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The demands within the supply chain of electronic distributors are becoming even more demanding. There are more than 20,000 electronic distributors in the U.S. generating over $98 billion in revenues (Dunn & Bradstreet). Driving distribution excellence with an efficient and flexible supply chain that supports your business objectives is challenging. Minimizing inventory of a wide variety of rapidly changing products while maximizing the offering to a rapidly changing customer demand is crucial to staying ahead of the competition. Distributors must focus on several key initiatives in order to maximize their business performance and position themselves for long-term success.
Learn how important business trends are impacting companies in your industry.
Increased Use of Global Manufacturing
Electronics manufacturing in the Asia Pacific region increased to 38% of global output in 2005 (Reed Electronics Research, distributed by In-Stat). Although China has grown rapidly, other countries, such as South Korea and Taiwan, have established themselves as major players in the industry (ElectronicNews, July 6th, 2006). Finally, India is expected to be one of the fastest growing Electronics countries in mid-term. With all of this growth, the transportation complexity of sourcing product from overseas has created new challenges for companies who have traditionally only used domestic suppliers. Highly complex products are generally still sourced in the domestic market due to concerns over quality and piracy concerns.
Increased Importance of Packaging
Because more parts are sourced internationally, the importance of proper packaging has increased. In several parts of the globe, the packaging used is usually recycled. While this is environmentally friendly, the paper fibers do not hold their strength and can result in packaging that will not properly protect the automotive parts. Distributors and manufacturers must work with their international suppliers to ensure that proper packaging is being used and that these costs are included in the total product cost.
Selling Globally
The demand for high-performance parts, personalized parts and customized accessories is growing beyond the U.S. borders. Automotive parts manufacturers and distributors are seeking ways to profitably sell to an international market. Because of the rapid growth of the internet, new fads and information about ingenuitive new products spread rapidly, and automotive parts manufacturers and distributors need to be able to sell to these customers immediately and integrate these products into their supply chain.
Reducing Costs to Increase Gross Margin
Automotive parts manufacturers and distributors continue to look for ways to further streamline operations and eliminate waste and cost. Many companies are pursuing reduced operating costs and increased flexibility in manufacturing by building on previously implemented continuous improvement initiatives such as lean manufacturing and Six Sigma. These operational methods are aimed at eliminating unnecessary processes in not only the manufacturing processes, but all supporting processes as well. This results in less costly daily operations and builds in capabilities to quickly and easily change tooling and molds to build product based on customer demand. This has a significant impact on finished goods inventory since significantly less product will be store at DCs as companies can quickly make many models of product.
These processes result in smaller quantities of each SKU being shipped to the DC, but much more frequent shipments from the factory to the DCs. Transit time between the manufacturing locations and the DC must be minimal in order to keep adequate stock levels at the DC ultimately to meet customer demand.
Immediate Availability of Product
To compete effectively, distributors are selling their products via multiple sales channels; using a sales force, a website, catalog, trade shows, etc. This can cause an increase in complexity in the distribution channel and sales processing; however, it is necessary to continue to increase revenues and profits. Customers also demand and expect their products to be shipped immediately upon request. Distributors must be extremely responsive to these needs as well last minute changes. Flexibility in all these processes provides the ability to change as needed by the market place.
In addition, quick response to replacement product is expected by the customer. Customers are either relying on their vehicle for transportation to work or necessary daily duties, or their vehicle is their passion. Either way, customers demand their product and distributors must be able to supply the specific product at a moment’s notice.
Understanding Total Logistics Costs
Manufacturers and distributors are recognizing that a thorough understanding and a method to calculate total logistics costs, especially for global products, is essential to accurately forecast the cost of moving product within their global supply chain. Total logistics cost must include not only the unit cost of the products, duties, taxes, and transportation costs, but they also must consider carrying costs and the financial impact of often increased inventories resulting from longer leads time common with international transit. In addition, they are factoring in the cost of disruptions within the global supply chain and developing alternate supply chain plans for potential and likely disruptions.
This process requires an analysis of transportation options that meet the company’s business and supply chain objectives. Evaluating air, ocean, and ground shipment options and their full logistics are becoming more important to making sound logistics decisions.
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