Durable goods producers prepare for recovery

Durable goods producers prepare for recovery

How are shippers of big-ticket items responding to growth in the U.S. economy and expansion of the global manufacturing economy? Scott McWilliams, CEO of third-party logistics (3PL) provider Ozburn-Hessey Logistics (www.ohlogistics.com), says he's seen durable goods manufacturers reduce their inventories as well as their supply networks.

Companies in the durable goods sector — manufactured products expected to last at least three years — have reduced the number of locations where they handle and store goods by eliminating specific facilities or outsourcing a segment of their network. McWilliams, whose company claims 400 customers in 55 major markets in 20 states, says he's seen some of those companies reduce their network capacity by as much as 20% to 30% through outsourcing.

Outsourcing allows those companies to be better prepared for the volatility that has been almost epidemic in the last two to three years. Logistics managers have learned they have to be responsive when it comes to scaling up or down. They've also learned to move cautiously in areas like offshore sourcing where the timeframe to produce, ship and receive product into their network requires careful consideration.

In terms of China, McWilliams points out that companies are still wrestling with how to maintain quality in a context where the physical infrastructure is an issue and most of the service providers are government owned. Add security initiatives like the Customs-Trade Partnership Against Terrorism (C-TPAT), advance notification requirements and cargo screening on the inbound side, and the logistics timeframe can easily stretch further.

Ports are becoming more congested on the intermodal side, adds Shawn Barnett, vice president of business development for Ozburn-Hessey, leading many companies to increase safety stock and examine how to place inventory more strategically to avoid shortages and stock outs.

Companies have to understand the risk of putting all of their production offshore, McWilliams notes. They need some domestic capacity to respond to a rise in demand or any shift in demand. The realities of that environment are helping to break down some barriers in logistics. Companies that wouldn't have considered locating near a competitor are now looking at ways they can cooperate with competitors from the perspective of supply chain issues. This includes co-locating in logistics campuses.

Despite historically low interest rates, it's clear from current reports and forecasts that no one wants to build inventories. Big-ticket consumer durable goods makers are caught in the classic dilemma of not wanting to hold costly inventory but also not wanting to miss a sale. Add to that the concern over having inventory in the wrong place to meet demand — such as inbound on a ship that is still 14 days out at sea.

Despite all of the rhetoric about sourcing offshore, it appears there's still a significant role for U.S. manufacturing and distribution. LT

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June, 2004

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