Critical Elements Involved in the Automotive Supplier Site Selection Process
By David Berzina
The good news is you have just read the company memo announcing the new $18,000,000 contract with General Motors that starts in twenty-four months and your job security is once again extended. The bad news is your boss has just e-mailed you and wants a preliminary pro forma on set-up and operational forecasts for a facility necessary to support the new GM contract by month-end.
After the initial elation commonly associated with new responsibility wears off, you begin to think about the ramifications surrounding the terms, pro forma and forecast. In order to forecast something, don't you have to know about revenues and expenditures? How will you ever get a complete listing of what expenditures to expect when a new supplier operation is set up? Most importantly, how will you set about gathering the necessary information, compile it, check it for accuracy and get it in report form by month-end?
The first item on your agenda is to find someone in your company who has actually located a facility and then pick his or her brain for ideas, pitfalls, rabbit holes or any other nuggets of information. If there is no such person in your shop, find one in a non-competitive friendly network that you or a peer have developed in the automotive business. Second, find out all you can about the GM contract. The terms, product, volume, delivery expectations, plant location, punitive aspects of the contract, other suppliers, pre-launch expectations and deadlines.
After you have memorized the contract, its time to get on the internet and find out all you can about the business climate in the city you will be operating in. Logging on to the chamber of commerce, city or local economic development organization web page should provide you with a comprehensive listing of names, phone numbers, business start up and permitting assistance and general information that should prepare you for your first visit. You will find that on each visit to your new home away from home you will need to maximize your time and squeeze in as much as time will allow. Schedule as many meetings with as many people that can assist you and your project each time you arrive in town. Start with the logistics department at General Motors. These people will make you or they will break you. The logistics team should be in charge of delivery time issues, facility approval and other factors critical to the approval of your project. Get to know these people!
The First Visit
Next, get to know the people that get paid to bring in new business. The economic development professionals in the community will be your greatest ally next to your relationship with your client. After you have prepared your initial check list of to-do items for your first visit, contact the chamber of commerce economic development personnel, ask for the senior official and initiate a confidential conversation with them outlining your project. When you arrive, and secure your rental car, before your first meeting with the logistics team, drive by the automotive plant you will be supplying. Viewing the facility will illustrate a lot about the plant culture and expectations of those they do business with.
When you meet with the logistics team, have your questions ready to throw at them. Issues surrounding delivery expectations, local distribution firms that are reliable, local and state laws out of the norm, construction versus existing facilities, union vs. non-union issues and other questions you will develop as you lie awake at 3:30 in the morning. Let the logistics people know that you are meeting with chamber and city officials on a confidential basis in order to aid you in your site selection process.
Chances are that the economic development officials you will meet with have assisted in bringing quite a few plants into the community so they should be able to offer valuable input regarding your search process. However, just to keep them honest, you should arrive with a list of issues that illustrate the faith your boss placed in you. See if the chamber and city staff can meet with you either back-to-back or simultaneously in order to maximize everyone's time. If your budget permits, offer to take the economic development team members to dinner/lunch or whatever scheduling allows. You will find that breaking bread with individuals from other communities will greatly aid in the relationship building process that is necessary when new business ventures are undertaken across state lines.
You will find that by categorizing your questions into three primary areas you will be able to secure answers for most if not all of your questions for the locals.
Facility Related Questions
Once you understand your budget and operational requirements you should have a clear understanding of whether you can afford/need to construct a new facility or search for an existing building. New construction will require you to locate a parcel of property to build on. You can limit your site search area for land by the delivery window time provided in your contract. Find out what that window is and you have a defined area to search. Ask the chamber staff for 2-3 reputable real estate firms to interview. In addition ask the Chamber for 3-4 construction companies to speak with as well. Take the time necessary to interview the construction company owners/management. You can save/spend a lot of money in the construction process. Ask questions surrounding tenure in community, ask to view past projects, check references and pursue deadline incentive/disincentive clauses in the construction contract when you select a firm. Make sure the construction firm has a professional engineer (P.E.) on staff or access to one. They come in handy somewhere between the soil boring analysis and the storm water run-off requirement phase of the project. In addition, repeatedly inquire to your chosen construction firm the issue of meeting any permitting requirements at the local, state and national levels.
If you choose to construct a new facility in an industrial park, inquire about any adopted covenants and restrictions that tenants must adhere to. This will eliminate any confusion in the design phase of your building. There might also be issues surrounding outside storage and aesthetic requirements that tenants must participate in.
If you or your real estate firm find an existing facility that satisfies your requirements i.e. logistics, delivery time, production and office space, chances are it will still need some retrofit construction effort. So again, back to the interviewing of construction firms. If other suppliers are also looking to locate in the community, existing facilities will be a hot commodity. There will be little time to waffle on the lease negotiations. I would suggest you find out from the General Motors logistics team who else is looking for space and specifically, space that is similar to your requirements. That way you will know how competitive the existing building demand will be from an auto supplier standpoint. Chances are you will have to tie up the property before you actually have use for it. Build that cost into your pro forma.
Another important aspect in the site selection equation will be your sources of power to the plant. Both electricity and natural gas will probably be required. The issue of regulation in the world of power has changed the dynamic quite a bit in the last two years. Find out if the State your operation is entering is regulated or still deregulated. Chamber or city officials will be able to get you in front of any and all appropriate parties actively selling or reselling power in their community. When you are narrowing your sites, inquire if there are any lower costs associated with any particular sites. Sometimes power companies will need to invest more in certain areas to meet future power load expectations. If this is the case, you, the consumer may be required to foot most or all of that cost. Ask for site visits from the power companies in order to offer accurate load and cost projections. In addition, be prepared when you meet with engineers representing the power companies to have accurate power requirements for the facility and when you will need said power.
In addition to power concerns you will need to understand the need for rail service to your site. If you do not need rail, cross it off your list. If you need rail, determine your provider choices in the community, then speak with the GM logistics team and determine who they use for rail. In some cases the configuration of the rail lines can cause additional delays due to the track' s infrastructure as it relates to the local rail yard. Meet with the local rail terminal managers and their marketing personnel in order to determine issues critical to your project. If you will utilize an existing building, find out if there is a rail spur to the site. If not, how will you get it there? Utilize the rail company's engineering department as well as your own engineer. In addition to getting it there, how much will it cost? How long will it take to construct and does your volume warrant any subsidy from the rail provider? If you are constructing a new site and need rail, the issues are essentially the same as mentioned above. However, it is crucial that you determine the rail delivery time from your suppliers in order to factor in your entire sequencing chain and keep your customer happy.
If you are leasing the facility you will need to communicate your choice of construction firm to the owner. They probably have a relationship with one or more local firms. Make sure you include the owner in the selection process, this will eliminate any hard feelings from your lessor down the road. With either scenario, build or retro-fit, establish a timeline that originates with your production launch and work backwards, building in padded insurance time. Require the construction firm to stick to the schedule. If you are not scheduled to make weekly or bi-monthly visits to the location, ask for weekly progress reports in written or e-mail form from the general contractor. This will keep you apprised of any potential delay. Be prepared for hiccups, (unforeseen delays and cost overruns), they will occur. Your boss will expect a couple of minor hiccups. Although he/she will not tell or admit to you they expect any. Stay on-top of the construction/retrofit project. There should be bonus money to be won or lost based on cost overruns or savings.
It is conceivable that your highest cost associated with the GM contract will be your labor costs. When you meet with members of the economic development team, ask for a copy of the most recent wage and benefit survey conducted locally. Study it and ask your human resource department to study it as well. This publication will clearly illustrate the prevailing wage and benefit requirements you can expect to pay. Factor in union wage scale in addition to non-union scale. Speak to the GM human resource department in order to understand the labor climate. This discussion, together with any existing suppliers already established in the community, will assist you in forecasting labor rates for your pro forma.
Understand the types of employment you will be hiring and inquire with economic development officials, the State Department of Labor (through their local office) and human resource departments at local manufacturing operations about training programs and existing local workforce. There should be labor- training programs offered as an incentive from the State Department of Labor. In Louisiana there is a cash back program based on wages paid. Do not forget to ask about the training programs! Some programs will pay for the time existing company employees spend training new employees. Others will pay the post secondary educational provider to set up and initiate a customized training program based on your input and design.
If there are several suppliers coming into the community at the same time, and again, the GM logistics department will have that information, there is a strong and compelling argument for a job fair to be conducted by the local community. Speak with the local economic development team about that possibility. Together with the State Department of Labor, the economic development team should be excited about developing a job fair that will put locals to work. Get to know any other site mangers working for other supplier firms. Having someone to talk to that is doing essentially the same thing you are, will greatly assist you, even when discussing labor issues.
Local Business Climate
Every State has similar yet different ways of doing business. Local and State laws are different, the permitting process is prone to be individualistic and economic development incentives and applications are different. I would recommend you explore the feasibility of hiring local counsel and a local certified public accountant. Again, you can get a selection from the chamber of commerce to interview and price. Specifically, hire a law firm with corporate experience. Find out if any "hidden" laws exist regarding the incorporation of new business. Determine the most business friendly incorporation category according to state law, such as a LLC, traditional incorporation, S corporation or others the CPA and local counsel might suggest. Ask to meet local dignitaries such as the Mayor or County Administrator. Let them be a part of your project. If they feel they have been included in the beginning of your project or at least early on they will be more prone to assist you when an unforeseen calamity arises.
In addition to the local politicians and economic development team, arrange to meet the department of labor and state department of economic development people. Chances are the local economic development team will bring them into the picture early on, however, if they don't, ask to meet with them on your second or third visit to town. Again, meeting the entire team will aid you during the start-up phase and beyond.
After your first or second meeting with the local delegation, request in writing the incentive package the locals and state offices are willing to provide your company. Be prepared to give them employment, investment, and other project specifications. They will need the information for procuring incentives, tax abatements and training dollars.
At some point you will need information regarding specific support services for your supplier operation such as existing tool and die operations, mold design and repair, janitorial, communications, trucking, housing and a host of other support services. Again this is where your local chamber of commerce and city personnel can assist you. Chamber membership directories should have a thorough listing of the categories necessary to get your project up and running. Take the time necessary to call more than one operation in each of your needed categories and ask for price quotes. Free enterprise and competition is what makes America great. Ask for a copy of the membership directory as well as a couple of the city maps, the phone book, local housing publications, a community profile and a manufacturer's directory. They do come in handy.
As a result of the General Motors plant here in Shreveport, our economic development team in Shreveport has interfaced and supported at least 16 project managers charged with locating an automotive supply facility in our back yard. By now, we can tell right away who will need help and who has been down the site location road before. If you are about to get your first assignment in the site location business, remember, do not be afraid to ask questions! Utilize your resources inside your company and the resources outlined in my article. The time horizon on your project will move extremely quickly. There will be unforeseen circumstances generated through various sources including your customer. Expect them. Be prepared to roll with the changes and enjoy the ride. At the end of the day when the plant is up and running, you can look back with resolve and pride knowing the employees owe a certain degree of gratitude to you, your family and the many sleepless nights you donated in order to launch the operation on-time and within budget.
David Berzina is the Senior Vice President of Economic Development with the Greater Shreveport Chamber of Commerce and is a certified economic developer (CEcD). He has worked in the economic development realm in Michigan, Texas and Louisiana. In 2000, General Motors announced a $900,000,000 expansion in Shreveport that will require over seventeen tier 1 automotive suppliers to locate within a 90-mile radius of the GM facility by October 2003. As of November 2002, eight suppliers representing over 1,000 new, direct jobs, over $40,000,000 in annual payroll and $74,000,000 in investment have been announced in the Shreveport community.