Leveraging Real Estate Data to Improve Your Supply Chain Infrastructure Planning

Supply Chain Management is one of the hottest areas in business news these days, and for good reason.  Successful
organizations around the world have found billions of dollars in cost savings, not to mention billions in new revenue, through
better planning and operation of their supply chains. The single, biggest cost in almost all supply chains is the asset base that
supports it – the infrastructure of manufacturing, warehousing and distribution sites that enable the flow of products to the
customer; in other words, a network of developed properties.  

Let’s put that into perspective.  We recently evaluated a potential client – a global electrical supply company.  Looking at
their financials, this $26B company spent $2B in real estate-related expenses, making it one of their highest operating costs.

Supply chain infrastructure planning is a business process that allows a business to understand and trade off among the major
profitability and service issues in its supply chain network.  This process is the best way to analyze existing infrastructure and
plan for new investments or consolidations.  

In the past, a significant limitation has been the overall quality of the costs assumed for warehousing and new facilities that
has been input to the analysis.  Modeling these types of costs is a bit of a “chicken and egg” issue:  You don’t accurately
know the costs of a new warehouse until you have contracted for the land and built the facility, but you don’t know where to
add that new warehouse to the network until you know the real costs of the new facility.

In a typical infrastructure planning process, certain warehousing and transportation costs are assumed – thereby helping to
determine which warehouse to use in the supply chain and which ones to close.  Once the planning process is finished, the
search for facilities begins.  This not only contributes to the cost problem outlined above, but it slows down the
implementation of the new network in a number of ways:

•        Often cost assumptions based on cities, but not specific locations, turn out to be significantly lower than the current
market rate for properties in the area of interest.  Faulty assumptions can force you to return to the modeling phase thereby
slowing the implementation and delaying cost savings.
•        Even when you get the costs right, you may have difficulty finding specific assets in your identified location that fully
support the operations you intend to conduct. (e.g., food grade warehousing or the availability of industrial water treatment
facilities).  Knowing this early in the planning process will ensure that you only consider locations which actually exist.
•        Your infrastructure planning may identify the benefits of closing certain locations.  However, without understanding the
commercial real estate market in an area, properly valuing and selling these assets may be difficult and take longer than
expected.

We are now addressing  this “catch 22” by combining experience and expertise in supply chain infrastructure planning with
commercial real estate expertise that establishes real costs and real operating constraints for specific properties.  We’ve
found that by researching real pieces of property during the modeling and analysis phase, we can help better understand
what is actually possible and what options are truly available for a company’s expansion or consolidation. By using real costs
and capabilities based on real locations throughout the planning process, a business is assured of making the best decisions
and of having the capability to implement those decisions quickly.

While this is a new approach for us – and the industry in general – our commercial real estate partners in the CRESTAR
Alliance, NAI Mertz have been integrating commercial real estate with network optimization with great success for a
number of years.  

In fact, we recently partnered together on a network analysis.   Typically, a network optimization study focuses on
streamlining sourcing – which is what this client commissioned us to evaluate.  We re-balanced the customer sourcing from
the existing distribution network.  This redesign has the potential to save this client about $2 million dollars per year of
transportation costs.

We also discovered during the analysis that one of their sites could not accommodate their peak seasonal business.  As a
result, they were bearing extra transportation cost to supply from a suboptimal site.  We found potentially more suitable
properties and have worked this actionable information into our report and recommendations.  Once this recommendation
is implemented, we will follow up with the results.

Summary
In order for a manufacturing and distribution company to achieve costs savings in their supply chain network operations via
infrastructure re-design, they must be able to successfully bring three areas of expertise together:
•        a deep understanding of their business and its requirements,
•        expertise in supply chain infrastructure planning and optimization so they make the best decisions, and
•        real estate knowledge and experience to implement their decisions quickly and effectively

Contact us
To learn more about how Profit Point's infrastructure planning services combined with NAI Mertz data can reduce your
operations costs and improve your service levels, contact Profit Point at (866) 347-1130.