Today�s world of electronics shipping is far different from decades past. Order and delivery cycles have been reduced to days, not weeks or months. A typical manufacturing scenario goes like this: A factory in Shanghai makes the subassembly, which is exported to the United States and received by the value-added contract manufacturer. The order to the factory is generated by an electronic data interchange signal or work order sent from the OEM to the US contract manufacturer, which in turn signals the factory in Shanghai. The contract manufacturer performs light manufacturing to fully assemble the component before shipping the product directly to the consumer�s door.
This scenario is quite common to the electronics industry and represents a microcosm, in many ways, of world trade: globalization (global sourcing and internationalization of companies), shifts in sourcing and production (toward eastern Europe, China and Mexico for electronics) and ongoing efforts to squeeze out supply chain costs (supply chain management in all aspects). Computer makers as OEMs, such as Dell, are pioneers in slashing concept-order-delivery cycles that directly impact the bottom line by increasing production efficiencies overall, reducing inventory holding costs when these pull-demand production techniques are used.
The Heat Is On
Every party in the electronics supply chain below the OEMs feels the pressure. Indeed, much of the efficiency drive has rested on vendors and others catering to the electronics industry: suppliers, distributors, parcel and transportation carriers as well as 3PL providers. Product obsolescence, averaging 180 days, and corporate bottom lines are at stake.
Vendors, from the lower-tier suppliers on through the carrier, are feeling the heat because of new requirements by vendor managed inventory (VMI) programs, or what�s known as continuous replenishment or supplier-managed inventories. Popularized in the late 1980s by Wal-Mart and Procter & Gamble, VMI is serving to spread out inventories, requiring suppliers to render see-through supply chains, real-time inventory and shipment status information and deliver when the product is needed. In the electronics industry, VMI translates to just-in-time delivery and strict adherence to quality and service aspects.
�All the OEMs, contract manufacturers and first-tier suppliers need to know what�s in the [supply] chain, what you can build (orders) and when to expect it,� states Jim Fitzhugh, vice president of global accounts for Fritz, a global 3PL owned by UPS.
�It�s a complex supply chain that forces even second- and third-tier suppliers to spread their inventories to any number of sites, assemblers, contract manufacturers and subassemblers,� says Fitzhugh. �OEMs and contract manufacturers cannot indiscriminately demand attention from their suppliers without looking for more cooperative solutions. Putting inventory in someone else�s pocket doesn�t change the cost of inventory, it just moves it around,� warns Fitzhugh.
Among other electronics industry insiders, Fitzhugh has witnessed the �Dell effect� of supply chain overhauls taking hold among electronics shippers. To meet these new challenges, Fritz, as a forwarder and 3PL, teams with UPS for its parcel delivery services as well as its logistics services. Fitzhugh says synchronization of the transportation and distribution end with the rest of the electronics supply chain is critical to effectively meet OEM requirements on the receiving side. The same holds true, he says, for the increasing volume of door-to-door deliveries of electronics to homes and businesses, sparked by e-commerce. Fritz air forwarding teams with UPS parcel deliveries for door-to-door or �last mile� solutions. UPS tools such as Internet-based tracking and tracing are helping keep the transportation and distribution end visible.
These tracking tools by UPS are used by electronics shippers such as Toshiba America Information Systems Inc. (TAIS) of Irvine, California. In addition to traditional deliveries to retail distribution centers and businesses, TAIS increasingly makes off-hour and home deliveries of its computer and computer accessories, notes Pat Murphy, vice president of Logistics at TAIS.
TAIS uses both FedEx and UPS for its transportation and distribution. �UPS, for example, has designed live, up-to-date information on its system, plus it offers customized solutions for TAIS that have been very complementary to our systems and network,� Murphy says. In 2001, TAIS started an innovative new program for direct shipping called Overseas Direct out of Taiwan with UPS for two- to three-day deliveries to retail distribution centers in the US. The company plans to expand the program to consumers.
Security Issues
Theft and fraud prevention is an ongoing battle for electronics shippers who face ripoffs from professional gangs to petty thieves. Ironically, as Fitzhugh points out, the problem with widespread inventories due to supply chain initiatives is, �as you multiply all these locations to hold cargo, you increase opportunity for theft.� As supply chain initiatives shift sourcing to less cost-put production in lesser-developed countries, security issues also arise. Fitzhugh cautions to avoid common customs warehouses in places like Mexico andEastern Europe, in favor of private warehouses by 3PLs.
The Importance of Packaging
Savvy packaging of electronics and computer-related equipment goes a long way toward theft prevention and cost savings. Murphy urges electronics shippers to use �overpack,� which is a box inside of the shipping box. �Professional thieves know what they�re looking for, but the casual thief does not,� Murphy says.
Efficient packaging can also reduce shipping costs, and cube efficiency is a key issue. �Look at the packaging that is internal. The more units you can get per cubic meter, the better,� Fitzhugh suggests. He cited an instance of a disc drive producer changing its packing techniques to increase units from 600 drives per box to 1,000, without adding dimensional weight penalties.
Fitzhugh also cautions to work with the next-tier supplier as well. �Make sure the packaging fits the warehouse shelf but also maximizes the airline pallet,� he says. Packaging studies have shown that using appropriate-sized boxes typically saves the shipper some 20% to 50% on wasted cube capacity along with significant transportation savings.
Marcia Jedd is a Minneapolis-based freelance writer specializing in transportation and logistics.
