Going By Air, Because Nothing Else Will Do

In a global economy the challenges of bringing products to final customers are increasing even as shippers look to get an edge through supply chain initiatives. For some companies in the electronics business that source offshore, airfreight has become the preferred mode for the movement of their goods. For them, speed-to-market trumps the cost card when it comes to making the choice of how to ship.

"If you'd just look at transportation costs, we'd save a lot of money shipping our products by ocean. But the benefits to our distribution network really outweigh it," explains Simon Powell, director of North American logistics for Samsung Telecommunications America (www.samsungtelecom.com). "We take a total cost of ownership approach to our distribution channel. When you consider the extra lead time it would take to ship by ocean and what that would mean in terms of cash tied up in inventory you're not selling, it really makes air freight a no-brainer for us."

Powell's division manages the supply chain for Samsung cell phones for the U.S. market. All of the company's cell phones are manufactured in Asia. Powell's responsibility is to make sure that product gets from Asia to Samsung's distribution centers (DCs) in the United States and to its customers. Generally Samsung ships to the big carriers like Sprint, T-Mobile and Verizon, who have their own DCs. Samsung does some direct business with companies like Best Buys, Target and Wal-Mart, but that's a small but growing piece of business.

Samsung has four strategically located DCs around the country near its major markets. Airfreight moves directly to each distribution center depending on the final customer's location. Outbound shipments from DCs to customers generally move by truckload. The company outsources all customs brokerage and documentation.

Samsung's distribution network has been designed so the freight makes as few stops as possible. Product is shipped in actual retail boxes. The retail boxes are filled at the factory, closed and put into a master carton, which is then put on a pallet, and shipped. "One of the things we try and do is to get the freight picked up and moved through as few a number of ports as possible. We want as few hands as possible touching that shipment," notes Powell.

There are a few other issues in moving from manufacturing plant to final customer that challenge Powell and increase the importance of moving freight by air. "We have very short life cycles of these products and our window to get them to market on time is short," he explains. "In addition, we're a just-in-time company. We don't want a lot of inventory sitting around, so we try to operate in a realtime mode where the inbound freight comes in and we're shipping it back out either same day or next day. Our ability to cross-dock lives or dies by our ability to quickly move the freight and get it into our facilities so we can get it back out again."

Samsung needs to know where its freight is at all times, so it can adjust customer commitments if there is a problem. "While that includes the track and trace capabilities, it also includes event warnings and pro-active communication and resolution of issues," says Powell.

UPS (www.ups.com) is one of a handful of air carriers that Samsung currently uses. The company uses multiple providers because capacity uplift from Asia into the United States is extremely tight. No single carrier has been able to meet all of its capacity requirements.

"One of the reasons we're looking to develop UPS as a strategic partner is its IT capability," says Powell. "We want to have a strategic relationship because it's not cheap to integrate when you interface from one system into another. To really get good IT interconnection the relationship should be with just one or maybe two suppliers in order to reap the most benefits."

Even with air shipments Samsung has inventory issues. It has had to hold more product in its distribution centers than it used to. The company is also shipping earlier in the cycles, before its peak seasons, so that it has some product already staged in the country before the season arrives. "But sometimes it's not easy to do," claims Powell. "We have a lot of new models that come out, and a lot of our customers have marketing campaigns with specific dates we need to meet. The worst thing would be to spend millions of dollars on a promotion and not have the product to sell."

The first 747-400 LCF takes off on its maiden flight.