Logistics and Manufacturing Site Selection: Trends, Perspectives and Predictions Robert Hess
Executive Managing Director, Consulting 773-957-1439 [email protected]
About Us
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Who We Are
Newmark Grubb Knight Frank’s Global Reach
One of the world’s leading real estate service firms
Global revenues exceeding $1.88 billion
More than 370 offices in established and emerging property markets, with a global staff of more than 12,800
Property and/or facility manager for approximately 508 million square feet
Comprehensive real estate solutions through an extensive global platform of integrated services
Comprehensive Services
Strategic Planning Lease Acquisitions Lease Dispositions Program and Project Management
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Capital Markets Property Management Project and Construction Management Valuation and Advisory
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Integrated Services Approach
Demand for Space
Supply of Space
Management Consultants
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Industrial Engineers
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Master Architects
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Location Strategists Real Estate Advisors
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Occupancy and Space Planners
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Strategic Portfolio Planning Global Market Access Location Strategy/Site Selection Labor Market Analysis Economic Development Economic Incentives
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Master Data Strategy BIM Strategy CRE Data Management Technology Assessment Systems Selection
Occupancy Analysis & Modeling Mobility Strategy Facility Master Planning Workplace Standards Workplace Visualization
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GLOBAL ENTERPRISE
OPTIMIZATION
ASSET STRATEGY
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OPERATIONAL EXCELLENCE
GCS Consulting has over 75 consultants in one centralized organization with diverse backgrounds ranging from Management Consulting to Industrial Engineering to Architecture to Information Management, with specialties in all asset types and global geographic experience.
Strategic Consulting Services
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Projects Chaungzhao and Doce
Headquarters & Manufacturing
Strategy
Hickory, NC NY vs China
Real Estate Portfolio Management
National 28 Locations
Distribution Center Expansion
Northern, NJ Memphis, TN
High Tech Industrial Site Selection Expansions
Taiwan Europe
Occupancy Planning & Project Management
Atlanta , GA
Real Estate Portfolio Management
Global
687 Locations
Strategic Planning
Austin, TX
Global Portfolio Strategy
Global Assets
Confidential Location Strategy
South Central U.S..
Portfolio Strategy
New York, NY
Global Corporate Services Clients (Corporate Strategy and Planning)
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Business Process Harmonization
Store Development Pipeline
London, UK
Business Intelligence Dashboards
Houston, TX
Needs Assessment Business Case
Business Process
Detroit, MI
Needs Assessment Functional
Requirements
New York, NY
Needs Assessment System Analysis
New York, NY
Store Development Life Cycle
Functional Design
New York, NY
Business Intelligence Dashboards
Business Process
New York, NY
Benchmark Needs Assessment Strategic Roadmap System Selection
New York, NY
Business Case Benchmark
Fayetteville, NC
Master Data Strategy Asset Operations
Strategic Roadmap Benchmark
Oyster Bay, NY
Benchmark Business Process
Master Data Strategic Roadmap
Toulouse, FR
TCO Analysis Master Data Strategy
London, UK
Gulf Region Site Consolidation
Mid-Atlantic Location Strategy
Midland, MI
Benchmarks System Selection
Business Case
Oak Ridge, TN
Global Corporate Services Client (Technology Process Improvement)
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Notable Midwest and Illinois Site Selection Projects
Suburban Lake County LED Luminaries Lighting Equipment manufacturer and assembly expansion strategy. A planned $23MM investment with retention of 250 jobs and creation of 350 new jobs; planned BTS 325,000 sq ft facility on 15 acres; current IL operations old and obsolete
Left Gurnee, IL for Kenosha, WI. Massive WI incentive package of $12.25MM in cash and $11MM in tax credits; Walker driven.
Who Where What
Leading manufacturer of architectural lighting, expand its headquarters and manufacturing on Chicago’s Southwest Side, retaining 400 jobs and adding 50 full-time jobs. Proposed $45 million investment; spend at least $6.1 million to acquire surrounding parcels and expand to approx. 500,000 sq. ft. on its existing site
Evaluated several out of state options. Local search for sites with focus on employee retention of skilled labor. Announced stay option with $2.5 million Ito $3.2 million IL EDGE program.
Siting and development of a 4th 400mm Fab advanced manufacturing campus in the United States; The facility will cost roughly $15.3 billion to build, employ 1,600 direct employees and a similar number of contractors, and require an extraordinary support infrastructure of utilities, including 1000 MW of electricity.
Austin, TX current campus. National search, finalists were Upstate NY; Columbus, OH and Phoenix, AZ. Illinois eliminated from consideration; average incentive packages ranged from $700 million to $2 billion.
Distribution Network Location Optimization – What Do You Know!
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Distribution Center Model – Optimal Location Population modeled as Demand
Source : Precision Distribution Consulting (PDC)
1 DC – Indianapolis 2 DC – Cincy & Long Beach 3 DC – Long Beach, Nashville & Philly
4 DC – Long Beach, Philly, Hoover-AL & Joliet-IL
5 DC – Long Beach, Philly, Joliet-IL, Dallas-TX and Savannah-GA
6 DC – Long Beach, Philly, Joliet-IL, Dallas-TX, Savannah-GA &
Portland-OR
7 DC – Long Beach, Philly, Joliet-IL, Dallas-TX, Chattanooga-TN,
Portland-OR & Tampa-FL
8 DC – Long Beach, Edison-NJ, Davenport-IA, Dallas-TX,
Chattanooga-TN, Portland-OR, Tampa-FL & Toledo-OH
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The optimal distribution location strategy is always based on the best combination of cost and service performance….the issue is what impacts cost and performance in 2015 and beyond!
Order lead time
On-time delivery
Delivery frequency
Fill rate
Order completeness
Damage-free receipt
Reliability
Agility
Range of Optimal Values
Annual Cost
Transfer Freight
Fixed Cost
Store Freight
Number Of Facilities Few Many
Total Cost
Inventory Carrying Cost
Supply Chain Network Design – Optimal Location Total Cost and Performance Curve
Supply Chain Logistics and Manufacturing Site Selection Trends
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Supply Chain Networks 2025: Integrated and Collaborative Models
2015 2025+
• Information Sharing: Information Transparency will be the key to improving on-shelf availability (OSA).
• Collaboration Warehousing: Both retailers and manufacturers must be part of a collaborative warehouse concept. Collaborative warehousing should improve capacity utilization, transportation optimization and the carbon effect across their supply chain and espcially within urban areas.
• Collaborative Distribution: Collaborative models for urban distribution and rural areas that streamline inventory sharing.
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What does this Mean Within the Supply Chain Network?
• Manufacturers: have a collaborative warehouse, possibly run by a logistics service provider. In this example four manufacturers share a warehouse.
• Retailers: do not have their individual distribution centers anymore; products will be cross-docked by either a city hub for urban areas, or by a regional consolidation center for non-urban stores.
• City hub/regional consolidation center: will be shared and goes to the stores of the different retailers. Full truckloads will be realized more easily. May even be collaborative use of retailers stores for customer pickup.
Coopetition as well as collaboration!
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What’s Driving this Trend?
• Demographics and Psychographics: Pervasive migration of population from rural areas to urban and metropolitan corridors; millennials drive to live in urban cores (brain drain) and even baby boomers and retirees less inclined to live and retire in small towns.
• On Shelf Availability: The rise of Omni Channeling creates a need for improved OSA putting an
emphasis on automated back fill systems and rapid replenishment.
• Warehouse Crunch - Warehouse vacancy rates have plunged to the low single digits at some ports, and the crunch could worsen.
• Sustainability Push: Over the long-term, fuel and energy costs will continue to rise as fossil fuels continue to decline. Companies will look to warehouse automation and more efficient transportation methods, whilst developers and warehouse operators will be encouraged to consider solar panels, LED lighting, wind turbines and the use of waste product for energy production.
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A Word on Omni-Channels
Definition: “Omni-Channeling...... a multichannel approach to sales that seeks to provide the customer with a seamless shopping experience whether the customer is shopping online from a desktop or mobile device, by telephone or in a bricks and mortar store.”
Implication: E-commerce retailers are grappling with a massive paradigm shift driven by the demands of consumers empowered by robust new digital tools. At the same time, the "Amazon effect" has consumers expecting to receive almost any order within two days of purchase—particularly from pure-play e-tailers.
Evidence: The A. T. Kearney report claims that only 35% of shopping takes place in-store without an online component to the buyer’s journey and 10% of shopping takes place online without an in-store component. This means that 55% of shopping has some combination of the brick & mortar and online.
DC Site Selection: If retailers operating both brick-and-mortar stores and e-commerce websites don't evaluate their full supply chain to determine how to use every part of it as a fulfillment point, they could end up building a new distribution center every 18 months to two years," warns Piyush Sampat, principal and retail supply chain practice lead for management consulting firm Deloitte Consulting.
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How does this Impact Real Estate?
• Larger Warehouses: With the consolidation into multi-brand warehouses, the need for small and medium warehouses will decrease.
• Green Field Development : With a new distribution and warehousing model comes the need for new facility build outs to incorporate the cutting edge technology and a process flow for today’s needs.
• Urban Adjacent Distribution Hubs: With the increased need for rapid replenishment, the need for urban warehouse hubs will grow. Will County is extremely well positioned to be that hub for Greater Chicago (More Later on This).
Economic Development Groups: What are you doing to attract cutting edge Collaborative Warehouse
3PLs who handle the match making across manufacturers?
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Is Your Supply Chain Prepared to React to Global Risk Factors?
Example : Tianjin Explosions • Size: 3rd largest port in the world by cargo volume, and 10th largest in the world by container traffic. • Industries: Key global industries including electronics, aviation & aerospace, automotive,
petrochemicals and biotech. • Damage: Extensive damage to road and railway and IT infrastructure. • Responsibility: Numerous western-owned businesses in China have also been found to be at fault.
Some suggest that the Chinese location was chosen specifically to circumvent more stringent regulations.
• Compliance: As Tianjin officials clamp down on compliance, process and cost implications will ensue.
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Best In Class: Global Supply Chain Risk Management (SCRM)
• Crisis Playbook: A plan of action for a break in any of a company’s major supply chain components.
• Insurance: Insurance against business interruption losses and any pre-paid goods not yet in
house.
• SCRM System: allow companies to literally map and monitor the most critical component sources of their most important products.
• Focus on Supply Chain Resilience: Achieved by increased visibility, proactive analytics, real-time disruption monitoring, and response automation.
• Focus on resilient Product Design: Achieved through "risk optimized" component, supplier and manufacturing choices
• Better site selection: Due diligence is back! Do your homework on the area; instill confidence and certainty
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−Raw material −Semi-finished sourcing −Manufacturing −Transportation (Sea, Ground, Rail, Air)
−Inventory holding costs −Incremental management & overhead
−Brokerage and logistics fees −Complete shipping costs −Taxes, Duties & Tariffs −Insurance −Currency conversion −Crating costs −Handling fees
Transforming what gets done where !
Supply Chain Focus on “Total Landed Costs”
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Critical Location Factors for Manufacturing Site Selection
The factors that are expected to most drive manufacturing location project growth in the US are access to the US market, availability of skills/talent, relatively low energy costs, and lower total overall operating costs.
Source: Site Selectors Guild, 2015 Annual Conference, Puerto Rico
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Noteworthy Trends Driving Site Selection
• Wage Inflation: Communities across the U.S. will be faced with mounting wage inflation. Expect to see wages for highly demanded occupations such as technology, advanced manufacturing and back-office workers to increase.
• Transportation Infrastructure Challenges: – Cities across the U.S. are facing some serious infrastructure challenges due to the amount of growth and new development spurred by the recovering economy. The transportation infrastructure is highly strained and that will impact distribution channels as well as employee commute patterns.
• Minimum Wage Increases: Minimum wages are a hot topic at both the city and state level. Twenty states increased their minimum wage in 2015 while cities like Seattle, Louisville and Chicago have taken the initiative local. Look for lower wage employers such as call centers, distribution centers and low-end manufacturing plants to exit these locations for alternative lower-cost locations.
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Of Special Note: Chicago Metro Warehousing and Logistics Employment
Occupation Chicago Indianapolis Milwaukee Minneapolis St. Louis Detroit Cleveland Columbus Cincinnati
Transportation, Storage, and Distribution Managers 3,970 1,240 560 1,740 1,020 960 1,170 1,110 1,270
First-Line Supervisors of Helpers Laborers and Material Movers Hand 5,620 1,980 1,180 2,080 1,310 2,120 1,110 1,490 1,370
First-Line Supervisors of Transportation and Material-Moving Machine and Vehicle Operators
4,070 1,930 890 2,020 1,500 1,880 1,250 1,380 1,870
Heavy and Tractor-Trailer Truck Drivers 38,040 14,800 8,910 17,270 15,950 20,010 9,070 11,090 11,470
Light Truck or Delivery Services Drivers 25,760 6,470 5,070 8,000 6,540 12,780 5,360 5,290 6,020
Industrial Truck and Tractor Operators 22,320 7,610 2,340 6,240 4,580 NA 3,260 4,640 5,210
Laborers and Freight Stock and Material Movers Hand 108,440 28,370 17,450 22,710 20,240 28,290 19,210 22,980 18,440
Source: Bureau of Labor Statistics
The Greater Chicago metropolitan area does a horrible job at promoting their critical mass in transportation and logistics workforce availability as a whole.” Bob Hess, Newmakr Grubb Knight Frank
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Availability of Skilled Labor for Manufacturing – A Crisis?
“Middle-Skill” Jobs Across the U.S., by 2017, an estimated 2.5 million new so-called “middle-skill” jobs — ones that require some training but not a bachelor’s degree — will be added to the U.S. workforce, accounting for nearly 40 percent of all job growth, according to a recent USA Today analysis. The jobs typically pay from $13 to $20 an hour in all sorts of areas of what used to be known as blue-collar endeavors.
Critical Site Selection Factor #1: Availability of Skilled Labor
Manufacturing Roles With a Future
Manufacturers Can’t Find the Talent They Need As US manufacturing technology has advanced, workers have struggled to keep pace with the changes. The National Association of Manufacturers (NAM) recently reported that over 80% of manufacturers are having difficulty finding qualified talent to fill their employment needs. This labor shortage is exacerbated by the retirement of Baby Boomers. NAM cites this as the country's most business-critical issue facing manufacturing today.
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A different kind of worker is needed…
Old World New World
Learning one or two specific technical roles Mechanical reasoning, logic trouble shooting, and spatial visualization
Physical strength and flexibility Personal flexibility, communication, and cooperation
Ability to follow fixed, unchanging procedures Initiative, persistence, and independence
General attention to production and safety procedures
Attention to detail, self-control, and dependability
Following orders Making independent decisions
Operating, maintaining, designing mechanical machinery
Operating computers or computerized machinery and using computers for a wide range of critical functions
Degrees Desired: H.S. Grad and Vo Tech Certificates
Degrees Desired: STEM (2 and 4 Year College)
Source: Pearson TalentLens and NGKF Research
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2015 State Business Climate Index
State Overall Corporate Tax
Ind. Income
tax Sales Tax
Unemployment Insurance
Tax
Property tax
Illinois 31 47 11 34 38 44
Indiana 8 22 10 10 7 5
Wisconsin 43 33 43 14 27 31
Minnesota 47 44 46 37 29 34
Missouri 17 4 29 29 12 7
Michigan 13 10 14 7 47 27
Ohio 44 26 47 32 5 20
Kentucky 26 29 30 11 45 17
Kansas 22 38 18 30 9 28
Texas 10 39 6 36 15 36
2015 State Business Climate Index Ranks and Component Tax Ranks
Source: Tax Foundation Note: A rank of 1 is more favorable for business than a rank of 50.
Will Illinois make a good location for a Midwest manufacturing and distribution centers?
MARKET ACCESS/LOCATION
INFRASTRUCTURE
TALENT/SKILLED WORKFORCE
TAXES AND REGULATORY POLICIES
RIGHT TO WORK STATE
BUSINESS CLIMATE (ATTRACTION/RETENTION POLICIES)
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Incentives: Not Competitive (Do We Care?)
E. Jason Wambsgans, Chicago Tribune
Gov. Bruce Rauner holds a press conference outside his office at the State Capitol in Springfield, Sunday, May 31, 2015. Rauner suspended future economic incentives used to attract and retain businesses.
Illinois halts economic incentives for businesses
per·plex pərˈpleks/ verb past tense: perplexed; past participle: perplexed
synonyms:shock, stun, astound, dumbfound, overwhelm, stagger, amaze, astonish, take aback, take someone's breath away;
Will County Value Proposition
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Competitive Advantage from Road/Rail Network and Intermodal Facilities Transportation Employment Follows Key Infrastructure
Source: Will County Center for Economic Development, US Bureau of Labor Statistics, NGKF
Will County Transportation Network (Existing & Planned) Greater Chicago Transportation Employment
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Will County Specializes in Logistics Transportation & Warehousing Employment Growing Faster than Overall Economy
Total Employment (All Sectors)
Transportation & Warehousing Employment
% Transportation & Warehousing
Will County 184,034 13,143 7%
Lake County (IL) 290,009 4,972 2%
Kane County 174,606 3,299 2%
DuPage County 549,921 23,179 4%
Metro CHI Total 3,792,941 179,729 5%
Source: NGKF; US Bureau of Labor Statistics (Transportation & Warehousing = NAICS 48-49)
3.2% Transportation & Warehousing employment growth rate in Will
County (2014)
2.5% Overall Will County employment
growth rate (2014)
vs.
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A Large Market that is Well Positioned for Future Growth Price Advantage Coupled with Largest Shovel Ready Pipeline in Region
Will County Inventory (SF) 116,932,074 Vacancy Rate 11.0%
Avg Asking Rent ($/SF/Yr) $3.96 NNN
Proposed SF 42,366,195
McHenry County Inventory (SF) 17,830,433 Vacancy Rate 8.8%
Avg Asking Rent ($/SF/Yr) $4.44 NNN
Proposed SF 0
DuPage County Inventory (SF) 174,485,595 Vacancy Rate 6.0%
Avg Asking Rent ($/SF/Yr) $5.61 NNN
Proposed SF 6,028,271
Lake County (IL) Inventory (SF) 79,996,484 Vacancy Rate 8.4%
Avg Asking Rent ($/SF/Yr) $5.13 NNN
Proposed SF 3,843,937
Source: NGKF; CoStar, Inc.
Kane County Inventory (SF) 67,337,105 Vacancy Rate 7.7%
Avg Asking Rent ($/SF/Yr) $4.44 NNN
Proposed SF 6,070,341
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Most Construction Activity in Metro Chicago Will County Market Bolstered by Availability and Quality of Newer Space
Source: NGKF
Will 39%
Cook 22%
DuPage 15%
Kenosha 8%
Lake, IL 7%
Kane 5%
Other 4%
Metro Chicago Ongoing & Recently Completed (2Q15) Industrial Construction by County
Total Ongoing & Recently Completed
Construction 21,409,000 SF
Build-to-Suit 4,811,000 SF
42%
58%
Speculative 3,470,000 SF
Will County Ongoing & Recently Completed (2Q15) Industrial Construction by Type
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(2)
(1)
0
1
2
3
4
5
6
7
2010 2011 2012 2013 2014 YTD 2015
Mill
ions
Will DuPage Lake McHenry Kane
Strongest Demand in the Regional Market Will County is Five Year Net Absorption Leader for Logistics-Related Real Estate
Source: NGKF
Total Net Absorption 2010-YTD 2015
Will County 16,073,000 SF
DuPage County 10,615,000 SF
Kane County 5,624,000 SF
Lake County (IL) 3,112,000 SF
McHenry County 22,306 SF
Metro Chicago 62,055,000 SF
SF
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Major Logistics Operations Continue to Locate in Will County Top 10 Warehouse and Distribution Center Locations/Announcements Since 2010
85
Number of new major logistics locations (100,000
SF+) in last 5 years
30M
Total SF occupied by major logistics tenants (larger than 100,000 SF) in last 5 years
Source: NGKF; CoStar, Inc.
Company Square Feet Location Year
Michelin 1,700,000 Wilmington 2014
Home Depot 1,618,000 Joliet 2013
Saddle Creek Logistics Services 1,115,000 Elwood 2015
Pactiv Corporation 899,000 Romeoville 2013
Diageo North America, Inc. 800,000 Bolingbrook 2010
Whirlpool 752,000 Joliet 2015
Bob’s Discount Furniture 752,000 Shorewood 2014
Ferrara Candy Company 747,000 Bolingbrook 2013
PAE 723,000 Romeoville 2015
Georgia Pacific 697,000 University Park 2011
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Logistics Support Comprises a Large and Growing Portion of the Market Not Just the Largest Occupiers Driving Market Expansion
35%
Percentage of Transportation & Warehousing employment
dedicated to support services
336
Number of establishments dedicated to Transportation &
Warehousing support services
Source: US Bureau of Labor Statistics
Greater Chicago Transportation Support Employment
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Labor Cost Advantage for Lower-Skilled Logistics Worker Chicago’s Minimum Wage Increase puts City at a Site Selection Disadvantage
Occupation Description Metro Chicago Median Hourly Rate
Machine Feeders and Offbearers $11.55
Freight Stock and Material Movers $11.29
Transportation Attendants $10.60
Packers and Package Handlers $9.66
Cleaners of Vehicles and Equipment $9.44
$13/hour
Proposed minimum wage in Chicago by 2019
Transportation/Logistics Sector Median Hourly Wage for Lower-Skilled Occupations
Source: US Bureau of Labor Statistics
$14/hour Metro Chicago median wage for all Transportation and Material
Moving occupations (2014)
Opportunity for Will County
Conclusions
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So What Should be Will County’s Focus?
• Go after the matchmaker in the supply chain collaboration relationship.
• Round tables with local industries and employers about global supply chain risk and Omni-channeling.
• Will County site selection advantages: labor availability and cost, access to Chicago market, existing/planned infrastructure, cost/quality/availability of space, growing agglomeration effect
• Focus on attracting/retaining small to medium sized transport “support services” companies as much as the higher profile “big wins”
• Future opportunity to attract businesses out of Chicago given lower cost labor advantage and increasing minimum wage requirements in city
• Support efforts to make Illinois more competitive on the global stage
In Today’s Economy: Do Fewer Thing’s Better, Provide Deeper and Better Business Intelligence and Make it Sticky