As published in Toledo Business Journal - July 1, 2013
Owens Community College’s Findlay campus
Site selectors
offer guidance for
area job creation
A number of professionals traveled to northwest Ohio this past spring as part of an effort to improve economic development in the area. Most of these professionals are site selection consultants whose clients are corporations interested in finding locations for new facilities. These facilities may include manufacturing plants, distribution operations, research and development centers, headquarters, and other operations.
The visiting consultants were the
featured speakers at a program
organized by the Regional Growth
Partnership (RGP). Attendees
were
economic development
professionals from counties and
cities
throughout the region. The
event was held at Owens
Community
College’s Findlay
campus. Gary Thompson and
Todd Dickerson, RGP
vice
presidents, organized the event.
The site selection consultants
discussed the process that they
employ in working with a client. In
describing this process, the
image
of a funnel was used. At the top
of the funnel, dozens and
even
hundreds of possible site locations
are entered. As the
process
continues, only a few locations exit
the bottom of the
funnel.
A number of the consultants
described their work as a process
designed to eliminate sites. They
explained that for almost all
projects there are always a large
number of site options. They
further explained that with the
large number of options, much of
the work involves finding reasons
to eliminate potential sites.
The consultants spent their time
before this group of area
economic
development professionals
sharing their insight on how
communities in the region can
increase their chance of having
a
local site selected for a
corporate project.
Site Selectors: Critical location factors of NW Ohio and SE Mich
An example of a web-based tool that highlights critical location factors (CLFs) for northwest Ohio and southeast Michigan and also provides supporting data and information can be found at www.toledobiz.com/propertyscout_regionalassets.html
This tool is being provided by Toledo Business Journal as part of the Decision Data component of the regional Industrial Property SCOUT system. A “skeleton” outline has been put in place for this critical location factor tool. It will be updated as additional data and information concerning these key regional assets and strengths is obtained.
The Industrial Property SCOUT system contains databases of key decision data and includes separate software that can be customized for any county in the region. It has been deployed on the websites of a number of county economic development organizations in northwest Ohio and has been offered by RGP to local economic development organizations in southeast Michigan.
RGP and JobsOhio are currently providing the funding for any county/city in the region that chooses to advance the information on its website with the SCOUT system.
The site selection consultants
described the work they do in
order to select a site for a facility
and provided examples of
projects
and clients. Each discussed a
process that involves a
significant
amount of time spent gathering
data and information.
Using this
data, a series of detailed financial
analyses are
prepared on site
alternatives.
Early in the process, the
consultants screen potential site
options for critical location factors
(CLFs), explained Dan
Foster,
senior managing director,
Newmark Grubb Knight Frank. As
the project advances, a modeling
approach is often used in order
for the consultant and client to
examine the potential for
profitability and return on
investment between the
various
options. Examination of
financial performance is also
accompanied
by an assessment of
important qualitative factors.
A winning site must offer both
financial performance capability
and meet important qualitative
factors.
Foster discussed the approach to a client project in more detail. He explained that at the beginning of an assignment, a significant amount of time is spent with personnel from the client company in order to understand the key factors that impact profitability and successful operations. Through this process, the top factors that impact a business’s operations are identified. Next, each of these factors is ranked. Then through an involved effort, a weighting is developed so that the level of the factor’s importance and impact is able to be properly incorporated in the site selection decision process. These critical location factors or CLFs drive much of the quantitative and qualitative analysis work that is done on a project.
Foster explained that these critical location factors change for different industries. He also explained that these factors may differ for companies within an industry depending on the business’s specific capabilities and needs.
Foster then used the funnel example to discuss in more detail the process that many site selection consulting firms use. There are also many corporations that do this same type of work without the use of a consulting firm when they are making decisions on where to place new investment in their existing network of facilities and possible new operating locations.
Foster described the funnel process as a multi-phased approach. In Phase One, a large number of site location options are screened. During this phase, a significant amount of data from national databases and from area economic development websites and other sites is pulled together.
The consultants explained that during this first phase, they do not contact economic development agencies or individuals at site locations. They often work “24/7 hours” and professionals at potential site options are not aware they are being considered.
This part of the site selection process has important implications for communities interested in increasing their chances of winning new investment projects.
During the data gathering work of Phase One, the key quantitative and qualitative factors that will drive a facility investment decision are known by the business and their consultants. These critical location factors are used to gather specific data. This information is used to screen a large number of site options and to eliminate many in order to get the list of finalists to a manageable level.
Data used from a national database may not accurately reflect the real situation with a site option. Site selection consultants attempt to correct this by trying to obtain more accurate data and information from area economic development websites and other sites.
An example of data from a
national database that
negatively
impacts northwest
Ohio and southeast Michigan
industrial buildings
and sites
is provided in the sidebar to
this article headlined
“Quality
data can increase job
creation.”
Improve web info
One of the recommendations
that site selection consultants
have
offered is that area
economic
development
organizations
improve
the
information on their
websites.
Site Selectors: Quality data can increase job creation
There are national databases that many corporate professionals and site selection consultants use to do the Phase One screening work for a site selection project. These professionals take the time early in a project to attempt to obtain more accurate data. If they are able to obtain more accurate data from an economic development website, they will use this information instead of the national database. They have learned through experience that more accurate data will impact the results of an analysis.
As an example, for a corporate industrial project where energy costs are a critical location factor (CLF), a national database of industrial electricity rates can be obtained from the US Energy Information Administration (EIA). Recent data from this source provides the average industrial electricity cost per kilowatt-hour (kWh) in Ohio (which is the lowest geographical level for which information is provided). Site selectors and analysts at corporations are able to use this data at an early stage of the project in order to incorporate the cost differences of sites in competing states.
The EIA data for March 2013 shows the average industrial electricity cost for Ohio at $.0596/kwh. However, the actual average industrial rate paid by northwest Ohio industrial customers of Toledo Edison for the same period was $.0394/kWh (Source: Industrial Property SCOUT database).
Using the EIA Ohio data currently results in a 51% cost penalty being placed on industrial buildings and sites in northwest Ohio where Toledo Edison is the electric utility. This cost includes both generation and distribution cost components. Site selection professionals who use the EIA Ohio industrial electricity cost database figures place a significant penalty on industrial site options in northwest Ohio by incorporating the higher EIA data that is not accurate for northwest Ohio and southeast Michigan.
The reality is that industrial customers of electric utilities in northwest Ohio currently have electricity costs that are extremely competitive. This is a significant change from years past. There are a large number of industrial companies in the region that, as a result of changes in Ohio utility regulatory practices, are now able to contract for very low generation rates from utilities in the area or around the country. They are then able to combine the generation costs from their selected provider with low distribution costs from an area utility to result in a low total industrial electricity rate.
Unfortunately, industrial sites in northwest Ohio and southeast Michigan may be eliminated during the Phase One screening for those projects that are high industrial electricity users and where site selectors only have access to the EIA Ohio data.
Prior to undertaking a project
to
upgrade its website,
Sandusky
County Economic
Development
Corporation
(SCEDC) assembled
a group
of site selection
consultants to attend a focus
group session.
During this
session, these consultants
advised
that during a
project
they often
worked 24/7. They
explained that
they often go
to economic
development
websites in an
attempt to
obtain more
accurate
data.
They also shared that during
the early phases of a
project,
economic development
professionals are often not
aware
that one of their
buildings or sites
is being considered.
During this focus group session,
these site selection consultants
advised that they may eliminate
a site option if it is difficult
to
obtain needed data. In contrast,
they spend more time with
areas
where the information is easier
to
obtain. “If you want more
development projects, make it
easy for us to do our jobs.”
They
strongly encouraged
improvement
of the information
on area
economic development
websites.
Unsupported claims
Foster emphasized the importance of backing claims made on economic development websites with hard data and supporting information. He explained that every community in the country claims that they have an excellent “quality of life.” Further, many communities and regions claim that they are the right place for certain target industries, but then do not offer hard data and supporting information.
Foster encouraged attendees to understand the unique strengths of their communities and their development site options, target the industries where these strengths are most beneficial, and then provide data and information on their website that supports their case.
“Your websites have to be set up understanding what information we are looking for. Build out your website to identify and highlight your strengths. Then, it is important that you prove your claims about assets and strengths by providing supporting data and information that we can obtain,” Foster emphasized.
Website info for critical location factors
Site selection consultants work in teams with other members of their consulting firm and also with individuals employed by the client. For companies that do not employ a consulting firm, a team of cross-functional employees work together on a site selection project team.
During a project effort, much of the work that takes place involves the elimination of site options. Sites that avoid elimination and continue through the process have favorable financial performance and qualitative factors that are supported by hard data and information about the location. They become “championed” by member(s) of the team as a result of this hard data and information about the site location.
Foster’s encouragement to provide hard data and supporting information for critical location factors in the region can be very important for a site option in northwest Ohio or southeast Michigan. This hard data and information will give team members a tool and a resource that they can use to champion a potential site location and keep it from being eliminated during this involved process.
Critical location factor (CLF) data and information about a building or site location that can be shared by team members during a presentation to client decision-makers is especially important.