Selecting the right location for your U.S. manufacturing plant is a complicated process. It is critical to have knowledge of the process, the stakeholders, the regulators, and the information you should consider in making this decision, to ensure nothing is missed that might otherwise cost you time and money during the site-selection process or in the future. This guide will provide you with a foundational understanding of site selection in the U.S. to guide you through the process and identify helpful resources.
The importance of “process” in location selection
Every project is unique, but all require a deliberate, rigorous evaluation process that incorporates consideration of operating environments and costs to ensure a location can meet the company’s current and future needs. You will need to assess many diverse quantitative and qualitative factors – including labor quality, labor cost, utility capacity and costs, availability of real estate, tax climates, supply-chain networks, natural and manmade risk considerations, incentives, and transportation infrastructure – to name just a few. You will also need to establish an efficient method for evaluating these disparate factors to avoid the risk of “paralysis by analysis” due to the breadth of the assessment, and to avoid team members developing tunnel vision around factors most tangible to their specific areas of the business.
The following information outlines a methodology that will lead you through an analysis of high-level (i.e., state and regional) factors before narrowing in on specific communities and properties. Careful progression through the analysis, beginning with a thorough inventory of location requirements, is critical to arriving at the right choice, as well as obtaining final approval by leadership/stakeholders of your selection. Following a deliberate location-selection process will allow your project team and decision makers to feel confident in the final decision, avoiding last-minute objections that can derail the project.
The site-selection process
An efficient site-selection process is really more of a “site-elimination” process. Location screening and scoring criteria, beginning with high-level, large-geography considerations and then evolving into site-specific considerations, will guide you through a progressively shorter and shorter list of potential locations. While each project will require a customized approach and sequencing of analysis, the following methodology provides a foundation on which to build a rigorous, yet efficient, site-selection process. The site-selection process should be built on a methodology that helps you eliminate locations that don’t make sense and allow you to focus and spend more time on evaluating the locations that hold the most potential, such as the five-step methodology shown below.
STEP 1: Define your facility and operational requirements
Before beginning a site-selection project, it is critical to first define the proposed manufacturing facility and its operational requirements in order to evaluate location opportunities. Below is a list of criteria to guide this process:
Location Requirements Checklist
Inbound shipments: Identify raw material sources, locations, annual volumes, number of shipments, modes of transportation
Outbound shipments: Identify customers, locations, annual volumes, number of shipments, modes of transportation
Labor requirements: Number and types of jobs, desired skill sets, wages and benefits, shifts and schedules, work ethic, and labor/management relationships
Building requirements: Size; configuration; breakdown of manufacturing, warehouse, and office-space needs; clear heights; truck docks; and other facility needs
Site requirements: Size and configuration to support vehicle circulation, on-site storage, employee and truck parking, and other project needs
Electric-power requirements: Electric-power demand and consumption by month, line size required, service type preference (primary vs. secondary), service redundancy needs
Natural-gas requirements: Natural-gas consumption by month, line size required, service redundancy needs
Water requirements: Water-usage volume by day and month and peak usage by hour, line size required, redundancy needs, fire-service needs
Wastewater requirements: Discharge volume by day and month and peak volume by hour, line size required, wastewater-effluent characteristics
Telecommunications requirements: Service requirements
Air emissions: Description and estimated volumes of air emissions by type
Community preferences: Community characteristics and amenities preferred, training resources available, highway proximity and infrastructure, community culture, sustainability aspects, other requirements
Project investment: Estimated value of land and building, equipment purchases and installation, other start-up costs
Incentives: Desired types of incentives programs including tax credits, loans, grants, and other financing assistance
Project timeline: Target real estate acquisition date, staffing ramp-up schedule, utility ramp-up schedule, equipment commissioning, production start date, etc.
Other factors: Other location-criteria factors that are unique to the operation
Once requirements for the manufacturing plant are defined, the next step is to begin using the criteria to narrow the search, beginning with those that can be measured at a high (state or regional) level, allowing for the quickest possible elimination of areas that will not meet the company’s needs. The following factors are typically reviewed at this stage in the process and weighted as appropriate.
STEP 3: Site- and community-level analysis and screening
Once focused in on a small (3-10) list of potential regions (in at least two or more states) that meet minimum search criteria, the next step is to conduct a detailed evaluation of specific properties and communities to select the optimal location for your specific operational needs. The factors that should be evaluated and considered as part of this process are listed on the following page.
STEP 4: Property due diligence and incentives negotiation
Once the finalist locations are selected, conduct property due diligence to obtain commitments on utility services and other needs, as well as to ensure there are no surprises once the first shovel goes into the ground for development. At this phase, it may be appropriate to engage an engineering firm to assist with the technical review of the site attributes. If considering a greenfield site, you might need to conduct a number of site studies, e.g., phase-one environmental study, geotechnical analysis, hydrologic analysis, site survey, archaeological study, endangered-species analysis, and other technical site reviews pertaining to its development. Some states and local communities have implemented “shovel-ready” or “certified” site programs, which typically means that some or most due-diligence studies have been completed for the subject site and information is available for review upon request.
The information should be thoroughly reviewed, but if completed to a satisfactory standard of quality, these sites can save your project money and time in the development process. This is also the time to initiate formal incentives negotiation for your finalist locations. For maximum leverage, it is recommended you have at least two finalist locations in different states. As finalist locations, both options should be able to meet your operational needs so, at this step, you will want to prepare a detailed financial analysis for each finalist site and negotiate incentive programs that will help “close the deal” by providing upfront and/or ongoing cost savings and risk management.
STEP 5: Acquisition and project implementation
The final step is to acquire the property and begin detailed engineering of the facility and implementation of the project. Many construction timelines for new manufacturing operations are 12-18 months, or longer, depending on the type of operation and the location.
Selecting the optimal location for your U.S. manufacturing plant is a complex process. It is critical to approach the project with a well-thought-out methodology that incorporates all operational and financial aspects into the decision-making process. Don’t be tempted to let incentives offerings drive the whole decision. At the end of the day, it is important to first find multiple locations where the manufacturing facility can thrive, then allow incentives programs to close the deal and add value to the overall project start-up and ongoing operation.