SANTA ANA, Calif.—Yokohama Tire Corp. had occupied the same headquarters and distribution site in Fullerton, Calif., for nearly three decades, but now the tire firm has moved those functions to two new leased facilities.
The North American unit of Japan's Yokohama Rubber Co. Ltd. moved its headquarters in December to an office building in Santa Ana, shortly after its distribution center was moved roughly 30 miles to a new building in Chino, Calif.
The relocations were needed because the headquarters in Fullerton couldn't accommodate any more staff, and the distribution center was outdated and no longer could support its West Coast business, according to Jeremy Kahrs, senior director of supply chain, logistics, corporate planning and corporate quality for Yokohama Corp. of North America.
It made sense to separate the functions because, he said, different factors help determine the best spot to locate each.
“For the distribution center, you're looking at how much does it cost me to move tires and how
much does real estate cost,” Kahrs said. “When we did the analysis for the distribution center, there really was a sweet spot in terms of cost of real estate and cost of transportation, and the Chino area was right in the middle of that sweet spot.”
For the headquarters, it's important to be close to where your employees are, along with proximity to vendors and an airport, if possible.
“We decided pretty early on that Orange County was where it was going to be,” he said.
The firm basically looked within a 15-mile radius around the Fullerton location to find a location that would have a minimal impact on employees. “If you move 40 miles or so, you may as well move to another state because so many of your employees are not going to be able to make a commute like that regularly,” Kahrs said.
Yokohama has about 50,000 square feet of usable office space at its new site in Santa Ana, compared to about 32,000 square feet in Fullerton. It had 180 employees at the former headquarters and was at capacity, he said. The firm currently employs 180-190 in Santa Ana but can accommodate up to 225.
The headquarters represents an upfront investment of between $1.5 million and $2 million for improvements to the office apace and will cost $15 million over the life of the 10-year lease, Kahrs said.
Yokohama's new distribution center in Chino checks in at 659,000 square feet. It can store tires about 25 feet high. Kahrs said that compares to 380,000 square feet and a vertical storage limit of 20 feet in Fullerton, which translates to about double the capacity to store tires in Chino.
Yokohama made about $4 million in tenant improvements at the center and will pay more than $60 million during the 15-year lease, he said. The biggest expenditure, at about $1.4 million, was for a sprinkler system that met the fire code for tire storage.
Mitch Napier, the distribution center manager at Fullerton who holds the same title in Chino, said the difference is substantial.
“From a physical warehouse layout standpoint, it's just bigger, and that's huge from an efficiency perspective,” he said, noting Yokohama employed 42 at both locations.
Napier rattled a whole list of improvements: better lighting, with skylights and motion-controlled lighting (“it was like being in a cave before”); new steel racks that are a major upgrade from the wood pallets that required two staff members to do nothing but repair them in Fullerton; and state-of-the art ventilation.
The new center also gives substantial improvements to customer service. “In the old building, we couldn't get the product into stock quick enough,” Napier said. “In this building, with a lot more doors and space, I can go through the product a lot quicker. If we were in Fullerton, there probably would be a dock full of product that already should have been put away.”
The center can store about 1 million units, with about 60,000 units commercial and the rest consumer.
It also houses off-the-road tires, including some up to 15 feet tall, weighing 8,000 pounds that are stored outside at the rear of the structure.
And while the center was built to be “green,” with solar panels alone expected to bring savings of up to $65,000 a year, the move wasn't brought on with cost reductions in mind, Kahrs said.
The main reason was the Fullerton facility no longer could support Yokohama's West Coast business, and a secondary reason was to hold inventory from offshore production and then replenish the firm's other U.S. centers when needed. He said that mostly would be consumer products going to warehouses in Columbus, Ohio, and Auburn, Ga. It also has a site in Kentucky that handles commercial and OTR lines.
Staying in California
While California often gets criticized for being unfriendly to business, Yokohama never considered moving elsewhere.
“We really didn't even evaluate moving out of state,” Kahrs said. “The issue was purely the number of projects that we have going on right now throughout the company, and have had for about two years. We're really dependent on our people, so to make a major move at this time when we've got so much going on would have been too disruptive. It would have been too much of a setback for everything we're trying to do with the company.”
The cost to run the distribution center, he acknowledged, is significantly higher than to run its centers in other parts of the U.S., but Yokohama has a big market on the West Coast. “If we were to try to move it further away and try to have a lower-cost basis, we would just pay the difference in freight. Even with the higher cost of real estate, which is a big driver for a distribution center, you still have to be where your customers are.”