Real Estate Analysis

Everyone knows that it is important to get a regular checkup from the doctor. Just get a quick and easy assessment of where they stand as far as the basics are concerned. In the best case, the doctor will give them some tips on how to do better. Worst case the doctor tells them there is something wrong and tells them what they have to do in order to get healthy again. It's common sense to keep tabs on where you stand.

The same should be true of your real estate portfolio. Real estate is a constantly shifting arena: prices fluctuate daily, buildings are built and knocked down, the demographics of a region change. Whether you have one location or a hundred it is a good idea to make sure that you are in good positions that are not hurting your business. Just like for your own health, it's important to get checked out by someone who is an expert in the field.

When the topic of a real estate analysis comes up most people in business think they can do it themselves. However, where would you start in order to figure out if you are doing the best you can be? A surface look would point at cost per square foot as the key factor of whether you are doing well or not. If you know the market rate for your area and are at or below that then you are doing well, right? Not necessarily.

If that isn't the decision point, what is? To really understand how your portfolio stacks up you need to look at a diverse set of metrics that includes: square feet per seat, cost per person, average churn cost per year, and common/shared space allocation. Then you need to benchmark this against your industry competition. Why does all this come into play with your portfolio? Isn't this an HR issue? It's important because the real estate cost is the effect of HR and Real Estate not being in alignment which is often the case.

If you have a high square footage per person, regardless of if your lease rate is at or below market you are overpaying for your space. You have too much of it. If your churn rate (or cost to alter the space with changing business conditions) is above your competitors then you may not be in the right type of space. If your shared space doesn't meet the needs of your employees then you may not have an effective workplace strategy in place (which ties directly into real estate).

Is it possible to do this evaluation internally? Absolutely, but there is a reason that most companies do not perform this level of analysis on themselves: it requires a specific type of expertise and knowledge that is outside the core competency of the business and is not performed on a regular basis. If this sounds like something that may help you then look into it. An inefficient office is a terrible drain on the bottom line and it may not even be noticeable if you don't know where to look.

Decision Windows

You have a decision to make and there are a lot of variables that come into play. Scenarios keep running through your head showing the outcomes of the various options you are still weighing. Days pass as you agonize before finally making the call. Implementation plans are put together, conference calls are held to discuss the strategy and time is tight to pull everything together.

A company is relocating to a new facility. Their lease is up at the end of January and they have to be in a new location before then. Everything needs to be in place to assure that there is no downtime to their clients and that they stay within a known budget. They know 18 months before the lease expires that the change is coming. Everything should be fine....not exactly.

Knowing something is going to happen and making it happen are two completely different things. This company did not start looking for a new site until 8 months before they had to be out. Ten months came and went with almost no action. Ten months when they could have been looking for the perfect building, negotiating the perfect lease and working with supplier and vendors ahead of time to get the best pricing possible for their move. They finally signed a site and then realized that they had no plan in place. Their method of putting the plan together? Call up four or five vendors and see who comes in with the lowest priced plan and see if they could make it work. Don't worry that the vendor doesn't have all the details, they say they can make it happen. RFPs went out 5 1/2 months before lease expiration. Bids came back 4 months before.

Lead times for materials run at 2 months currently, installation will take another 2 weeks, moving their product has to occur over weekends and there will probably be four weekends or more of moves and plans still haven't been approved or evaluated. Even with the best coordination they will be getting in with no time to spare and probably quite a few new gray hairs on their managers' heads. Regardless of whether everything works out in the end for this company there were serious flaws in their decision process.

One of topics that comes up a lot here (one of my favorite subjects) is Decision Making. There is a science to making the correct decision for your company. Decision making is a process, not an action. The result of the process is an actionable plan to make something happen. Whether you are trying to decide strategic direction, choosing a new facility location or making personnel decisions there are always pros and cons. Good managers are the ones that look at and balance all of the criteria to reach a decision that maximizes benefits.

Great managers make the same decisions at the right time. They make the right decision either without hesitation that costs time and money or delay the decision until a more appropriate moment. Making a facility decision two years before a lease is up does not make sense. Situations will change during the next two years and the decision will lose value as time goes on. Every decision has a window of the appropriate timing it must be made in. There can be tremendous benefit to bringing in help to make the best decision. Outside observers can strip away the biases and faulty assumptions inherent to being to close to the situation.

Do you account for decision windows when making the big decisions? Sometimes a day's delay can be the difference in whether the decision was good or bad. Nothing occurs in a vacuum when it comes to business. Not even decisions.


Technorati Tags: decisions, decision making, consulting, timing

Green Marketing

When was the last time you evaluated your marketing budget and scope? If it was more than 5 years ago you are likely missing out on some of the latest methods for getting your companies name out in the market. The internet of course is the biggest driver of much of this, but there is another. Social consciousness is the latest way for bringing new customers into the fold. Showing that you are helping the environment through your business practices can do as much or more than showing a 5% lower cost than a competitor.

LEED has been the biggest driver of this trend. Whenever the latest company decides to make their buildings and space LEED Certified it makes quite a few major magazines and news reports. Writing off this additional cost to the marketing budget is the best way to justify these decisions. GE is the latest driver of the Green Marketing trend with their announcement of expanding investment of the ecomagination lines. Right now those lines don't have as good of a return as others, but the press they are getting for it is through the roof which bolsters sales of their other lines as well.

Any good marketing director will know how to push your initiatives into the public eye (or at least in front of your customers). Adding a marketing page to all of your brochures and presentations is the simplest way to let people know how you're helping. Marketing to the community is the next best way. Communities love to hold up the companies that are working to stay involved and be socially conscious. It could be a way to become a community sponsor and open up new lines of business.

Why can't changing out light bulbs, adding motion activated switches or using environmentally friendly products be marketing? Thinking in new ways is how companies become leading edge. With the cost of marketing being offset from cheaper ways of mass communication and replication, it is a simple matter to allocate some money to non-traditional marketing. Make sure you are still doing right by your business and investing in things that will still have a return on your investment, after all you are in charge of making good decisions. Doesn't a quantifiable return on your marketing expenses sound good to you?

Start looking down the road five to ten years from now and try and see where your market will be. Will they care about being environmentally friendly? More than likely they will and they will want to do business with like minded companies. You can either be a leader by making the small steps now and taking advantage while the time is still good or you can play catch-up when the change happens. It happens all the time with technology like this. First it was computers replacing typewriters. Then it was email replacing fax and letters. Next followed the internet replacing dictionaries and research books. The future will be clean technologies replacing wasteful technology.

Technology equipment will begin using less electricity, buildings will feature sustainable and intelligent systems and every product on the grocery store shelves will have some green aspect to it. Green beans in cans from recycled materials, cereal in recycled bags instead of boxes and cleaning products in higher concentrations (which has already started).

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Welcome to those visiting from the Carnival of the Capitalists. If you liked this post we have some other posts on Green design and thinking:

Green Design and LEED
Environmental Marketing Gone Crazy
Greening the Warehouse

Feel free to subscribe to the blog! Thanks for visiting!

Technorati Tags: green, marketing, technology

Warehouse Design

When it comes to product storage in a warehouse there are all kinds of choices. Knowing which one you should use in your operation becomes a little trickier. A lot of people cut out the hassle and simply install pallet rack everywhere and use it to suit whatever needs they happen to have. Need to store a single box of paper? Throw it in the rack! Want a forward pick area? Front, lower section of the rack!

There are a few people that run in the opposite direction and end up with 7 types of storage mediums: Pallet rack, push-back rack, pallet flow rack, carton rack, carton flow rack, bin shelving and floor storage. Maybe this was what they needed during their first look at what they had on hand, but does it help them grow their business? Is it actually making them more efficient?

First let's go over what each type of rack is and what it is used for (in-depth looks within the links from Integrated Storage Solutions a company we have worked with extensively over the years):

Floor Storage / Bulk Storage: The simplest, cheapest, easiest and sometimes most dense storage solution. Highly flexible and if your pallets can be stacked 3 or more high the density is comparable or better than traditional pallet rack.

Single Selective Rack (SSR): Traditional pallet rack installed in a back-to-back configuration. Used for storing pallets of products on multiple levels. It can be installed with varying aisle widths depending on the material handling equipment that will be used in the operation. If you're looking for the most dense configuration you'll have to spend about $75,000 on a Turret Truck, but your aisles will only be 5 feet wide (the so called "Very Narrow Aisle" (VNA) configuration).

Double Deep Rack (DDR): Pallet rack with a twist. Like SSR it is used for storing pallets on multiple levels, however DDR takes puts two bays of SSR together so that you can store two pallets of the same product together. Think of all that slow moving product you have in multiple quantities but can't get rid of. With a double deep configuration you improve your storage densities without sacrificing significant investment in fancy rack. You will have to spring for a double deep forklift and you can't use the VNA configuration.

Push-back Rack (PBR): Double deep rack with a twist. Like DDR, multiple pallets are stored in the same location. Push-back rack is significantly more expensive because of the moving parts but if you product moves at a fairly swift pace and you have wall space to spare this could be for you. One of the great things about it is that you can bring back the VNA configuration because the next pallet will always be in front position. It's a great space saver for expensive real estate like freezers and refrigerators.

High Rise Decked Rack (HRD): Now we move away from the pallet storage to case storage. HRD exists mostly on the carton side but can be used as pallet storage in a pinch. HRD is essentially SSR that is 48" to 66" wide and not in a back-to-back configuration. Even though it is not installed back-to-back, there is a pick face on each side because cases are stored instead of pallets. Picking is performed by hand from an order picker or cherry picker instead of with a pallet forklift. Because pallets are not being stored it is possible to increase the number of beams and create customized slots for your various smaller products. Very good for getting your non-standard products in 2 pallet or less quantities into dense storage. A floor pick can be set up on the bottom levels to increase picking efficiency.

Bin Shelving: Simple 72" tall gray shelving. Used for storing small product in a dense environment. Perfect for non-automated and minimal investment operations. If you are starting small this is generally what you will have. It can be put into a mezzanine configuration to pick from two or three levels. Flexible and more easy to reconfigure than most other types of rack. More expensive than most people realize and usually only cost justified in small areas or operations.

Carton Flow or Pallet Flow (CF / PF): Great for a Forward Pick area. If you know you need a certain amount of a product in a three to five day period and want to minimize the labor to pick it, this is the system you'd be looking for typically. Product goes in the back and slides forward for convenience. This is not a storage medium necessarily, but a pick medium. However it usually gets classified as storage. Forward pick justification will be a topic for another day.

There are additional racking systems including Drive-in Rack, Cantilever Rack, Triple Deep Rack (for the truly brave) or Stacking Rack but for the most part these are used sparingly and for very specific needs.

With all of these choices, how should a warehouse storage solution be designed? The answer, of course, varies by requirements. No warehouse will be the same. The products, building specs, capital available, labor rates and more will vary project to project even within the same company. What flexibility is required for long-term business objectives? How much real estate is actually available for use? What sort of processing areas are needed besides storage? Warehouse design is not a simple process and good warehouse design requires pouring through at least a year's worth of product and ordering history.

Recently we have been working with brokers to help clients develop space models for their needs. They usually come to us with two or three spreadsheets showing their overall product on hand numbers, warehouse turns and some general requirements. Of course this is helpful for the design but it ultimately doesn't tell us anything about the operation. If their operation turns 4 times a year there could still be significant product turning 8 times and significant product turning 1 or fewer times. Overall numbers don't showing seasonal peaking. There may be an average of 30,000 pallets on hand during the year, but if their peak period requires 50,000 the design will be wrong before the design period even begins.

Once the data issues are worked out there is still the problem of balancing capital costs with on-going operational expenses. Almost any operation can operate entirely off the floor or in bin shelving, but the labor costs and real estate costs would be through the roof. Similarly, any company could implement a completely automated warehouse with almost no labor, but the capital cost would put them out of business before the first product was picked. Those are the extremes, but even for warehouses that are entirely SSR there are break points. Different Material Handling Equipment (MHE) has different labor productivity rates and capital costs. They require different aisle widths which affect the real estate costs. Which one should you use?

Warehouse design is not a task that is performed every year or even every third year for most companies. It should be a well though out process to help develop an effective plan. There is a reason that Third Party Logistics providers (3PLs) are adding customers everyday. They offer a convenience service to people that don't want to deal with these issues. Before looking to outsource, bring in a specialist to evaluate what is right for your company. Some networks should be outsourced because of size or regulation issues, but most can be kept in-house for minimized costs or even to operate at a profit to the business. With new Value Added Services that can be performed simply there is opportunity to sell services to your customers before the product even leaves the door. Not to mention the potential to add e-commerce to your existing business.


Technorati Tags: rack, consulting, design, warehouse, ecommerce

Site Selection (How It Should Be Done)

One of the most important decisions that a business needs to make is where they will locate their facilities. Traditional Site Selection firms take a limited cross-section of markets into consideration that varies from industry to industry. Call Centers can only go to these markets, Technology companies can only go to these, and Transportation companies to another set. Their process is driven by past successes within a certain industry or where the majority of companies in a given industry are located.

Unfortunately, past success is not a reliable indicator of future success. Many traditional call center markets are becoming oversaturated to the point where turnover is beginning to damage the bottom lines of companies located in those markets. Technology companies are becoming centralized in such a way that incentives decrease in value because a market no longer needs to draw these types of companies. But the biggest problem with traditional Site Selection is that it does not accurately account for the fact that a company can exist in multiple industries at one time. Where should the research center for a company doubling in size every year that is an outsource provider of IT services to the Healthcare industry be? It falls under research, IT, and Healthcare.

The ideal process for site selection should start by evaluating the internal facts about a company and what their needs for the new site are. Then it should look at a completely blank map and evaluate the relative characteristics of each and every city or county with a labor force capable of supporting their facility. If a non-biased, full geographic approach is not used there is no way to verify that the best site was chosen.

If you are currently going through a site selection process either internally or with an outside consultant you should stop and analyze the approach taken to finding the correct location. If there are only a few options on the table why aren't other cities included? If your team tries to tell you that it is too expensive or impossible to evaluate every market in the US then they aren't really performing site selection are they? There are firms capable of looking at every market across the board to find the best one for you. The amazing thing is that these firms are also charging less for their services because they are leveraging available technology to decrease their costs and increase their accuracy.

The non-biased approach allows emerging and non-traditional markets to enter consideration in the Site Selection process. Many times these markets offer aggressive incentives to bring in new businesses. These markets have the same infrastructure, labor force, and financial costs as traditional markets without the intense competition for land, labor, and attention. If traditional site selection processes were used by everyone then Austin, Texas wouldn't be what it is today and many other mid-size markets wouldn't be getting the attention they deserve for having wonderful demographics and superior infrastructure.



Technorati Tags: site selection, consulting, decision making