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An MD&DI September 1999 Column

BOTTOM LINE

Bill Pettit and Russ Dixon

Back in the 1980s, someone coined the phrase, "Success is a journey, not a destination." In today's business environment, that advice continues to ring true, with one minor modification: success is now a rapid journey. Products and supplies that once lingered in warehouses for weeks or months now move through these facilities at dizzying speed. Just-in-time delivery has become synonymous with "just what our company needs." And the omnipresence of the computer has heightened everyone's expectation of what "on-time delivery" really means.

As a result, faster transportation alternatives—always key to moving and managing the medical device industry's raw materials and products—are becoming increasingly important. And transportation flexibility in the form of easy access to superior aviation and intermodal transportation alternatives is becoming a site selection issue that medical device manufacturers can't afford to ignore.

INTERMODAL TRANSPORTATION

Transportation infrastructure has always gotten its fair share of the site selection limelight. The economic development boards of most cities (at least those with a marketable transportation infrastructure) will typically address the transportation strengths of their areas in presentations to potential corporate residents. And most how-to articles on site selection list a transportation network alongside other important decision-making criteria such as quality of life, availability of a skilled labor force, and tax structure.

What has gotten less attention is the importance of intermodal transportation capability. Intermodal transportation is the use of two or more transportation modes—trucks, trains, ships, airplanes, or pipelines—to get raw materials or finished goods from manufacturer to production line to end-user. Companies mix these modes in an effort to reduce costs, improve speed, and increase overall performance and customer satisfaction.

Almost every town of reasonable size in North America offers intermodal capabilities, since most have access to interstate highways and airports, many have rail facilities, and a good number have ports. However, only a select few areas qualify as true intermodal hubs—locations capable of offering not just a range of modes, but a wide range of alternatives within those modes.

For example, a true intermodal hub would be the kind of place where it would be possible to deliver same-day turnaround on emergency orders—even if those orders came at the eleventh hour—because there are so many shipping alternatives. Such flexibility is especially important for medical device and equipment manufacturers, for whom a delay of a day in shipping an item such as a replacement part could mean, for instance, the loss of thousands of dollars in diagnostic services, not to mention valuable customer goodwill.

AVIATION RESOURCES

Overall, the medical device and diagnostic industry has been more forward-thinking than most in its approach to intermodal transportation, particularly when it comes to mixing aviation and trucking.

Because of the high cost of some devices or components, many manufacturers have concluded that it makes more financial sense to stock a limited supply of products at one or two central distribution points and use expedited air shipments (which are then loaded onto trucks for final delivery) than to have a huge supply of products dispersed throughout the country that can move exclusively by truck. Device manufacturers that use air shipments are adopting an integrated, big-picture approach to their logistics. Rather than simply attempting to minimize transportation costs, they're focused on reducing total distribution cost and maximizing economic value added.

Such manufacturers are not put off by the fact that an air shipment costs anywhere from five to 10 times as much as a pure surface move, because they know they can more than make up the difference in reduced warehousing, manufacturing, and customer-service expenses. In fact, according to one air-freight research group (the Marietta, GA–based Colography Group), most businesses can realize between $1.30 and $1.50 in savings for each additional dollar they spend on global freight services.

The need for device manufacturers to rely on intermodal air-truck combinations should get even more intense as the information age matures. With computers, fax machines, and e-mail exchanging information almost instantaneously and compressing deadlines, customers are developing real-time expectations about everything, including getting products in their hands. Slow turnaround times are becoming increasingly unacceptable in every industry, and high-velocity forms of transportation are becoming more attractive.

The use of air cargo is likely to increase even more if the development of business-to-business electronic commerce lives up to predictions. In the near future, many companies will bypass current sales and delivery channels and deliver directly to end-users. This will result in smaller, more-frequent shipments—and an increase in small parcels that can easily be carried by expedited air carriers, such as Emery Worldwide, and FedEx. The growth of electronic commerce will also mean that more decisions about transportation mode selection will be made by customers, a group that increasingly values time and quick turnaround as much as money. This audience is more likely to be willing to pay for faster, more time-definite forms of delivery like air cargo.

Finally, there is the issue of pricing itself. According to a study by Boeing Corp. (Seattle), air-transport prices have consistently declined by approximately 3% per year since 1970. If this trend continues—especially if other transport modes continue to raise their prices or keep them constant—it will certainly have a positive effect on air cargo's share of the logistics dollar.

AIR-SAVVY SITE SELECTION

The issues and trends cited above are among the reasons why it is critical for device companies to carefully consider aviation transport factors when searching for new manufacturing or distribution sites. Even if an area's air facilities don't play a major role in a manufacturer's current business, they very well could in the years to come. A thorough analysis requires going beyond asking the basic question of whether or not a city has one or more airports, and doing more than taking a cursory glance at a city's aviation facility capacities when undertaking a site tour. For companies serious about evaluating a region's transportation capabilities, the following eight essential areas should be investigated.

• How many airports does a city have? Most city airports provide several different kinds of aviation services, from commercial passenger and air cargo services to military, private, and recreational flying. Ideally, all of these diverse kinds of flights shouldn't take place at the same facility, because this could mean long waits for cargo planes to land or take off—and thus extra cost. There is also a safety issue when pilots with different experience levels share the same airspace. At a minimum, a city of choice should have two airfields, though three or more would be better.

CONCLUSION

Though important, transportation is only one of several key site selection factors. While device firms should certainly give prime consideration to the question of transportation, it's also important to keep it in perspective. The United States has one of the most sophisticated and extensive transportation networks in the world, and many air cargo companies serve a phenomenal number of cities. Even sites that are not major air cargo hubs have access to substantial levels of service. In the end, each company must determine how diverse its aviation alternatives need to be and whether or not a potential locale will be able to provide that diversity.

Bill Pettit is director of commercial services for the Jacksonville, FL, Port Authority, which oversees the city's system of airports. Russ Dixon is director of marketing services for GATX Logistics Inc., a leading provider of contract logistics services that is also headquartered in Jacksonville.

Photo courtesy of Federal Express

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