Manufacturers/distributors face new technology challenges

I recently spent about a week in Savannah, Ga., at a great conference on economic development. Our hotel was right on the Savannah River and, thus, on the thoroughfare that hosted dozens of ocean cargo ships heading for the Atlantic Ocean each day. The first time I saw one sail by, almost close enough to our hotel that I could reach out and touch it, it took my breath away. I had never seen anything like it: four city blocks long, piled 10 to 15 ocean containers high and about eight across, carrying goods to other ports or bringing goods to Savannah for distribution to other cities and states.

I immediately wondered what was in each container. Where had it been manufactured? Where was it going? It would be hard to find a more visible reminder of what a prosperous country we live in and how huge our manufacturing and distribution channels have become. Adding to the effect, in the evening, when one of the ships sailed past, a lone trumpeter on the docks played “America, the Beautiful.”

Behind all of the romance of the ocean-going steamers, however, there are thousands and thousands of manufacturers creating those goods for overseas shipment. Like any other kind of business, they face the challenges of containing costs while improving efficiency and quality. In addition, these companies report that managing rapid growth is a major concern. And, as one might expect, information systems are becoming increasingly important in companies’ meeting of performance expectations.

While many in the manufacturing and distribution industries report a revenue increase as high as 19 percent in 2006, they also indicate that battling increasing costs for raw materials, fuel and labor is a daily occupation. As the economy has improved, many manufacturers are feeling overload strain. Both warehousing and distribution facilities routinely report they are operating at 90 to 95 percent capacity. At the same time, most manufacturers report that continuous improvement tops their list of strategic objectives, along with lean manufacturing practices, just-in-time production and build to order.

One of the key breakthroughs in manufacturing processes in recent years is RFID (radio frequency identification) technology that allows suppliers and manufacturers to track the exact location of materials and finished products at any point in the manufacturing process. Theoretically, using RFID technology, one could scan the entire contents of one of the big ocean containers I saw on the ships in Savannah in just a few seconds. But the beauty for manufacturers is that is allows them to trace products throughout the supply chain, a feature that comes in handy if there is a problem with a product.

Many manufacturers report they continually struggle with the question of whether to automate existing facilities or relocate plants to regions of lower wages to improve efficiency and cuts costs without adding to overhead. By adding technology at critical points in the manufacturing process, many producers can achieve greater economies of scale and reassign staff to more critical areas in the production process.

But how do all of these products get to us? That’s where distribution channels come in. Historically, distributors were more segregated from retail operations than they are now. For example, Wal-Mart, the nation’s largest retailer, has its own distribution system, with huge distribution centers throughout the country. As a result, the roles in the wholesale, retail and distribution channels are becoming less rigid. The shared goal is to get the products into the stores and onto the shelves as quickly as possible. And with the emergence of more sophisticated information technology, distribution has become more efficient and cost-effective. For example, when one of the containers is unloaded from a ship in Savannah, the final distribution of all of its contents is pre-determined. The distribution plan for that container is referenced at dockside, and the container is loaded on the appropriate trailer for distribution to the stores.

In recent years, many manufacturers who have outsourced functions are relying on more extended distribution networks, such as UPS or FedEx for the delivery of their products, a process that allows them to bypass wholesaling costs. Competitive wholesalers will learn how to offer a wide range of value-added services.

As consumers, we enter stores and expect what we need to be waiting for us on the shelf. But the story of how that product was made and how it arrived on that shelf is an intricate one that involves hundreds of functions that must work in perfect sequence to ensure a satisfied customer. It’s an invisible infrastructure that most of us take for granted. But a few days on the shore of the Savannah River gave me a new appreciation for the largess we enjoy as Americans. As we enter the busiest retail season of the year, it’s interesting to ponder the paths our gifts have taken before arriving in our living rooms. v

Mary Paulsell is the director of operations at the University Center for Innovation and Entrepreneurship.