If Airborne Express has its way, Columbus, Ohio soon will be the manufacturing and distribution center of the optical industry for North America. Airborne hopes to bring together all of the key players in the optical supply chain at Rickenbacker Air Industrial Park near Columbus. In a site known as Optical Village, potential competitors would be working side by side, saving distribution costs through shared infrastructure.
The integrator's grand plan is the latest in a series of moves by air-cargo providers to address the needs of industries in a vertical fashion. They are determined to squeeze the most out of their huge investments in warehouses, information systems and aircraft. Shippers, no longer content with securing the lowest price to move their goods, are looking to logistics vendors for industry expertise. The solution: industry-focused supply chains serving multiple customers.
The idea behind Optical Village dates back to the summer of 1996. "It was an evolution, not a master plan to target that specific industry," says Kevin Clark, senior logistics services consultant for Airborne Logistics Services (ALS). A series of customer meetings caused Airborne to zero in on the consumer optical sector, where it already had a dominant presence as a carrier.
Airborne began to envision a production and distribution complex where makers of raw materials, manufacturing equipment, lenses, frames and finished eyewear could operate in one place, supplying retailers and other customers on a nationwide basis. In effect, Optical Village would become the Silicon Valley of the eyewear industry, says Bob Niemiec, vice president of manufacturing and distribution for Cole Vision, the first tenant in the complex.
Airborne drew partly on the model of the automotive business, where parts suppliers cluster at a single location in support of a given automaker. Similar supply chains are taking shape in the high-tech world, especially for computer manufacturers. They want parts close at hand, but don't want to take delivery until the last possible moment.
The Best First Choice
The optical industry was an ideal candidate for Airborne's first vertical outreach. The business generates mostly small, light packages shipped overnight - Airborne's forte. Eyewear makers are under intense pressure from managed-care health plans to cut costs, even as they produce a huge variety of frame styles and lenses for the fashion-driven retail market.
Initial discussions took place between Airborne and Cole, one of the nation's largest optical retailers. With more than 2,000 outlets, Cole operates the eyeglass departments within Sears, Wards and Target stores, in addition to running its own chain of stores under the Pearle Vision brand. Annual revenue exceeds $1bn.
Cole was soon joined by Essilor, the world's largest corrective lens manufacturer and Cole's biggest single supplier, as a magnet tenant. Cole initially leased 43,000 square feet in the village, while Essilor moved into a 158,000-square-foot distribution center. The first stage of construction involved a total of 330,000 square feet, with two more buildings to be completed later this year.
Tenants who came on board in recent months include Satis Vacuum of America Inc., a maker of lens-coating machines, and 2C Optics Inc., a new venture combining the manufacture of lens blanks with that of finished prescriptions. Their facilities are set to open in the coming year.
The fifth customer at Optical Village is the Munich-based Rodenstock Group, which also holds a majority stake in 2C. For Rodenstock, ALS separately handles warehousing and distribution of lenses imported from Germany.
Getting all of those players to co-exist was no simple task. Airborne had to overcome their concerns about being too close to the competition. It argued that any potential drawbacks were more than offset by the savings in distribution costs, and proximity to customers. No longer does Essilor need to ship over long distances to Cole, which is literally next door. Both have quick access, not only to Airborne's hub in nearby Wilmington, but to other carriers at Rickenbacker Airport, including Federal Express and United Parcel Service.
Tenants have the choice of outsourcing their warehousing and distribution to Airborne Logistics, or doing the job themselves and tendering packages to the carrier ready for shipment. So far, most seem to prefer handling their own distribution, but that could change as Optical Village matures.
With the ability to reach most of the country in a matter of hours, eyeglass producers can delay actual manufacturing until after the goods are ordered and sold. They can draw from the stock of their neighbors on short notice, rather than keep large amounts of finished inventory on the shelf to meet fuzzy demand forecasts.
"With the concept of virtual inventory," says Clark, "those products are surrounding you."
End customers include retail outlets, laboratories and doctors' offices. They can order up to midnight on any day of the week and still receive next-morning delivery anywhere in the U.S.
Still Gearing Up
Operations are still in the early stages. As of late February, Cole had run a series of successful tests in the village but wasn't up to full production. Based in Twinsburg, Ohio, it currently has eight lens-grinding facilities around the country producing eyewear for its 2,000 stores, in addition to some activity within the retail outlets. While Cole has no immediate plans to shut down any of those locations, it expects a steady increase in production at Columbus as Optical Village grows.
Essilor is a French lens maker with U.S. corporate headquarters in Dallas, a centralized distribution center in St. Petersburg, Fla., and branches around the country. It expects to begin operations at Optical Village by year's end, although the branch network will remain in place for the time being.
Essilor's principal reason for locating in Columbus was "to provide customers with enhanced service," says Supply Chain Manager John Musulin. Being next to a major air hub gives the company later cutoff times.
Optical Village is a sound concept, Musulin acknowledges, but it remains to be seen how many laboratories will set up physical operations in the complex. The village is "marching toward reality," he says, "but it's not there yet."
Swiss-based Satis Vacuum, the world's largest manufacturer of high-vacuum machinery for coating lenses, entered Optical Village at the beginning of the year. It was drawn by the opportunity to be close to customers, the ability to ship overnight, and the presence of a nearby foreign trade zone, says Larry Clark, president of Satis Vacuum of America Inc. Inside the FTZ, Satis can import, assemble and re-export components without having to pay duty.
2C Optics is a hybrid entity which acts both as a traditional blank lens maker and producer of finished prescription lenses through an innovative method of fabrication. Based in Alpharetta, Ga., it undertook a national rollout of sales early this year. Interim Chief Executive Officer Lee McCarter says Optical Village puts the company in a good position to service its new nationwide customer base, both in terms of geography and order-cycle time.
The arrival of 2C in the village is a test of the notion of cooperation among rivals. Niemiec says the company can either sell product to Cole, or challenge it competitively through direct shipments to customers. Similar kinds of conflicts are likely to emerge as more players are drawn to the complex. Still, he says, "the attractiveness of the whole package should outweigh any perceived negatives."
In fact, says Niemiec, "if you're not in Optical Village, you may be at a competitive disadvantage."
A few links in the supply chain are still missing from Optical Village. While Airborne expects to fill the buildings under construction, it has no frame suppliers in residence yet. That should happen as the Cole and 2C labs come up to full production, says Clark at ALS. Contact lens makers are also viewed as prime candidates for the complex.
Additional tenants will help to create the kind of critical mass that results in major savings for customers and vendors alike. ALS is in various stages of discussion with some 75 potential users. Clark says most of the new additions will be smaller entities and thus more attracted to the notion of outsourcing the distribution function to Airborne.
Weighing the Chances
Experts are taking a wait-and-see attitude. Brian P. Clancy, a principal with MergeGlobal Inc. in Arlington, Va., says vertical approaches by air-cargo providers generally have amounted to little more than specialized pricing and marketing schemes.
The notion of targeting specific industries is nothing new, notes Clancy, with vendors historically singling out high-tech, aerospace, automotive, oil and gas, chemicals, pharmaceuticals and consumer products sectors. He views Optical Village as a variation on the specialized warehousing and parts-management services offered at the hubs of integrators such as UPS and FedEx.
Frequently a vertical strategy will involve the recruiting of individuals from targeted industries to provide vendors with the necessary level of expertise, Clancy says. They may hire distribution executives with hands-on industry experience, or seasoned supply-chain consultants.
Conflicts occur when the logistics vendor begins offering consulting services to customers within a particular industry. That leads shippers to question whether a consultant that also owns distribution assets can be truly neutral when it comes to making decisions on routing and warehousing, says Clancy.
Edwin C. Laird, managing director of the Air Cargo Management Group in Seattle, says the vertical approach is partly an attempt by big integrators to take over the distribution of high-value goods from regional and local entities. With centralized distribution and proximity to a national air hub, manufacturers can respond to orders within a matter of hours.
The concept had its origin in the FedEx PartsBank initiative of the 1970s. Rival integrators, including Airborne, quickly followed with their own versions of centralized warehousing and critical-parts distribution. All that remained was for someone to apply the model to a specific industry with unique requirements and multiple customers.
Traditionally, integrators like Airborne have faced an uphill battle in convincing shippers to pay extra for third-party logistics services, Laird says. The logistics component can add 40 percent to 50 percent to basic transportation costs.
"There is tremendous resistance by traffic departments," he says, "even though you're saving down the line." By combining the volumes of multiple companies within a single industry, Airborne may have taken a big step forward in selling that message.
A Multitude of Approaches
Each air-cargo provider has its own spin on the industry-vertical approach. For build-to-order computer manufacturers such as Dell and Gateway, UPS merges shipments of diverse origin so that all the components of a system are delivered at the same time, says company spokesman Steve Holmes. Other targets include printing and publishing, for which UPS's Hundredweight Program tracks each piece of a combined shipment, and pharmaceuticals, for which the carrier offers electronic proof of delivery that conforms to strict regulatory requirements.
Emery Worldwide, based in Redwood City, Calif., maintains a separate marketing unit for apparel, retail and textiles, under the acronym of ART. On the apparel side, Emery provides intensive security and transportation of garments on hangers, tagged and ready for display on the store floor, says ART Director Sharon J.J. Tinker. For material coming from Latin America, Emery has devised an accelerated delivery network that can bypass the traditional Miami gateway if necessary.
Emery works with major retailers to meet their long lead times for the ordering and delivery of seasonal product. In the textile arena, it supports both dedicated and multi-user distribution hubs, where it performs a number of value-added services, including barcoding, pick and pack, and sorting by store for direct delivery.
Tinker sees a growing need for industry-specific solutions, especially in the burgeoning area of internet commerce. Electronic retailers such as Webvan, a net-based grocery service, are casting about for distribution sites that meet the needs of its fledgling business. "This could well lead to the distribution village concept," she says.
Danzas North America, now part of Deutsche Post AG, recently unveiled an Automotive Logistics Group to support that sector's supply chain from supplier to end-user. Heading up the group are executives based in Detroit and Brazil, representing a combined 40 years of logistics experience in the automotive business.
Providers taking an industry-wide approach face the challenge of convincing customers that they can work with a multitude of partners to create a "glass pipeline" with total visibility, says Chris Dale, Danzas's vice president of sales and marketing in Bellevue, Wash. Still, he says, "we are believers in going into vertical markets, and bringing in expertise to accommodate growth in those markets."
DHL Worldwide Express, headquartered in Redwood Shores, Calif., has identified eight distinct areas of focus: audio-video and telecommunications; automotive; electronic commerce, publishing and software; fashion samples; financial services; pharmaceuticals; precision industries; and electronic components/semiconductors. "It's probably the most significant effort in our entire global network today," says Don Stevens, vice president of the Global Account Group.
In each case, DHL touts air express as a means of reducing global inventories and improving customer service. Tailored programs include the postponement of parts deliveries to the semiconductor assembly line, a series of Express Logistics Centers around the world for industries dependent on the rapid delivery of service parts, and protective packaging that regulates internal temperatures without the use of dry ice, a hazardous material.
Air forwarder and logistics provider MSAS plans to extend a logistics program created for Maxtor, a disk-drive maker, to computer manufacturers such as Hewlett-Packard and Compaq. In the beginning, it provided direct delivery of Maxtor drives to computer assembly plants. Seeing the benefits of a fast and reliable service, HP and Compaq asked MSAS to develop a similar program for finished computers moving directly from Asia to consumers in the U.S., says Joan Hanley, Atlanta-based regional vice president for the Gulf-Atlantic region.
KLM is one of the few traditional airlines to have maintained a retail relationship with shippers, a position that has occasionally caused friction between itself and air freight forwarders. The Dutch carrier, which recently merged passenger and cargo operations with Italy's Alitalia, maintains a business unit dubbed Special Care. It serves shippers of live animals, valuables such as diamonds, diplomatic traffic, electronics, perishables and pharmaceuticals.
The range of services under the Special Care label includes a fully equipped animal "hotel" and stables at Amsterdam's Schiphol Airport, secure vaults at origin and destination for small valuables, and several levels of temperature control for perishables. Business unit manager Andre Mulder argues that customers with sensitive, valuable or time-critical materials receive more attention from KLM than from general-cargo carriers.
Special Care doesn't represent an attempt by KLM to get around the forwarder, he says. The airline makes a point of teaming up with forwarders in meeting with shippers. At the same time, it views the relationship with underlying customers as crucial to the establishment of vertically oriented services.
"We're not looking for a distribution-channel conflict," Mulder says. "But the only way to improve quality is to know what the shipper wants."
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