New Facility Expansion

1. Executive Summary

The Challenge

Growing companies face critical decisions about when and where to expand their distribution network. Common challenges include:

Capacity constraints: Existing facilities operating at or near capacity, limiting growth
Service level degradation: Increasing transit times as facilities serve customers farther away
Market expansion: Entering new geographic markets requiring new facility locations
Capital investment decisions: Where to invest millions in new facilities for optimal return
Timing uncertainty: When is the right time to expand vs. optimize existing network

5-10% Cost Reduction

30-50% Service Improvement

2-3 Years ROI Payback

2. Decision Framework

Decision Framework: When to Add New Facilities

Signs You Should Consider Facility Expansion

High facility utilization (above 85-90% capacity). Service degradation (transit times increasing, service levels declining). High transportation costs (serving distant customers from existing facilities). Market expansion (entering new geographic markets). Growth trajectory (sustained growth requiring additional capacity). Competitive pressure (competitors offering better service in key markets).

Alternative Solutions to Consider First

Optimize existing network: Reassign customers, optimize routes before expanding. Expand existing facilities: Add capacity at current locations if feasible. Third-party logistics: Use 3PL providers for specific markets or peak periods. Inventory positioning: Better inventory placement may reduce need for new facilities.

3. Strategy

Network Optimization Analysis

Using network design optimization, we evaluated expansion scenarios:

Scenario 1: Expand existing facilities (add capacity at current locations)
Scenario 2: Add 1 new facility in Central US (Dallas, TX or Chicago, IL)
Scenario 3: Add 2 new facilities (Central + Southeast)
Scenario 4: Add 1 facility + expand existing facilities

Facility	Location	Action	Capacity	Service Coverage
FC-East	New Jersey	Maintain	Current	Northeast, Mid-Atlantic
FC-West	California	Maintain	Current	West Coast, Pacific Northwest
FC-Central	Dallas, TX	NEW	500K sq ft	Central US, Southeast, Southwest

4. Use Case Example: E-Commerce Fulfillment Expansion

Company Profile

Industry: E-Commerce Retail
Annual Revenue: $200M
Current Network: 2 fulfillment centers (East Coast, West Coast)
Customer Base: 500,000+ online customers nationwide
Growth Rate: 40% annually
Service Promise: 2-day delivery for 80% of customers

Current State Analysis

Facility	Location	Utilization	Service Coverage	Avg Transit Time
FC-East	New Jersey	95%	East Coast, Midwest	1.8 days
FC-West	California	92%	West Coast, Mountain	2.1 days

Key Issues Identified

Capacity constraints: Both facilities at 90%+ utilization, limiting growth
Service gaps: Central US customers experiencing 3-4 day delivery times
High transportation costs: Long distances from existing facilities to central US
Growth limitation: Cannot support 40% growth rate with current network
Competitive disadvantage: Competitors offering 1-day delivery in key markets

Results & ROI

New Facility Investment:	$15,000,000
Land & Building	$8,000,000
Equipment & Systems	$4,000,000
Startup Costs	$3,000,000
Annual Operating Cost (New Facility):	$4,200,000
Annual Transportation Savings:	$2,800,000
Annual Service Level Value:	$1,500,000
Net Annual Benefit:	$100,000
5-Year NPV (10% discount):	$12,500,000
ROI:	83% over 5 years

Service & Operational Impact

Metric	Before	After	Improvement
Average Transit Time	2.4 days	1.7 days	29% faster
2-Day Delivery Coverage	68%	92%	+24 percentage points
Transportation Cost per Order	$8.50	$6.20	27% reduction
Network Capacity	2.5M orders/year	4.0M orders/year	60% increase
Facility Utilization	93%	75%	Room for growth

Strategic Benefits

Growth enablement: Network can now support 40%+ annual growth for next 3 years
Competitive advantage: 92% of customers now receive 2-day delivery (vs. 68% before)
Market expansion: Can now effectively serve Central and Southeast markets
Risk mitigation: Reduced dependence on two facilities, better disaster recovery
Customer satisfaction: Faster delivery times improve customer experience and retention

4.5 How Our Software Helps

Evaluate expansion scenarios with confidence. Our software models multiple candidate locations, compares total network costs, and quantifies service improvements before investing millions.

Candidate Location Analysis

Map view showing potential facility locations with cost and service impact estimates. Compare Dallas, Chicago, Memphis, and other candidates side-by-side.

What-If Scenario Analysis

Run "what-if" scenarios to see the impact of adding a facility at different locations. Compare total costs, service coverage, and ROI for each option.

Service Coverage Improvement

Visualization showing how adding a new facility improves 2-day delivery coverage from 68% to 92% of customers. See geographic service gaps filled.

ROI and Payback Analysis

Automated ROI calculation showing investment required, annual savings, and payback period. Compare multiple expansion scenarios to find optimal timing and location.

Key Software Features

Greenfield optimization (add new facilities)
Multi-location candidate evaluation
What-if scenario analysis
Service level impact visualization
ROI and payback period calculations

5. Implementation Roadmap

Phase 1: Site Selection & Acquisition (Months 1-3)

Complete network optimization analysis. Evaluate candidate locations (Dallas, Chicago, Memphis, etc.). Negotiate land/building purchase or lease. Secure permits and approvals.

Phase 2: Facility Design & Construction (Months 3-9)

Design facility layout optimized for operations. Construction or renovation of facility. Installation of material handling equipment. IT systems integration.

Phase 3: Staffing & Training (Months 8-10)

Recruit and hire management team. Hire operations staff. Training on systems and processes. Soft launch with limited volume.

Phase 4: Ramp-Up (Months 10-12)

Gradually increase volume from new facility. Optimize service assignments. Fine-tune operations and processes. Monitor service levels and costs.

💡 Key Success Factors:

Right-size facility for 3-5 year growth horizon (not just current needs)
Maintain service levels during transition
Phased ramp-up to ensure quality and efficiency
Continuous optimization of service assignments

Best Practices

Data-Driven Location Selection: Use network optimization to evaluate all candidate locations, not just obvious choices. The optimal location may surprise you.
Right-Size for Growth: Design facility for 3-5 year growth horizon. Too small requires another expansion soon; too large wastes capital.
Phased Implementation: Gradual ramp-up minimizes risk and allows for learning and optimization. Don't flip switch on day one.
Service Level Protection: Maintain or improve service levels during transition. Service degradation can damage customer relationships.
Continuous Optimization: Regularly review and optimize service assignments as demand patterns evolve. Network design is not set-and-forget.

Network Optimization Use Case