USING LOCATION STRATEGY TO ADDRESS CEOS TOP CHALLENGES Implications for Industrial

Services
CUSHMAN & WAKEFIELD GLOBAL BUSINESS CONSULTING

GLOBAL BUSINESS CONSULTING

TOPICS
TOP GLOBAL CEO CHALLENGES, 2013 CRITICAL IMPORTANCE OF HUMAN CAPITAL AND UNDERSTANDING LABOR MARKETS INFLUENCE OF FACILITY LOCATION ON OPERATIONAL EXCELLENCE Q&A

TOP GLOBAL CEO CHALLENGES FOR 2013

GLOBAL BUSINESS CONSULTING

1.
2. 3. 4. 5. 6. 7. 8. 9.

Human Capital
Operational Excellence Innovation Customer Relationships Global Political / Economic Risk Government Regulation Global Expansion Corporate Brand and Reputation Sustainability 7 of 10 challenges are directly affected by LOCATION STRATEGY

10. Trust in Business

Source: CEO Challenge 2013, The Conference Board

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TOP GLOBAL CEO CHALLENGES FOR 2013

GLOBAL BUSINESS CONSULTING

1.
2. 3. 4. 5. 6. 7. 8. 9.

Human Capital
Operational Excellence Innovation Customer Relationships Global Political / Economic Risk Government Regulation Global Expansion Corporate Brand and Reputation Sustainability

TODAYS DISCUSSION FOCUS

10. Trust in Business

Source: CEO Challenge 2013, The Conference Board

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GLOBAL BUSINESS CONSULTING

CRITICAL IMPORTANCE OF HUMAN CAPITAL

TIGHTENING LABOR MARKETS AND SKILLS SHORTAGES INFLUENCE OF FACILITY LOCATION ON LABOR SUPPLY AND COST

OUR TOOLS TO ASSESS LABOR CONDITIONS

HUMAN CAPITAL
The Tightening Labor Market

GLOBAL BUSINESS CONSULTING

FUTURE ANNUAL ADDITIONS TO THE WORKFORCE POPULATION ARE CONSIDERABLY LESS THAN YEARS PRIOR
GROWTH OF THE WORKING AGE POPULATION Projected Net annual Change U.S. Population Ages 18-64 AGE DISTRIBUTION OF WORKFORCE, 2012 1 in 5 Employed is Age 55+
65+ Years 55-64 45-54 35-44 5% 16% 23% 21% 22% 13%

25-34
16-24

Source: Bureau of Labor Statistics, 2012

Source: U.S. Census Bureau, estimated (2005-2011); projected (2012-2040) as reported in Texas Manufacturing Skills Gap, TIP Strategies February 28, 2013

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HUMAN CAPITAL
Talent Shortages

GLOBAL BUSINESS CONSULTING

TALENT SHORTAGE SURVEYS

Two-thirds (66%) of organizations report a difficult time recruiting for specific job openings, an increase from 52% reported in 2011. Top four applied skills gaps for job applicants:
Critical thinking/problem solving (53%); Professionalism/work ethic (46%); Written communications (41%); and Leadership (38%).

MANPOWER GROUP 2012 TALENT SHORTAGE SURVEY TOP TEN HARD-TO-FILL JOBS
1) Skilled Trades (most difficult) 2) Engineers 5 of 10 are INDUSTRIAL 3) IT Staff 4) Sales Representatives 5) Accounting % Finance Staff 6) Drivers 7) Mechanics 8) Nurses 9) Machinist/Machine Operators 10) Teachers
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Source: Society for Human Resource Management (SHRM). The Ongoing Impact of the Recession Recruiting & Skill Gaps. March 12, 2013

HUMAN CAPITAL
Talent Shortages

GLOBAL BUSINESS CONSULTING

U.S. MANUFACTURING SKILL SHORTAGES

High-skilled technical Scientists Engineers Managers and executives
91% 89% 87% 83% 79% 67% 59% 51% 48% 40% 37% 36% 20% 0% 50% 100%

Skilled trades
Sales representatives HR professionals Accounting & finance Production operators Drivers Customer service reps. Hourly laborers

Administrative support staff

Source: Society for Human Resource Management Poll, March 2013

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HUMAN CAPITAL
Addressing Human Capital Challenges for CEOs: Overview

GLOBAL BUSINESS CONSULTING

LABOR: HIGHLY VARIABLE BY LOCATION

Labor costs can vary by 35% across the U.S. The quality, availability, and type of labor is highly variable city to city even neighborhood to neighborhood.

High competition for talent = possible wage inflation

COMPETITION

Low competition for talent = possible lack of skills in market

Driven by competition for talent and low unemployment rates Can cost 100% of annual salary to hire a new employee

ATTRITION

SUSTAINABILITY

Will the area be able to sustain operations in 10 years?

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HUMAN CAPITAL
Wages Can Vary Significantly by Location

GLOBAL BUSINESS CONSULTING

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HUMAN CAPITAL
C&W Labor Analysis Framework and Capabilities

GLOBAL BUSINESS CONSULTING

C&W HAS ROBUST METHODOLIGIES AND DATA TO ASSESS LABOR MARKETS SUITABILITY AT EACH PROJECT STAGE
The best markets offer the best combination of labor supply, quality, cost, competition and access.
1 PROJECT

INITIATION
WORKFORCE PROFILING
Establish labor requirements Define job titles, wage levels, benefits, etc. Create targeted demographic and job skill profiles for location screening applications

2 LOCATION SCREENING NON-ECONOMIC CONDITIONS (qualitative labor market traits)

Desktop evaluation of targeted demographic and skill base traits Workforce supply/demand profile Educational attainment levels Union exposure ECONOMIC CONDITIONS Projected labor cost based on defined job titles/requirements Wage surveys

3 FIELD STUDY CONFIDENTIAL HR INTERVIEWS

Objective: Validate labor outlook and identify risks not revealed by desktop data Confirm: - Market cost patterns - Recruiting experiences (applicant flow, sourcing, quality, concerns) - Employer best practices - Optimum operating sector
CUSHMAN & WAKEFIELD - Quality training resources 10

HUMAN CAPITAL
Desktop Tools to Qualify and Compare Labor Markets

GLOBAL BUSINESS CONSULTING

OUR ANALYTICAL TOOLS

Identify targeted demographic households sought for client facility - HEADQUARTERS: More senior, highly educated, experienced talent - TECH COMPANY: Younger, educated, tech-savvy - DISTRIBUTION: Younger, HS-educated, blue collar
PRISM SEGMENTATION LIFESTAGE GROUPS
OLDER
MIDLIFE SUCCESS (%) ACCUMULATED WEALTH (%) YOUNG ACCUMULATORS (%) MAINSTREAM FAMILIES (%) SUSTAINING FAMILIES (%) AFFLUENT EMPTY NESTS (%)

MAP OF TARGET DEMOGRAPHIC HOUSEHOLDS

HIGHER INCOME

YOUNG ACHIEVERS (%)

CONSERVATIVE CLASSICS (%)

CAUTIOUS COUPLES (%) SUSTAINING SENIORS (%)

SITE

STRIVING SINGLES (%)

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HUMAN CAPITAL
Addressing Human Capital Challenges for CEOs: Labor Analysis

GLOBAL BUSINESS CONSULTING

OUR ANALYTICAL TOOLS

Qualitative Market Comparison Index
QUALITATIVE MARKET COMPARISON INDEX PRIMARY FACTORS Selected Labor Resources Scalability Sustainability WEIGHTING 30% DESIRABLE CONDITIONS (REFLECTS HIGHER RATING) Larger pool of targeted manufacturing related skills, blue-collar underemployed, and workforce responsiveness to part-time and shift work. Greater size and density of targeted demographics; balanced competitor profile; fewer employers-of-choice. Less exposure to tight labor supply-demand balance; suitable educational attainment; lower inflation trends; projected growth in targeted demographics. Fewer petitions for election certification and successful union election outcomes.

25% 25%

Union Activity

20% 100%

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HUMAN CAPITAL
Addressing Human Capital Challenges for CEOs: Labor Analysis

GLOBAL BUSINESS CONSULTING

OUR ANALYTICAL TOOLS

Union Risk Assessment
PETITION ACTIVITY FOR ELECTION CERTIFICATION, 2012
LOCATION TOTAL & TREND FROM PRIOR YEAR UNION ELECTIONS (2008-2012) ELECTIONS PER 100K WORKFORC E
0 0

YEAR ACTIVITY
2 1 1 1 0 0 1 1 0 1

ELECTION OUTCOME
Union 59% Company 41% Total Elections: 37

City A

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

5.8

Union 25%

0
Total Elections: 12

City B

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

3.4
Union 62%

City C
Petition Activity Legend

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2.1

Total Elections: 50

Targeted Unions: Teamsters All Remaining Unions Source: National Labor Relations Board (NLRB)
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GLOBAL BUSINESS CONSULTING

LOCATION STRATEGYS IMPACT ON OPERATIONAL EXCELLENCE

OPERATIONAL EXCELLENCE DEFINED ACHIEVING OPERATIONAL EXCELLENCE THROUGH LOCATION STRATEGY SUPPORTING CLIENTS LOCATION STRATEGIES

OPERATIONAL EXCELLENCE
What is it?

GLOBAL BUSINESS CONSULTING

OPERATIONAL EXCELLENCE DEFINED: TOP FIVE STRATEGIES IDENTIFIED BY CEOS

Reduction of baseline costs Raise productivity and employee engagement Break down internal silos

Continual improvement (e.g., Six Sigma, Total Quality)

Seek better alignment between strategy, objectives, and organizational capabilities

Source: CEO Challenge 2013, The Conference Board

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OPERATIONAL EXCELLENCE (INDUSTRIAL)

Reducing Costs and Raising Productivity via Location Strategy

GLOBAL BUSINESS CONSULTING

OPTIMAL LOCATION STRATEGIES ACHIEVE MAJORMany companies do COST REDUCTION not appreciate the Electric power and natural gas rates geographic variability Transportation distances and rates, for each mode of costs and conditions driving their Labor costs competitiveness. Taxes on real estate, equipment and inventory
Incentives

LOCATION CONSIDERATIONS THAT DRIVE PRODUCTIVITY

Our goal is to identify and capture the benefits.

Labor market size, quality, union presence, etc. Facility layout, capacity and flexibility Utility capacities (electric, natural gas, wastewater treatment, water supply, etc.) Transportation infrastructure (rail, road, and river and ocean ports) Government support, business climate and environmental constraints

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OPERATIONAL EXCELLENCE
The Most Influential Cost Factors

GLOBAL BUSINESS CONSULTING

FOCUS: PRIMARY INDUSTRIAL OPERATING COST FACTORS

Transportation

Labor
Utilities

KEY QUESTIONS

1) What market conditions and client or facility requirements are influencing each?
2) How do these factors vary by geographic location? 3) How can they be assessed and incorporated into client decision making and outcomes?

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IMPORTANCE OF FREIGHT COSTS

Often the Largest Recurring Cost

GLOBAL BUSINESS CONSULTING

EACH PROJECT IS DIFFERENT, BUT TRANSPORTATION INFRASTRUCTURE AND COSTS ARE TYPICALLY CRITICAL
SUPPLY dd CHAIN PRIORITIES OF RECENT GBC PROJECTS
PROJECT NAME Arthur TRANSPORTATION INFRASTRUCTURE NEEDS Rail on site for inbound; might use for outbound containers Interstate within 10 miles Copper Truckload only 14% to 20% FREIGHT AS % OF TOTAL OPERATING COSTS 70% to 80%

Interstate within 10 miles

Columbus Rail and river terminal on-site Nearby deep-water terminal Full truckload Franklin Rail on site River terminal within 30 miles Truckload
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40% to 45%

45% to 50%

FREIGHT MODELING TO FOCUS THE SEARCH

Combining Supply Chain and Real Estate is a Differentiator

GLOBAL BUSINESS CONSULTING

INBOUND

MANUFACTURING

TRANSFER/STORA GE

OUTBOUND

Port of Entry Raw Material Source Candidate Plant Location(s)

CZ1
Customers

Service Center(s)

CZ2

Each client and facility supply chain is unique.

Inbound and outbound shipments can be modeled, depending on the situation.

Analyses range from simple spreadsheet models to sophisticated optimization tools. St. Onge Company, C&Ws supply chain engineering partner, gives us marketleading capabilities.

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EXAMPLE FREIGHT-COSTING ANALYSIS

Locating a $250 Million, 500-Employee Manufacturing Plant

GLOBAL BUSINESS CONSULTING

ESTIMATED, ANNUAL INBOUND AND OUTBOUND FREIGHT COSTS SUGGEST SITE SELECTION SHOULD FOCUS ON THE OHIO RIVER VALLEY.
Next step: Canvass region for markets with low labor and energy costs, and otherwise favorable operating conditions (environmental, labor supply, unionization, etc.).

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INTERMODAL IS A GROWING PRIORITY

One of the Most Pervasive Trends Across Industrial

GLOBAL BUSINESS CONSULTING

RAIL IS ON THE RISE AS A MUST-HAVE OR NICE-TO-HAVE CRITERION

More and more product types being shipped by container

CLIENTS WANT TO KNOW INTERMODAL PROXIMITY FOR EVERY PROPERTY

RAILROAD COMPANIES INCREASINGLY FOCUSED ON INTERMODAL BUSINESS

Building out intermodals across Canada, Mexico and U.S. Percent of total revenue from intermodal increasing dramatically

INTERMODAL FACILITY PROXIMITY STIMULATES SPEC WAREHOUSING AND OVERALL DEMAND FOR INDUSTRIAL SPACE

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OPTIMIZING BEYOND FREIGHT COSTS

Labor Costs and Operating Conditions Can Outweigh Freight

GLOBAL BUSINESS CONSULTING

110 MSAs IN ELEVEN STATES SCREENED vs CLIENT-SPECIFIC CRITERIA

6 MSAs offered best combination of skills presence, labor costs, unionization, etc. Customized approaches are developed for each clients unique priorities.

SCREENING CRITERIA
(MSAs VS. U.S. AVERAGES) Mfg. wages < 95% Target wages < 95% Below ave. union % Target industry presence 0.5 < X > 2 Air quality attainment Labor force > 50K and 2% growth

START: 110 MSAs

FINISH: 6 TOP MSAs

Lexington Johnson City

Jackson

Fayetteville Columbia

Recommended Metro Closest airport hub

Augusta

Potential Metro Existing Locations Search Area (all shaded areas)

Mfg. employment 0.5 < X > 2

Optimal Transport Cost Existing Locations Search Area

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ELECTRIC POWER COST VARIABILITY

Costs Vary by Location

GLOBAL BUSINESS CONSULTING

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GROWING NATURAL GAS SUPPLIES

Utilities Relying on Natural Gas Are Gaining Competitiveness

GLOBAL BUSINESS CONSULTING

Source: U.S. Energy Information Administration.

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ELECTRIC POWER COST VARIABILITY

Costs Trend Upward and Downward

GLOBAL BUSINESS CONSULTING

Source: U.S. Energy Information Administration.

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COST REDUCTION THROUGH INCENTIVES

Incentives are Top of Mind for Our Clients

GLOBAL BUSINESS CONSULTING

ONCE OPTIMAL, FINALIST LOCATIONS ARE FOUND, INCENTIVES OFFER ADDITIONAL COST-SAVING OPPORTUNITIES
Grants for training, site preparation, and infrastructure
Tax abatements, credits, exemptions Below-market-rate financing

NEGOTIATION SUCCESS REQUIRES SUFFICIENT TIME AND COMPETITION

Two to four months of negotiation in at least two locations

AWARDS DEPEND LARGELY ON PROJECT IMPACTS AND GEOGRAPHY

Incentives can range from negligible amounts to up to 25% of project investment

C&W CONSULTING HAS ROBUST INCENTIVES CAPABILITIES

Identifying, quantifying, negotiating, and documenting

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INCENTIVES EXAMPLE
Recent Feasibility Analysis for Client

GLOBAL BUSINESS CONSULTING

Heavy manufacturing plant considering expanding in California or Georgia Up to $392 million dollar investment, 400 jobs ~$20 million dollar variance in potential incentives between states INCENTIVE VARIANCE: CALIFORNIA VS. GEORGIA
CALIFORNIA TYPE OF INCENTIVE Grants Tax Credits Tax Rebates Tax Exemptions Tax Abatements Workforce Development Utilities Miscellaneous Total Low $0 $0 $0 $0 $0 $939,600 $0 $0 $939,600 High $0 $16,713,080 $0 $0 $0 $1,429,200 $TBD $TBD $18,142,280 GEORGIA Low $610,500 $6,222,500 $0 $1,643,571 $10,600,583 $610,500 $0 $3,375,000 $23,062,654 High $1,424,500 $6,222,500 $0 $1,643,571 $16,683,060 $1,017,500 $TBD $6,750,000 $33,741,131
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IN CLOSING
Meeting CEOs Top Challenges Through Location Strategy

GLOBAL BUSINESS CONSULTING

C&WS PLATFORM DELIVERS SOLUTIONS TO ACHIEVE CLIENTS GOALS FOR COST REDUCTION AND OPERATIONAL EXCELLENCE
SUPPLY CHAIN ANALYSIS

PROPERTY INVENTORY

OPTIMAL LOCATION

LABOR MARKET COMPARISONS LOCATION STRATEGY REAL ESTATE DUE DILIGENCE

COMPARATIVE FINANCIAL ANALYSES INCENTIVES & REAL ESTATE NEGOTIATIONS

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GLOBAL BUSINESS CONSULTING

Q&A
THANK YOU FOR YOUR ATTENTION !

ANY QUESTIONS ?
ANDY MACE
Managing Director (717) 505-8046 1400 Williams Road York, PA 17402 andy.mace@cushwake.com

KEITH GENDREAU
Consulting Manager (952) 893-8815 3500 American Blvd. W. Suite 200 Minneapolis, MN 55431 keith.gendreau@cushwake.com