Expedited services are pricey, no doubt about it. The faster the service demanded, the more a shipper can expect to pay.

But for many businesses, the cost of carrying inventory so far outweighs the cost of even the most expensive transportation that the tradeoff is easy to justify. And expedited looks even better when you consider the cost of failing to serve a customer.

Expedited services may have been devised originally to meet demands for emergency services. But as just-in-time (JIT) manufacturing has evolved and as logistics managers have become more astute about managing total supply chain costs (including inventory), the expedited services market has blossomed. For many logistics managers, the use of expedited transport has become routine practice. And the services themselves have evolved to meet the time-specific, rather than day-specific, demands of shippers.

Marconi Medical Systems, a company that manufactures and services medical diagnostic imaging equipment, is one corporation that has adopted expedited service as a central part of its logistics operation. "Our systems service division relies a lot on expedited service," says Don Rodabaugh, manager of Marconi's North American distribution operations. "We do that because the parts demand is relatively low while inventory costs are quite high. We try to weigh the cost of transportation [against] the cost of purchasing inventory."

Marconi distributes parts to customers—hospitals, clinics, scan centers, and other medical facilities—from 37 depots around the United States managed for the company by the UPS Logistics Group, a subsidiary of United Parcel Service. Although many shipments move via routine, regularly scheduled transportation, other shipments have to reach field engineers within a narrow time frame. The company uses expedited shipping to make that happen. Marconi makes about 700 same-day shipments and 4,000 overnight shipments every month, says Rodabaugh. Most of the air shipments depart from Chicago's O'Hare Airport, the closest major airport to Marconi's Lincolnshire, Ill., main distribution center.

UPS Logistics Group is by no means the only service provider that has seen a surge of interest in the expedited segment. Ed Conaway, vice president and general manager of Con-Way NOW, the expedited services division of Con-Way Transportation Services, believes this service has grown to be a multibillion dollar business.

"The number one thing is that people are not afraid to talk about it or to admit that they expedite shipments," says Conaway. Logistics managers have figured out that they can save millions of dollars in inventory costs in exchange for a few hundred thousand dollars in transportation costs, he says. Expedited services allow companies to reduce the amount of inventory they hold without sacrificing customer service. "If you lower your inventory costs by $5 million a year, it's going to be a challenge to provide the levels of service you want to your customer. So you spend a few hundred thousand on expedited. A few years ago, you might not have wanted to admit that," he says.

The other side of it is that for about the last 10 years, customers and the public have wanted things faster and faster. "The JIT movement is responsible for about 50 percent of what goes on in expediting," Conaway estimates. "The other half has to do with inventory costs."

The bulk of Con-Way NOW's business comes from manufacturers (primarily auto and truck manufacturers) with a variety of critical needs. These requirements range from emergency shipments of production materials needed to keep plants up and running to regular milk-run transportation on a dedicated basis combined with expedited shipments when needed to JIT manufacturing plants.

Like Con-Way NOW, FedEx sees a huge growth potential in expedited service. "Same-day [service] is growing," says Joel Childs, vice president of marketing for FedEx Custom Critical, the expedited services company of Federal Express. "The reason is very specific—it's being driven by total cost. Look at what's happening to the inventory-to-sales ratio. There's a concerted effort to drive down inventory costs. As you go to lower inventory, the only place it can come from is safety stock. As you take away safety stock, you need a better contingency system. You need systems in place to support you, and you have more critical shipments." Reducing inventory costs, he says, frees up the resources to pay for those shipments.

Most of FedEx Custom Critical's business comes from industrial customers. "It goes across a whole spectrum of products, but it's heavily industrial," Childs says. "It's all needs-driven. There's some tendency toward high value, but a bucket of screws is important if you're trying to build a car, and a panel is important if you're trying to build a cabinet."

All of the major expedited providers have moved well beyond pure emergency transportation to the development of a variety of specialized services aimed at meeting specific company needs. A look at a recent startup company in the expedited market suggests how the market is evolving.

NextJet Inc., which began operations in June 2000, is a non-asset–based expedited logistics provider that offers next-flight-out service through a national network of what it calls courier "e-filliates." Its Internet tools link its 350 couriers and commercial flight schedules, offering courier pickup, placement on the next available flight, courier retrieval from the destination airport, and delivery to the final location. The company says it also offers real-time tracking information on shipments.

Joey Lane, co-chief executive of NextJet, describes the company as a "full service software technology company that enables logistics," adding that the company basically coordinates logistics, shipping, and inventory management. NextJet uses its software technology to keep tabs on customers' inventory and to determine the best method of moving expedited shipments. "We know where the products are and where they're going and can provide an optimized route to get [them] there," he says. "It's not always the closest warehouse, but it's the correct SKU. We have full visibility into [a customer's] inventory."

The demand for expedited services is likely to continue to grow, Lane believes. "In a down market," he says, "everyone is looking at shipping, inventory, and asset costs."