Of course, when all of a company's material procurement is outsourced, sometimes that customer no longer receives the same level of support from the engineering resource. One of the things that Avnet does to bridge that gap is to make sure that the customer in North America still gets the engineering support, even though the actual execution of the purchase orders and revenue may be on a totally different continent. We have to make sure that continuity of supply is not only in parts, but also in technical support.
We also have the capability of sharing forecasts internationally. If a customer is building in two or three different regions, we're capable of getting an overall forecast from the customer, communicating that forecast to the different regions of the world and the taking consumption data back from the suppliers and giving it to the customer. You match the overall forecast with the consumption data, and that helps you to determine how much inventory needs to be held in place and what you do from an overall asset utilization standpoint.
S&DCE: How do you deal with the challenge of working with suppliers that are operating in environments where the technology infrastructure might not support
real-time data exchange, or the supplier itself might not have the technology to support those types of real-time connections?
Frazier: Oftentimes we will assist our customers in picking a partner in another part of the world, and part of the criteria that we use when picking partners is the ability to take forecasts or to do [electronic data interchange] EDI, RosettaNet or EDIFAX, which are three of the standards that they can use, or [extensible markup language] XML. In other words, one way to combat that problem is to never have it.
Partner selection is obviously very critical, and when you do your partner selection IT capabilities have to be near the top of the list of criteria. Because when you start talking about a 15-hour time zone difference, how many hours a day do you have to verbally communicate if, in fact, the language barrier can be overcome? So the ability to communicate via one of those standards is really paramount when you start to select your suppliers.
In cases where the supplier has already been selected and those capabilities are not there, sometimes you can build different ways to communicate with suppliers. In the Americas, for example, we have an EDI gateway that allows us to take in forecasts on an Excel spreadsheet and turn that into an EDI 830, which is an automated way that we're used to taking forecasts. Then when we send the information back to the customer, we turn it into an Excel spreadsheet.
But sometimes we have to go back to green bar paper, take the forecast and do it by hand. It's cumbersome, it's expensive and in a lot of ways it takes away from the savings that people think that they're going to get by moving offshore, because the data transactions are slowed and opportunity windows are missed.
S&DCE: You raise a good point: There's a lot of talk about moving offshore to save money by manufacturing in lower-cost countries, but in your experience have you seen folks really achieving the savings that they've been hoping to get?
Frazier: If you look at companies operating in a high-volume, low-mix environment, for example, manufacturing cell phones or PDAs or MP3 players, their move to Asia is probably very, very smart, and for more than one reason. Obviously, they're going to get a lower cost, although the cost savings that they're going to get are really coming in labor and things like sheet metal and plastics. The savings in electronic components in Asia, in the commodity space, is in the single-digits percents, and in the high-technology space there really aren't any savings in components because the pricing is the same worldwide. But if they've got an MP3 player and they're building a million units, they can see the economic benefits because they can have it shipped back to them on a boat and wait the two or three weeks that it takes to get across the ocean. But they also realize the benefit of having the products made where new, potential consumers are.
Take China, for example. How many new potential consumers of cell phones and MP3 players are there in China a billion or so? So they win two ways, right? And that's very smart business for them. You've seen some of this same thing in Eastern Europe, too.