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About the Author

Cliff Holste is Supply Chain Digest's Material Handling Editor. With more than 30 years experience in designing and implementing material handling and order picking systems in distribution, Holste has worked with dozens of large and smaller companies to improve distribution performance.

Logistics News

By Cliff Holste

November 7, 2012

Can a Build-to-Suit Distribution Center Building Cost Less Than A Spec Building?

The Answer May Depend on the Long-Term Cost of Compromise

When a company considers acquiring a new facility, such as a distribution center, it is making a long-term decision. While there are many business specific requirements for housing a company’s warehousing and order fulfillment operations, the most basic decisions relate to throughput and storage capacity.

Throughout the U.S. industrial park developers have built facilities ahead of actual demand. Due to the slowdown in the economy over the last several years, there is a large inventory of spec buildings available and perhaps some good opportunities for companies who are looking to make a move.

These facilities are designed to accommodate a large variety of business functions. For economic reasons the facilities tend to be large scale usually in the 150K to over 250K square foot range. The idea is that a business can sub-lease the space that they do not currently need.

Holste Says:

A company's inability to make a decision on whether to build a new custom designed facility or try to make a spec or existing building work; the longer they delay that decision the more they are driving themselves to an existing building.
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It is common practice for the building column spacing in a spec building to be 40 ft. by 40 ft. This column grid pattern favors a conventional selective pallet racking arrangement as well as bulk floor storage with 12 foot wide aisles to accommodate counterbalanced fork lift trucks while at the same time allowing the columns to be buried in the flue space between pallets loads. While this is an effective warehousing arrangement for low to medium velocity operations, it is not very efficient for companies with high turnover rates looking to optimize floor storage and building cube.

It’s interesting to note that even though the most recently built spec buildings have clear heights of 30 feet or more, conventional fork lift trucks are usually limited to about 4 pallets high. When translated into pallet storage positions, 1,000 pallets will require about 10,500 sq. ft. of floor space. Whereas, with a custom designed build-to-suit building the column grid can be arranged to accommodate a verity of narrow-aisle (NA) storage configurations thus optimizing floor space and building cube.

For example: Deploying Reach Trucks in an 8 foot wide aisle, where pallets can be stacked 6 high, the same 1,000 pallets will require only 6,000 sq. ft. of floor space, which equates to a savings of about 40%.

It’s a relativity safe bet that the cost of leasing and operating a custom building specifically design for NA operation, that requires 40% less storage space and at the same time requires making fewer material handling system layout or operational compromises, will be less expensive over time than a larger less efficient spec building.

Of course, timing is an important consideration. A company’s inability to make a decision on whether to build a new custom designed facility or try to make a spec or existing building work; the longer they delay that decision the more they are driving themselves to an existing building. When you run out of time – a spec building is better than no building at all.

In order to avoid being forced into compromising, a company should begin its search as soon as possible. If they can find a per-existing facility that does not require making major compromises to their operation, allows for efficient high density storage, is in the right location and has access to the labor they need, perhaps it makes sense.

Companies looking to take full advantage of the latest advances in material handling technology, especially as it relates to automation, will be better served in a custom building. But the only way they will know that is to evaluate the operational benefits and costs of having exactly what their business requires over the long haul.

Final Thoughts

No doubt, there are many critical business and operational issues to consider before one can determine the pros and cons of spec versus custom designed buildings. The situation will be somewhat different for each company, and therefore the analysis needs to be done on a case-by-case basis. The one constant is that the decision is a long term proposition for the company.

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