produce a step-by-step process for site selection. The process is based on Fluor Daniel's over 25 years of experience assisting companies to position corporate resources worldwide.
Site Selection at a Glance:
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PRE-PROJECT PLANNING
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| PROCESS STEP |
TYPICAL ISSUES |
TYPICAL FACTORS |
| Establishing The Need |
Capacity limits, customer service, quality needs, technology improvements and operating cost issues dictate that a new location must be considered
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 | Capacity constraints demand action
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| Delivery dates not being met
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| Can't produce at competitive cost at desired quality
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| Regulatory, tax burdens
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| Technology needs updating
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| New markets/customers to serve
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| Selecting the Task Force |
What functions should be included? Who can be dedicated? What outside assistance do we need? Should we hire a consulting firm?
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| Workable size (4 to 5 members ideal)
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| Multidisciplinary mix
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| Written mission, timetable, milestones
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| Designated chairman, defined authority
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| Setting the Objectives |
Lower costs, proximity to new markets and customers, better regulatory climate, incorporating new technology, etc.
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| Reaching consensus on goals and objectives essential step
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| Subsequent site selection decisions rest on clear definition of objectives
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| Analyzing Project Feasibility |
Market and financial feasibility analyses plus manufacturing process and facility design engineering establish case for moving ahead. Revising and reconfirming these assumptions is an ongoing process.
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| Current and future customers identified
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| Projected annual volume realistic
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| Pricing/profitability/ROI analysis support business objectives
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| Competitor strategies anticipated
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| Conceptual Facility Requirements |
Early conceptual design establishes initial facility capacity, capital cost, labor needs, etc. Early input can save major costs for revisions later on.
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| Process definition sufficient to establish initial conceptual cost
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| Volume, product mix defined
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| Plant staff sized
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| Process equipment identified
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| Developing Location Parameters |
General project parameters and critical location factors support initial geographic area screening. Availability of existing facility may be deciding factor if time to market is driving issue.
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| Facility employment levels
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| Skilled labor requirements
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| Transportation, utility service needs
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| Site and building characteristics
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| Capital investment parameters
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| Project timetable
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| Weighting The Factors |
Categorizing critical factors into "musts" and "wants" enables comparative analysis of locations. Weighting the wants and using a decision-making process such as Kepner-Tregoe (KT) assists in evaluating potential sites.
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| Musts are criteria that are necessary for project's success
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| Wants are important but will not cause the project to fail
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| Task force consensus on weighting factors is essential
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| Determining Primary Area Of Search |
For most small to medium-sized companies, this phase should narrow the search to between five and ten states. Factors shown lead to first cut elimination of potential states.
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| Geographic market to be served
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| Proximity to competitors - 35 to 50 miles or greater is usually desirable
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| State legislative climate
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| Community size preference
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| Commercial air services
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SCREENING THE SEARCH AREA
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| PROCESS STEP |
TYPICAL ISSUES |
TYPICAL FACTORS |
| Center of Market Analysis |
When transportation of raw material and/or finished products is a significant locational factor, a process called "Center of Market Analysis" (COM) is used. This three-step process identifies the most likely "least cost" location based on transportation factors.
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| The COM identifies a likely "least cost" location based on weighted distribution analysis of raw and finished goods
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| The first analysis is on raw material, the second is on finished goods distribution, the third combines the two into an area of least cost.
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| Legislative Business Climate |
A myriad of state laws, rules and regulations impact corporations. Taxes, labor legislation, environmental regulations can be significant differentiators. Variation from state to state is significant and must be analyzed carefully.
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| Income, property taxes
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| Tax burden and equity (i.e., distribution across residential, industrial, commercial sources)
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| Workers' comp rates
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| Unemployment comp rates
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| Environmental regulatory climate
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| Permitting attitudes/time frame
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| Investment Incentives |
State incentive programs have become widespread and require careful comparative analysis. Front loaded versus long-term value often differs.
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| Training incentives
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| Tax abatements, exemptions
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| Financial assistance
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| Initial versus long-term impact
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| Screening The Search Area To Identify Potential Communities |
Basic critical factors differentiate communities. State/local economic development organizations will provide data. Community profiles often available. Companies should protect their confidentiality.
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| Manufacturing labor costs
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| Transportation costs
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| Power costs
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| Labor availability, quality
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| Interstate highway access
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| Commercial air service
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| Utility service capabilities
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| Suitable available buildings/sites
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| Housing costs
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COMMUNITY FIELDWORK AND PROJECT IMPLEMENTATION
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| PROCESS STEP |
TYPICAL ISSUES |
TYPICAL FACTORS |
| Community Evaluations |
The goal is to narrow the list of communities. Cost and non-cost factors are considered. Recurring costs evaluated. Kepner-Tregoe (KT) analysis valuable in evaluating non-cost factors.
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| Recurring costs include labor, utilities, transportation, taxes
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| Nonrecurring costs include land, construction, permitting, sales tax on machinery and equipment, utility extensions, site prep, road/rail access
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| Non-costs include labor availability, transportation services, quality of life
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| Site Visits To Short-Listed Communities |
Once communities are ranked, the 5 or 6 leading communities are visited. State and local development organizations can help arrange visits. A day in each community is usual. Typical factors to keep in mind are shown. Local business leaders provide valuable input.
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| Industrial composition
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| Labor costs, availability, work ethic
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| Taxes, environmental regs
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| Attitude of local officials
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| Transportation services
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| Utility adequacy, cost
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| Site/building suitability
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| Educational systems, health care
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| Final Evaluation |
Final sites are evaluated following visits. Two to three finalists are ranked.
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| Costs/non-cost factors weighed
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| Finalists are revisited
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| Closing The Deal |
Incentives must be in writing. An option and due diligence complete the cycle. Retaining 2nd and 3rd choices until final acquisition is an important consideration.
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| Provide written description of benefits to state/local officials (e.g. number of new jobs, level of capital investments, etc.)
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| Options require legal assistance
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| Due diligence for clear title, subsoil conditions, environmental issues, etc.
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Phone: +1.515.242.4707
E-mail: iowasmart@ided.state.ia.us
Copyright © 2002 Iowa Department of Economic Development, State of Iowa
All rights reserved. Privacy statement.
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