7 ways your facility eats your profits

In the 1986 classic, “The Money Pit”, Tom Hanks and Shelly Long fall in love with an old  house, and buy it believing that they can renovate it and make it the home of their dreams.  They find that each improvement that they make reveals more defects, and a cost spiral runs out of control.

While this scenario can certainly occur in the world of commercial real estate, it is far more likely that your facility is eating your profits in other, more subtle ways.  You and your team work hard to deliver quality, to be efficient, to provide superior service … while your facility is working against these efforts and eating your profits in the process.

  1. Workforce – Attracting and retaining talent is the number one key to any company’s success today.  Your facility, its location, its appearance, its features, and its cleanliness are vital to how employees and candidates measure you against their other employment options.  The costs related to falling short in this area are huge.  They are seen in inflated wage rates, employee turnover and general productivity.
  2. Transportation costs – Inbound and outbound freight costs are significant in most businesses.  Sometimes they are paid directly, other times they are a burden placed on suppliers and customers.  By running logistics models, these costs can be quantified and locations can be optimized.  It is important to understand that this is not just about cost-reduction.  Your customers are increasingly sophisticated and are constantly evaluating the total cost of doing business with your company.
  3. Layout inefficiencies – Imagine building the perfect facility from scratch.  Draw your process on a blank sheet of paper.  Remove the constraints of walls, columns, utilities, and other existing structural elements.  Optimize the pathway that your product travels, minimizing the handling, labor, product loss, damage, etc.  How different is that from your current operation?
  4. Vertical constraints – Real estate costs are often expressed on a cost per square foot basis.  For many situations this may be appropriate, but the cost per cubic foot can also be a very useful metric.  Taller warehouses allow for a greater storage density and a reduced facility footprint. This not only reduces overhead, but shortens the travel distance of your material handlers.  Using racking and mezzanines, vertical space can be leveraged to increase the capacity and extend the life of a “maxed-out” facility.
  5. Outdated features – Are your offices modern, with proper wiring for today’s technology?  Downtime, data loss, and unreliability loom as risks for the heart of your business.  In the industrial areas of the building, antiquated dock equipment, fire systems and power infrastructure are an ongoing source of risk to your business’ sanitation, security and safety programs, while quietly inflating your maintenance costs.  Meanwhile, substandard employee areas fuel discontent in your workforce and drive your best employees to your competitors.
  6. Energy inefficiency – Being green isn’t just about being a good corporate citizen, it’s about saving some green as well.  New LED Lighting fixtures can produce significant energy savings, while improving the quality of the work environment and virtually eliminating bulb replacement.  Likewise, modern HVAC systems are designed to deliver greater comfort with less energy and less maintenance.
  7. Scaring away business – When your clients and prospects visit you, what impression is your space making?  Does it scream “QUALITY” and “EFFICIENCY”.  Does it reflect the same message that your marketing and sales teams are delivering?  If your facility falls short of client expectations, they may decide to take their business elsewhere.

Of course, some of the items above can be cost-effectively remedied through system upgrades, while others are may require relocation.   Universally, the first step is a full and thorough facility assessment.  This allows a strategic approach to quantifying, prioritizing and addressing the issues that affect your business.  Also, if you have a multitude of issues, relocation may be a better option than writing your own version of The Money Pit.