Wednesday, February 27, 2013

We Have Outgrown Our Location But Don't Want To Move...Now What?

I provide Location Advice to owners and occupants of industrial buildings in Southern California.

This post provides advice to companies that have outgrown their current location but don't want to move.

The reasons for not moving that I hear frequently are...moving is too expensive, I own the location, I have time to run on my lease, my rent is below market, I don't want to take on additional fixed overhead in case business should decline, etc.

The fact remains, however, that the company has outgrown their location and this creates operational headaches which lead to inefficiency and ultimately loss of profit. If your company finds itself in need of additional space and you don't want to move, what should you do? Below are some suggestions for you to consider which may solve the operational space needs while addressing the concerns outlined above.

Before we delve into the solutions, let's diagnose the problem, shall we? What is(are) the reason(s) that you have outgrown your location? (Congratulations, by the way, this is a good problem to have as it often signals an increase in business).

Did your company secure a piece of business that cannot be fulfilled in your current location? Has the growth come organically through an increase in the industry? Did you add employees? Has the way in which you conduct your business changed? Have you acquired a competitor or another product line that must be folded into your operation? Have you purchased new machinery or processes that require additional space? Has one of your suppliers asked that you warehouse some of their product where before the product was dropped shipped directly to your customers? Have you brought a formerly outsourced function back into the operation?

The way in which you answer these questions may determine how we solve your space issue (and what type of space you need...production, warehouse, or office). So in no particular order, here are the suggestions that I make to companies...needing additional space...but who don't want to (or cannot) move.

Add additional office space to your location: On the surface this appears to be an easy fix. Please consider the cost of the improvements ($45-$75 per square foot depending upon walls, plumbing, upgraded finishes, etc.). If you own the location you may be over improving your building for the market and this could affect future resale timing and pricing...just ask my friends at DMG. If you lease your location, you will need the owner's approval AND you will be leaving the improvements in the location if you move at the end of your lease. Some occupants have found great utility in modular furniture...flexible layouts and you take the furniture with you if you move. Other considerations are the city in which you operate (the improvements will have to be permitted) and the parking ratio. Generally, office space will require 4 parking spaces for every 1000 square feet of space. Most industrial buildings are parked 2 spaces per 1000 square feet (including office, production and warehouse). You may be limited as to the amount of office space you can add to an existing configuration.

Add a production mezzanine: A production mezz can be a great way to increase production square footage without consuming floor space. If you own your location, add machinery or processes, look into this solution.

Add an office mezzanine:  All of the considerations outlined in the previous "add office" paragraph apply here as well. The differentiation is that in addition to adding office space you are also adding square footage to the overall structure by creating a second story. Parking, city permitting, clearance in the warehouse (because you don't want the second floor to be sufficient for Munchkins only), cost (structural footings are required to brace and support the mezz and are consequently $15-$20 per square foot more expensive than first floor office space). If you create an office mezzanine, are leasing the location, and renew your lease...be prepared for the landlord to base your new lease rate on the "increased square footage" including the new mezz space you added.

Store some finished product or raw materials outside: Subject to city ordinances (if outside storage is allowed), a yard or a secured area outside multiplies your usable square footage.

Lease additional space close by: Whether you own or lease your location, a temporary fix to your space needs may be accomplished by leasing space close by. As a frequenter of this blog, you know that I have written previously about reasons that companies move. The number one reason I see is that the company has leased additional space (s) to accommodate growth and now the operation is inefficient. The upside to this strategy is that the excess space (if the lease is flexible) can be discarded at the lease expiration (if the space is no longer needed) or renewed until a more permanent solution can be achieved.

Outsource a function to another producer: This solution is potentially costly and should be compared to moving and keeping the function in house. Some economies can be achieved however if the function is new (and the upside unknown) or the barriers to entry are formidable.

Separate a portion of the operation and relocate that portion: Once again with full acknowledgement that the main reason I see for companies "relocating" is the inefficiency created by operating from multiple locations...in some cases it works and can solve a space issue. The best example that comes to mind is our client Designworx Packaging. Designworx needed an upscale office image combined with a plain vanilla warehousing function. The two functions were diametrically opposed and unattainable in one building. The solution was to relocate the office function into an owned location and leave the warehouse function at the existing location...space issue solved. Designworx has operated out of the same upscale office space for 13 years and the warehouse ebbs and flows as needed.

Use a third party logistics company: Also known as a 3PL, these independent warehousing providers serve as an outsource for all of your warehousing needs. A third party logistics company provides a "soup to nuts" solution for additional warehousing. Included in the per pallet charge is warehousing, access, shipping and receiving, insurance, etc. My client, Greg Parsons of Summit Warehousing can discuss your specific needs with you.

Add building square footage to your location: This solution would only apply if all of the following criteria exist...you own your location, the site is large enough to accommodate additional square footage, and the city will allow additional square footage to be constructed. If all of these apply, congratulations! You managed to foresee your growth and planned accordingly. CJ America recently purchased a location with excess land. CJ intends to convert an obsolete manufacturing plant into a food production facility at the cost of many millions...very costly to relocate in the event additional space is needed. CJ is well positioned as they can expand upon the excess land by adding additional production or warehousing space.

Utilize cube by reworking your racking plan and purchasing a high reach forklift: My client, Raymond Handling Solutions can assist you in evaluating this option. According to Simon Walker of Raymond Handling Solutions, Every time you narrow your aisles in to a narrower aisle configuration, you gain approximately 33% increase in pallet storage density. Therefore moving your Wide Aisles to Narrow Aisles, you would increase storage density by 33% and moving from Narrow Aisles to Very Narrow Aisles, you save 33%. Of course this increased storage capacity comes at the price of increased capital investment in lift trucks  and pallet rack.

A quick and easy tip to help evaluate if you can increase your storage space in your current building is to stand at one corner of the warehouse and look out at the opposite corner. If you can see the opposite corner without obstructions, you likely have an opportunity to increase storage cube using increased investment in materials handling products. Commodity class, stacking height and sprinkler calculation must be considered before you go vertical.

To talk to a materials handling expert  call Raymond Handling Solutions at (562) 944-8067 or visit Raymond Handling Solutions.


Add another shift or two: My client, Advantage Adhesives prolonged moving for several years by adding a second and then a third shift. The move was projected to be costly because of the power requirements and relocation of several large coating and slitting machines. According to Greg Lane, the President and owner of Advantage Adhesives, the advantage (no pun intended) of the second shift in their case was that most of their overhead (rent, exec salaries, benefits, etc.) was covered in the  business generated by the first shift. The second and third shift became very profitable as a result. Greg warned, however, that a complete run must be accomplished in the additional shifts...raw materials to finished goods and out...or work in progress is produced which consumes rather than saves production space...just the problem we are trying to solve.

Gear your lease terms (or your desire to own) to your growth projection: The best advice is saved for last..."an ounce of prevention can be worth a pound of cure". If your company is rapidly growing, please don't buy a location or sign a long term lease (in excess of three years)...even if your location advisor encourages otherwise. You will avoid the uncomfortable problem of too little space.