Friday 28th Oct 2016 - Logistics Manager

Building the “right thing”

The key issue for project management today is building as quickly as possible isn’t it?” What makes a development successful? It is probably true to say that most people will have clear thoughts on this which will be based on their contribution to the development process. A tenant/operator of a new facility, a developer, a contractor will all see life from different perspectives and their measures of success will almost certainly be different, at least in part.

It is probably also true to say that many of those that are involved in the nuts and bolts of the physical process of developing a new distribution centre will think of “the development” as the acquisition of land, the gaining of planning permission, the design of four walls a floor and a roof and the successful letting of the building to a tenant. They may even use the tried and tested phrases of “on time, within budget”.

In addition, the occupiers of that facility will probably be looking to define the success of the project in terms of cost per case, product availability, optimisation of stock holding and the like.

Unfortunately the focus for many of us, working within the property and development professions, is the nuts and bolts and the delivery of a physical asset. Our lives revolve around real estate and the bricks and mortar (or should I say profiled metal) rather than the operation of a facility.

So what makes a development successful? There is no simple answer but I would like to think that those of us in the real estate professions can embrace a wider viewpoint than development profit, the speed of construction or the cost per square metre.

My view is a simple one when it comes to the development of new facilities. I have to admit that it is probably skewed by the fact that most of my professional life as a project manager has been spent acting as a consultant to occupiers wishing to procure new facilities rather than for developers. This view is “build the right thing, within the correct time frame, at the correct cost and to an appropriate level of quality”. There you have it – a fudge and a trite one at that.

If you consider this a little more carefully, however, it does deliver real challenges to all those involved in the development process: the occupiers, the developers and their agents, the contractors and the designers.

Build the right thing –

The challenge for the tenant/occupier

What is “the right thing”? I am going to consider this from the view point of a development which is being procured for a specific occupier and delivered by a developer rather than direct development by an occupier. This is something the property fraternity will label a “Pre Let” or a “Freehold Design and Build” depending on whether it is a Leasehold or a Freehold development.

Occupiers procure new facilities as a result of change within their business. It may be growth, consolidation or contraction. Whichever the reason, it is an outward manifestation of change within the business. It will also be part of a solution which will be required to deliver benefit to the business. The ultimate measure will be a more efficient unit cost of delivery.

My view is that the “right thing” is a facility that supports an occupier in delivering its parameters for business success. Again a trite notion. It does set down a challenge for the tenant, however.

It is only possible to build the “right thing” if it has been accurately defined and it will only be accurately defined if the tenant/operator has invested time in considering carefully and documenting their proposed operation in all of its detail, and translating this into a description of the building. This description will provide qualitative and quantitative descriptions of all of the components of the building and will, ideally provide drawn definition of the building wrapped around the proposed operation.

This definition should include all aspects of vehicle movement from delivery vehicles passing the site boundary to the despatch vehicles exiting the site. It will include the clear definition of the flow of people and product through the facility and will define matters as wide as canteens and locker rooms and PLC locations for cranes and mini loads.

The definition should include inputs from all potential stakeholder departments within the facility so as to ensure that it has predicted all needs. The easy areas will be distribution centre operations and materials handling, but what about loss prevention, IT, risk management and transport? What about the shared facilities that belong to no single department that are vital? The definition of all is important.

The definition should, ideally, also consider areas of potential change so that this can be considered and managed at an early stage.

Clearly some facilities will be more complicated than others in their definition. My experience tells me that complication is usually bound up in the level of mechanisation or automation within a facility and the number of people to be employed on the site.

The danger for any project team at an early stage of project is to overlook the need to ensure that the user has adequately defined their operation such that the building and building services can be designed around it.

It sounds a facile point but experience tells me that users and developers alike can focus on signing the deal for something rather than investing an appropriate amount of time at definition and design stage to ensure that the deal is for the right thing.

I remember a few years ago looking around a large facility in the United States which was nearing completion. It was to be used as a template for a facility that was being considered for the UK. We walked the operation from receiving the despatch and discussed the operation at each stage.

As we left the receiving dock, I asked if the physical characteristics of the dock would be consistent in the US and the UK. The answer was that it would but I had a nagging doubt. It was only on pushing the point harder to understand why the US dock was configured in the way that it was that it became apparent that the US did not receive containers but the UK would.

Thus adopting a US dock configuration would have given real problems on our proposed 26 inbound docks. A small detail of definition but it reinforced my view that time spent in the definition of an operation will pay dividends and confirmed that it really doesn’t matter how well you build the wrong thing. If it’s wrong, its wrong.

What are the key issues for a successful project? Time invested through the process of definition is certainly one of the keys. Without it all other aspects of the project may be managed excellently but the finished product is likely to be wrong.

Build in the right time frame

When considering the development of a new distribution facility the most tangible aspect of project time is the period from breaking ground to the completion of a “developers shell”, essentially an unlit, unheated big shed with an office building and little else. We hear of 16 week builds and less for large buildings, the use of prefabrication or modular construction. This is all great and there is a place for it.

More often than not the fast-build build periods that are cited within the development market are for a developer’s standard off-the-shelf product rather than a bespoke facility.

Deciding on the appropriate time frame is essential at the initial planning stages by the proposed occupier. It needs to consider how best to procure the fully fitted and commissioned facility in terms of cost, design liabilities and, of course, elapsed time for the facility becoming operational.

Failure on the part of the tenant to recognise the time that can be taken in the pre-construction negotiations, quite apart from the installation time of materials handling equipment and the building services that are needed to support it, can leave tenant and developer alike fighting a lost battle from the outset.

The point here is a simple one. Ensure that board papers used to sanction a project have considered all processes that are needed to create a fully fitted facility. Make sure that all elements of both the base building and the fit-out have been identified and the basis of procuring both have been reviewed and agreed.

Ensure that those elements of the mechanical and electrical services that can only be completed in sequence with the construction of the materials handling equipment have been considered and programmed and the basis of contract identified.

Again this is a trite comment but my experience is that, on many occasions, the procurement process for the fitting out of the facility is not fully thought through leaving programming issues for the future when the facility is delivered later than anticipated and therefore does not deliver the business benefits at the time expected.

What are the keys to a successful project? Appropriate programming is key. This can mean building fast but most of all it means to build to a well considered all encompassing programme that forms the basis of the expectation of the tenant board.

Build at the right cost

Cost, quality and time are of course the three key parameters that can be defined and measured in any project. Cost is something that we have not yet considered.

It is obvious that the cost of a project must be at a level that supports an appropriate level of return – this must be true for the occupier in delivering its proposed efficiencies, the developer in terms of development profit and the contractor in terms of profit on cost.

All three are naturally at odds with each other but in many ways it is only when all parties are satisfied with their lot that the project can be delivered without the need for one party or the other being distracted by the poor financial performance of the project for them.

A successful project in terms of cost starts again at project planning stage. The definition of the facility is vital in terms of establishing a realistic budget. It must acknowledge items that are likely to be provided by the developer in its base building and therefore paid for within the rent for the building and those that will inevitably be fit-out and therefore would typically be a capital cost for the tenant.

It must consider how fit-out is to be procured and the extent to which the developer is to be involved. Mixed into the equation will be the consideration of the incentives package that is hoped might be provided.

With all of these matters predicted it means that the figures used in support of the project within the tenant board should be reasonably accurate therefore avoiding the potential for the project reviews which adversely impact on programme when unexpected but entirely predictable costs come to light.

Not only does good project definition and facility description enable the tenant to establish a robust project budget but it also provides high quality documentation to developers for bid purposes is good. This will result in well considered financial offers.

So is the key to a successful project to build fast, or to build cheap? These are certainly important issues. To my mind however, the key to a successful project is to plan well and then build the right thing, within an appropriate time frame to an appropriate budget.

Graham Prisk can be contacted on 020 7563 1621.