Technology is changing the face of all industries today, and manufacturing and distribution isn't immune to its impact.
Whether its wearable devices, RFID tracking or process automation, more M&D firms are regularly turning to technology to improve internal and client-facing operations. This emphasis on automating formerly manual, time-consuming processes marks a turning point in the industry, as productivity and employee efficiency reaches new heights.
As staff productivity continues to improve, industry executives’ focus will start shifting to other strategic operational decisions, namely, transportation and energy cost savings. Rather than consolidating internal operations, these companies can benefit from offsetting the expenses associated with moving products through the supply chain.
On the distribution side of the sector, we’re seeing a number of companies relocate or expand facilities in order to connect customers with goods more quickly and affordably. For example, BMW recently opened a new warehouse distribution facility near the South Carolina Inland Port, allowing for better inventory control and drayage cost savings. This summer, Neovia Logistics will move into a new space at the CenterPoint Intermodal Center in Joliet, Ill, where the 3PL can take advantage of its proximity to the intermodal and interstate system.
Moves to transportation-advantaged areas give distributors the space and accessibility (to ports, rail and interstate routes) required to run their businesses more efficiently and minimize costs. It’s only a matter of time before manufacturers follow their lead.
The True Costs of Transportation
According to U.S. Census information, the U.S. manufacturing sector spent over $42B on purchased fuel and $2.6B on automobiles and trucks for highway use in 2011. Regulatory changes, such as the recently revised Hours of Service for commercial vehicle drivers, are pushing shipments’ origin-to-destination costs even higher. With transportation accounting for upwards of $60M for every $1B in materials cost for product-based industries, manufacturers need to rethink their approach to this critical part of their business.
Putting down roots in transportation-advantaged locations is essential for companies looking to access both suppliers and customers while effectively connecting to the global marketplace. There are a number of benefits, beyond basic cost savings, that manufacturers can gain by considering an intermodal strategy:
- Improved service and customer satisfaction: When it comes to getting products where they need to be on-time and on-budget, manufacturers and distributors are fully aware that their methods matter. Positioning facilities close to intermodal hubs can help businesses fulfill clients’ current expectations, and expand their services to make options like same and next-day delivery possible.
- A web with more reach: There are major transformations underway in the transportation world, such as the BNSF Railway’s capacity expansion and the widening of the Panama Canal. In order to reap the full benefits of these infrastructure upgrades, manufacturers need to establish a foothold in close proximity to ports, rail hubs, and airports.
- A solution to the trucker shortage: In recent years, the U.S. has begun to experience a truck driver shortage, with fewer qualified professionals available to make long-haul trips and around 25,000 trucking jobs going unfilled, according to the American Trucking Associations. By diversifying transportation options—across rail, road, air and sea—manufacturers can ensure proper, professional delivery of goods at a reduced cost.
- A cleaner environment: Freight railroads account for a mere 2 percent of U.S. greenhouse gas emissions from transportation sources; one double-stack train alone can take 300 trucks off of highways. By relying more on intermodal fleets, manufacturers can make as dramatic an impact on their carbon footprint as they do on supply chain costs.
Location is Key
Manufacturers looking to gain a competitive advantage and save on costs need to think smarter about location planning, particularly their facilities’ proximity to intermodal hubs. More investments are being funneled into the development of these transportation-advantaged centers across the country, offering U.S. manufacturers unmatched access to freight facilities, ports and railways.
Manufacturers that fail to at least consider these moves will miss out on a major opportunity – especially in an industry where transportation can account for up to 60 percent of all supply chain expenditures. Given the intermodal success their distributor counterparts have seen, it’s time manufacturers put plans in motion to replicate the same results.
Nate Rexroth is the Executive Vice President, Operations, at industrial real estate firm CenterPoint Properties.