SKU proliferation drives facility development
Sustainability, automation play a key role in design plans
SKU proliferation affects all facets of the beverage industry. In terms of operations, whether it’s a manufacturing plant, distribution or warehouse facility, even a brewery or distillery, having and maintaining a productive facility is vital for day-to-day tasks. Trends in facility development are prompting companies to plan for future growth, increase sustainable practices and automate operations.
In turn, some beverage operators are deciding to further invest in their company by either developing a new facility or expanding on an already existing one.
“Increasing SKUs is the primary reason we see beverage companies either building new facilities or expanding on their current facility,” says Chet Willey, president of Arlington, Texas-based Chet Willey Associates (CWA). “The explosive increase of craft brands was the initial reason causing warehouse capacities to be exceeded, but today many beer distributors are also adding non-alcohol products and some are adding liquor and wine, where states permit.”
Another reason companies decide to invest in a new facility is to increase operational efficiency, says Patrick Holleran, vice president of HDA Architects, St. Louis. “Whether it’s by automation, storage layout / picking flow, change in delivery method from sideload to liftgates, crossdocking or energy savings.”
Lloyd Snyder, senior vice president of Portland, Maine-based Woodard & Curran notes that new facility building also can be attributed to companies deciding to enter a new geographical location. This can improve labor options (skill/education levels and population growth) and overall product distribution, he says. We also are seeing aging infrastructure and a hostile, non-business friendly regulatory environment being a driving factor in new facility builds, he adds.
An overall investment
Before investing time and money in new facility development, a few factors should be taken into consideration, experts say. First, companies should identify the building size and land requirements to accommodate the future planning horizon, CWA’s Willey says. “In many cases that can be 20 to 40 years and should be done prior to purchasing land for the new facility,” he says. “[Companies also] should enlist in an experienced architectural firm to evaluate alternative sites to ensure it will be compatible with future building expansions.
“[The firm] can also identify operations enhancements in the design that will result in significant growth in productivity and reduce operating costs,” he adds.
HDA’s Holleran also notes the importance of an experienced design firm. Hiring a design firm that is a standalone entity with experience in the beer or beverage wholesaler industry will add great value to your design plan, he says.
Design firms also have the ability to represent companies’ interests independent of the builder to make sure there is accountability through transparency, Holleran adds.
Holleran advises that companies also take the following into consideration:
- Building taller: typically not much of an additional expense and provides more room without taking up floor space
- Carefully analyze potential build sites: location is key to minimize delivery costs
- Plan for future growth
- Take advantage of early depreciation
Woodard & Curran’s Snyder highlights how it also is important to consider infrastructure costs. Water, wastewater and power usage can add significant costs to the construction of a new facility, he says. “To bring these ‘outside services’ to your new facility, significant planning and negotiations are key,” he continues. “Community and state economic development arms are increasingly playing a role in bringing a new facility to a community. Incentive packages can help a company reduce the initial capital requirements.”
SKU proliferation also should be taken into consideration when planning a new facility or expanding an existing one. “SKU proliferation must be included in sizing a new warehouse to accommodate the next five to 10 years growth,” CWA’s Willey notes. “With the average distributor adding 50-100 new SKUs per year, this can equate to 15,000 to 30,000 addition square-feet required over 10 years.”
In many cases, companies are deciding to expand their facilities in order to handle the rapid growth of alcohol beverages like craft beer, hard ciders and seltzers, HDA’s Holleran adds. However, the industry is beginning to see wholesalers focus on SKU attrition, looking to cut out some of those “dust collectors” or slow movers, he says.
When planning to invest in facility development, typically companies renovate or expand already existing facilities, rather than building from scratch, experts say. Most companies renovate previous buildings due to the high costs associated with a new facility, Woodard & Curran’s Snyder says.
“The resulting facility is highly customized,” he says. “Facility customization requires a design process that can be flexible and innovative. For example, if site constraints limit the square footage of a facility, multi-level facilities or equipment design can solve that.”
CWA’S Willey notes that it also could depend on whether land is available to expand the current facility to accommodate future sales and growth. “If sufficient land isn’t available, it is better to build a new facility than sink a significant investment into a facility that will only be sufficient for short-term growth.”
To put this into perspective, HDA Architects see a mix of about 60 to 40 of new builds to expansions and renovations, Holleran says. “Either way, growth usually is the main driver,” he notes. “It’s often due to the wholesaler’s growth trend, whether it’s new product acquisition or new territory acquisition. In some cases, renovations still will not fit [a company’s] current and future needs. Depending on the extent of the expansion or renovation, the cost may determine if renovation or a new build is most beneficial.”
In an effort to preserve the earth’s resources, new facility planning increasingly is incorporating sustainable practices. “A facility’s infrastructure needs to be built with planning for water reuse and alternative energy,” Woodard & Curran’s Snyder says. “Also, a multi-fuel facility strategy [like] oil, gas and biomass, can help create a more stable, reliable energy cost. We recommend companies continue to look at energy flexibility in their thermal needs and how to reduce water usage through efficient cleaning processes.”
CWA’s Willey also highlights key sustainable practices. “Distributors that are committed to implementing sustainability in a new facility are usually willing to pay more in upfront construction costs to realize a long-term reduction in energy costs, which will pay for itself over time,” he says. “For example, insulated tilt wall construction, vertical dock plates and LED lighting can result in a significant reduction in utility costs for refrigerated or air-conditioned warehouses.”
Another key factor in facility planning is automation. “We are seeing more complex warehouse operations that are in need of automation and [enterprise resource planning] ERP integration,” Woodard & Curran’s Snyder says. “Labor shortages is also driving automation as manufacturing becomes more complex and requires strict quality standards.”
High-density storage and retrieval systems can be a great resource within the warehouse, HDA’s Holleran adds.
In the coming years, warehouse design will continue to build higher to accommodate automation, CWA’s Willey says. Many facilities today are designed with a clear heights of 32 to 40 feet to integrate automation in the new design or allow space of a future implementation, he adds.
HDA’s Holleran echoes similar sentiments. New automation, building higher and the ability to store more product in a smaller footprint will continue to be a factor in new facility planning, he says. BI