For companies that are in need of new or additional space, now is an especially good time. There is a huge inventory of vacant buildings that were built by developers on “speculation” (referred to as Spec Buildings) all around the country –see “Bargains Abound For Companies In Need Of New DC Space”. The remaining question is: Are they the best choice?

In order to obtain additional perspective on this important question we recently interviewed two executives from H&M Company, Roger Cook, SVP and Greg Kelly, VP. Founded in 1957 and located near Jackson, TN, H&M www.hmcompany.com is a national consulting, engineering, and construction firm offering a full range of building services for both large and small projects throughout North America.

According to Cook, his firm works with many clients who have an inclination or an idea that they need a new facility. Many of them want to start off looking at existing buildings.

However, the approach Cook recommends is to first develop an optimum building requirements specification document for the products that are going to be received, stored and shipped taking into consideration future business and growth requirements. This document is usually done in collaboration with the client’s material handling consultant and/or systems integrator, assuming they have one or both onboard at this early stage, and allows for a preliminary building project budget and schedule to be developed.

The requirements document includes all the basic stuff like a process flow chart, an operations square footage block diagram, storage cube utilization, number of receiving/shipping dock doors, trailer staging space, expected maximum employee count, number of shifts, etc., just to mention a few. It is then further developed into an optimum building layout, flow diagram, and optimum site plan that serves as a comparison tool to evaluate existing and/or spec buildings against the requirements document and what sites could be considered.

Understanding Key Evaluation Factors

While Cook believes that developing the requirements document should be the first step in the evaluation process, there are several other critical factors. As an example, Cook says that one of the often over looked factors is determining how applicable national and local building codes will affect the functional design of the building. The following is a list of specific factors that have a bearing on the evaluation process:

• Requirements such as high bays and low bays separated by double MFL (maximum foreseeable loss) Factory Mutual firewalls are becoming more prevalent and may need to be added to an existing building to pass code and/or fire insurance requirements.

• Building height comes into play when considering ESFR (early suppression fast response) sprinkler systems versus more costly in-rack sprinkler systems.

• Emergency exits must be located at specific distances from work areas. Sometimes escape tunnels are required in larger facilities. In an existing building, compromises may have to be made to the optimum layout to be in compliance.

• If high bay storage (6 or more pallets high) is required, then floor flatness becomes an issue for narrow aisle and very-narrow aisle applications. Floor flatness is an important factor because some lift truck manufacturers will not warranty new lift trucks unless the floor meets certain flatness and levelness specifications – see “Optimum DC Performance Begins With a Flat Floor”.

• The roof structure of the building needs to be taken into consideration especially if equipment like conveyor, catwalk, and platforms/mezzanines are going to be supported from the roof steel. Other considerations are - location of skylights and roof drains, location and candlepower of overhead lighting systems, and location of all other ceiling mounted equipment.

• Air changes per hour, which according to Cook is not expensive to fix, needs to be considered and if not adequate needs to be fixed upfront.

• Actual power requirements often exceed what was provided for in the spec building design. That means going back to the utility company and requesting additional power. Also, older buildings will probably not be as efficient with regard to “green” initiatives.

• The spec building may not be sized properly for the expected number of employees with regard to restrooms, break rooms, parking spaces and other employee support services. In addition handicapped worker regulations and facilities may need to be included and/or expanded.

• Bay spacing in a spec building is something that cannot be changed. Most often the column grid pattern will not fall within the flue space between back-to-back racks resulting in less than optimum storage cube utilization. Also, in receiving and shipping areas, if the first row of building columns is set back less than 60 feet from the dock, they can impede the optimum flow of goods on the dock.

• According to Cook, most developers are building in parks they control and they want to utilize the maximum square footage that they can for lease space. Therefore, operations that have a large number of employee auto and vendor truck traffic flowing in and out of that park may experience considerable traffic congestion issues.

All of the above issues have operational, cost, and schedule considerations that must be understood.

Can a Custom Building Cost Less than a Spec Building?

For DCs, one of the most basic decisions relative to spec versus custom build relates to pallet storage. Most spec buildings are designed for conventional selective pallet racks. This racking arrangement, when combined with typical counterbalanced fork lift trucks, typically requires 12 foot wide aisles and they are usually no more than 4 pallets high. When translated into pallet storage positions, 1,000 pallets will require about 10,500 sq. ft. of floor space.

With a custom designed building that has a floor flatness of FF45/FL35 or better, narrow-aisle (NA) arrangements are possible. Operating with a reach truck 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%.

If all other things are equal, it’s a safe bet that the cost of leasing and operating a custom building that requires 40% less pallet storage space, and at the same time requires making fewer layout or operational compromises, will be less expensive than a larger less efficient spec building.

Cook makes an interesting observation when he says that “the owners inability to make a decision on whether to build a new 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”.

Kelly added that they encourage clients to look at buildings that are available. If they can find one that does not require compromises to their operating system, is in the right location, and has access to the labor they need, perhaps it makes sense. But the only way to really know that is to evaluate the operational benefits and costs of having exactly what their business requires over the long haul.

Regardless of whether the decision is spec or custom build, both Cook and Kelly agree that currently, leasing is the most attractive alternative for a credit worthy company.

For Some Special Operations - Custom Build is the Only Way To Go

As the economy slowly improves, H&M is currently seeing a large uptick in B2C clients. According to Cook, many of their B2C e-commerce clients are saying their business is growing like crazy. Retailers, with flat growth across many stores, are seeing huge growth in their B2C business. As a result many of these companies are expanding their B2C operations into new buildings. They are finding that existing and/or spec buildings are not suited for their high velocity B2C operations.

Cook also points out that, based on their experience, 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.

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 will have long term consequences for the company.

Unless you have been down this path before, and have the confidences to make the decision on your own, the best approach is to get on board with a full service design-build firm early enough to avoid having to make a crisis decision.

Agree or disagree with Holste's perspective? What would you add? Let us know your thoughts for publication in the SCDigest newsletter Feedback section, and on the website. Upon request, comments will be posted with the respondent's name or company withheld.

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