Charging the Electronics Supply Chain - Inbound Logistics
Global Economy, Technology , Supply ChainElectronics suppliers, distributors, and retailers address high-voltage challenges—from shorter product life cycles to price erosion and unpredictable tariffs—with technology and changing business processes.More to the Story:Plugging Into Supply Chain ChallengesBetween 1997 and 2015, prices for both PCs and TVs plummeted by more than 90%, according to the Bureau of Labor Statistics. But even as prices dropped, these electronics packed in more features.This shift poses multiple challenges for electronics suppliers, distributors, and retailers: lengthy, complex supply chains; rapid shifts in demand; and shorter product life cycles. Companies in the electronics industry also face uncertainty around tariffs and regulations, and are vulnerable to theft and counterfeiting.The electronics supply chain "is a vastly complex, living organism," says John Mitchell, president and chief executive officer with IPC, an electronics standards organization.Electronics companies, however, can address these challenges. They can use technology to gain supply chain visibility and assess their supplier and fulfillment network to gain efficiencies. They can work with technical tools and partners that can help them comply with regulations and tariffs, and cut the risk of theft and counterfeiting. Managing Shorter Product Life CyclesMany electronic devices continue to shrink in size, even as they offer more power and capabilities. "Instead of 'jet engine' television sets, many now measure a fraction of an inch thick," says Walter Tobin, chief executive officer with the Electronics Representatives Association, a trade group.The unrelenting pace of technology advances is a plus for consumers, but it also boosts expectations for ever-improved devices, shortens product life cycles, complicates demand planning, and erodes prices. The moment many electronic products leave the factory, their prices fall at a rate of about 2% every two to four weeks they're in the market, says Harish Iyer, vice president, industry and solutions marketing for Kinaxis, a supply chain planning solutions provider.A company that misses the roughly three- to six-month curve in the product life cycle during which it can make a profit may end up selling its goods at a discount. Suppliers of both components and finished goods face this risk.To address the risk, electronics companies need to carefully manage their inventory. Tools such as dedicated inventory management solutions are generally more robust than spreadsheets and can, for instance, track product and transaction information in a central database from which all departments can draw. Some suppliers can provide sophisticated inventory management capabilities.Some electronics retailers address the challenge of shorter product life cycles by using the devices as loss leaders. Because they may make little (if any) profit on the devices, electronics retailers instead promote ancillary products and service plans."They get customers in the store and then sell the other things that go around the product," Tobin says.EXECUTIVES EXPRESS A DECISIVE VIEW ON HOW THE ELECTRONICS INDUSTRY IS CHANGINGSOURCE: WINNING STRATEGIES RESEARCH, IBM INSTITUTE FOR BUSINESS VALUE, SEPT. 2018A Shift to PlatformIn addition to correctly anticipating "the right bundle of new features" to include in new products, electronics suppliers need to make sure the bundle they offer is the right platform for the content and services that will run from the devices, says Christopher Begue, director, electronics industry with IBM.Here's why: Somewhat paradoxically, even as many electronic devices feature more capabilities, they've also become commoditized, with fewer consumers showing much brand loyalty. The risk is that the device becomes the "dumb display" in the middle between the consumer and the service provided, whether it's streaming music or building a grocery list, as noted in the 2018 IBM report, "Three Electronics Industry Strategies for the New Data Economy."To counter this, electronics suppliers need to use technology not only to build smarter devices, but also to drive new customer experiences. Ultimately, many suppliers will need to transition away from hardware-only models.Hardware is "the tip of the arrow" into multiple potential revenue streams, Begue says. Each interaction between consumers and a device can provide data and insight into their preferences, and that knowledge could lead to new revenue models. One example is Netflix's shift from providing disks containing movies to offering them streamed online.Navigating Supply Chain ComplexityAlong with the devices themselves, electronics supply chains have also grown in complexity, constraining visibility and heightening uncertainty. As the number of suppliers, distributors, fulfillment centers, and other organizations increases, supply chain data gaps and inaccuracies become more frequent and troublesome.Spreadsheets, despite their ubiquity, provide "only so much intelligence and sophistication," Iyer says. Companies need other technical tools to provide the robust information required for today's supply chains.For instance, some Internet of Things (IoT) applications can feed real-time transportation data to a supply chain planning system, allowing for rapid corrections while products are in transit.Not surprisingly, more than 80% of electronics executives responding to the IBM survey indicate they expect their organizations will reinvent operations by 2022 with tools such as IoT, blockchain, and robotic process automation (see chart).Complying With TariffsMost electronics organizations must navigate an increasingly uncertain tariff environment. While some organizations may try to find suppliers and fulfillment centers outside the specific countries on which tariffs are imposed, that's rarely a straightforward shift. Before they begin working with a supplier, many electronics companies must validate the quality and reliability of the supplier's operations and the products they're providing—a process that can take months.Options exist, however. Some U.S. companies are opening fulfillment and distribution facilities in Mexico. As of late 2019, the country remained outside most trade disputes occurring between the United States and China.Some organizations can take advantage of Foreign Trade Zones (FTZs) within the United States. For instance, the Arizona distribution center of Avnet, a technology solutions provider, is designated an FTZ, says David Paulson, global vice president, Avnet United and Velocity.Among the benefits FTZs can offer: No duties are imposed on imported goods that are later re-exported, and FTZs eliminate duties on waste, scrap, and rejected or defective parts.Transportation Insight (TI), a global logistics provider, worked with one supplier that was able to cut $250,000 in monthly expenses by shipping into an FTZ, says Robyn Meyer, partner, enterprise logistics. To make this happen, TI worked with the supplier to complete the necessary paperwork and identify how to efficiently ship the product from China to the FTZ. TI also helped manage fulfillment and last-mile delivery.Importers and their suppliers can also try to take advantage of De Minimis 321, which allows a shipper to import one shipment per day, per person, duty-free and with limited data elements as long as the value of the shipment is less than $800. "It's a big opportunity that many shippers aren't taking advantage of," Meyer notes.Managing RegulationsEach year, about 50 million tons of electronic and electrical waste, or e-waste, is produced, reports the World Economic Forum (WEF). Of that, only about 20% is formally recycled.Along with the danger e-waste poses to the environment, it represents a lost opportunity for electronics suppliers and fulfillment operations. The material value alone is worth $62.5 billion, WEF estimates, noting that the volume of gold in one ton of mobile phones is more than 100 times the amount in one ton of gold ore.On a positive note, more companies are expressing interest in the environmental impact of electronics that reach the end of their lives. "More and more requests for proposals and bids are requiring an R2 or e-Stewards certification," says Valerie Smith, business development and compliance manager with IMAAN International, which provides e-waste recycling and IT asset disposition solutions.R2:2013, or the Responsible Recycling standard for Electronics Recyclers, requires, among other steps, that electronics recyclers take all practical action to direct tested equipment and components toward reuse and resale. The e-Stewards Standard for Responsible Recycling and Reuse of Electronic Equipment is consistent not only with international waste trade laws, but also with data privacy requirements for customers.IMAAN is also considering reprocessing and donating working items to organizations that may have a use for them, such as libraries, homeless shelters, and other nonprofit organizations.Minimizing Counterfeiting and TheftHow can retailers and distributors ensure the products they purchase from their suppliers are what they claim to be? To start, transparency is key. Avnet, for instance, can track and match every product a customer purchases all the way back to a supplier, Paulson says.Blockchain can play a role by providing an immutable record of an object throughout its life cycle. No single party can change or append the data without the network's consensus.In addition, retailers should work directly with manufacturers and their authorized distribution channel partners, says Don Elario, vice president of industry practices with the Electronic Components Industry Association, a group of electronic component manufacturers and their representatives and authorized distributors. These companies are much less likely to substitute counterfeit goods for the real thing.The risk of theft for some electronic devices, such as phones and tablets, can be significant, given their high value and relatively small sizes. To address occurrences of theft during last-mile delivery, suppliers can map variations in the rates of theft between different regions, Meyer says. Using this data, they can identify where it might make sense to use alternative delivery and fulfillment options such as leaving items in a storage locker rather than consumers' front doors.Flexibility and adaptability have become critical attributes for all players in the electronics supply chain. In addition, suppliers, fulfillment center operators, carriers, retailers, and others increasingly need to speak up. "We need policies to better compete," Mitchell says.Electronics companies, both individually and through trade associations, need to connect with the regulators and legislators who develop policy. The industry is complex even to those immersed within it, Mitchell notes, let alone to those outside it."We need to speak up," he says, "and help policymakers understand."
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