Where we have seen the value not be realized, or less value realized than anticipated, is when, instead of a high-volume, low-mix environment, you have a high-mix, low-volume environment. That's where we've seen many companies bring their production back to North America, whether that means going into Mexico or back into the States or Canada. The reason it's being brought back is because the economies of scale that they thought they would realize just aren't there and, as I said before, component savings are not as much as thought.
S&DCE: What advice might you give to a company that is looking to move toward a more global supply chain?
Frazier: First, examine your motives. Then stratify your business: Look at the segmentation of what you build and where it should be built. Then pick the global companies out of your supply base, and talk to them about what you're planning to do; solicit their help, because the local knowledge that can be shared from one region to another can significantly aid any transition that does occur. Those would be the first three steps that I would take. Of course, if you're mandated to do it that just takes out step No. 1, but you still could look at steps two and three. That's pretty simplistic, but it's amazing how many people have moved production all around the world without having what you would consider a totally set strategy for why they're doing it.
There are a couple of other things that are more specific to Avnet than to the rest of the electronic components distribution industry. One of those is that we have seen companies increasingly wanting vendor-managed inventory (VMI) on the inbound side and their own customers requesting it on the outbound side. Because of this, we have seen an increase in requests from our customers, both inbound and outbound, to aid them with vendor-managed inventory. That has caused us to make some fundamental adjacencies to our strategy of being a component sales and distribution company. We've added logistics partners to help in this, partnering, in our case, with DHL. We don't use an Avnet warehouse, which we would want to do first, but we've partnered with DHL because of their availability of warehousing around the world, to provide VMI services for our suppliers and our customers both on an inbound and outbound strategy. The other thing that this has done is, because you have products moving by boat from Asia back to the States, that we've also found ourselves needing to have an alliance with funding organizations that allow companies to maximize their working capital by not having to own inventory for long periods of time. These two things have really come out of the globalization of our business, and they're adjacent to what has been our normal component distribution strategy.
S&DCE: Is the move to a more global supply chain just one component of the general trend toward increasingly complex supply chains?
Frazier: Put it like this: The globalization or "internationalness" of the supply chain has added significant levels of complexity to the supply chain. But there's no way to back out of it. It's happening now, and it's going to continue to happen.