Closing the Circuit

That never-ending wave of electronic gadgets we use (or buy just to brag about) requires a seemingly never-ending supply chain. But the inherent complexities of the electronics industry have sparked its move toward automation.

[From iSource Business, August 2001] Electronics carries a vaguely mysterious, intellectual, Einsteinian air about it. Just pick a few terms  diodes, printed circuits, impedance, wattage, transistors, resistors  and start throwing them around in conversation and you suddenly sound brainy. (Whether or not you really are, only you and your dictionary know for sure.)

But the plethora of electronics terms actually signifies something more than an easy ability to term-drop and impress the country club set. Construction of the electronics that increasingly permeate our lives requires an amazing amount of technological diversity and a crucial need for accuracy. A paper clip is a paper clip, but a X453BMA thermistor can only be replaced by another X453BMA thermistor, for example. Wattage, amperage, voltage and a host of other characteristics are contained in that classification, and if any digit or letter is off by one unit, catastrophe can result. A part that looks right but has the wrong impedance or configuration can cause truly PR-killing effects like house fires and class action lawsuits.

Parts, Parts Everywhere

Since the enabled supply chain is designed to help manage reams of data, it's not surprising that the electronics industry was one of the first to adopt some of the new supply chain capabilities. Michael Bittner, research director of e-fulfillment and logistics with AMR Research, says that the inherent complexities of the industry motivated the move to the enabled supply chain. Companies also saw the benefits of extending these types of capabilities beyond the four walls of the company itself. He explains, Electronics was one of the first industries to recognize the opportunities brought forth by the Internet to do Web-based procurement, supply chain visibility, and supply chain event management.

Event management, the ability to cope with problems in the supply chain, or what Bittner calls filling the gap between backbone systems and planning systems, is particularly well suited to electronics. The latest technologies allow real-time exception management of the supply chain, which can be crucial to an industry with cross-border manufacturing.

The Shortest Line Isn't Short

Bittner gives a real-world example: SANYO Electronics, one of the largest providers of televisions to Wal-Mart, has a manufacturing plant in Tijuana, Mexico. The majority of components used in their television manufacturing come from NAFTA nations (The United States, Mexico and Canada). But the small components, such as diodes, resistors and transistors, come from Singapore and Hong Kong.

Here's where things really get interesting. The components are shipped in full container loads via ocean freight from Singapore and Hong Kong to Long Beach, Calif. Those container loads have to clear customs. There then has to be an intermodal move from a drayage yard into trucks for each container, which, in turn, have to cross the border into Mexico and have all the appropriate documentation. Once the materials are used in the manufacturing of television sets, the sets are then palletized in full-load containers and shipped back to Wal-Mart distribution centers in the United States.

With so many potential snags, and a complicated scheme to work through even if a shipment goes through snag-free, to say that supply chain visibility and management is a much-needed capability is an understatement. That whole cycle can take anywhere from two days to two weeks, depending upon exceptions and border hang-ups; and believe me, SANYO would love to have it closer to the two-day than the two-week cycle, Bittner said.

Eric Schlumpf, research director with Deloitte Consulting, says that the bullwhip effect can still cause problems. He explains the plight of the consumer electronics manufacturer in this way: If I have a contract manufacturer in Taiwan who's making printed circuit assemblies for me and I'm shipping them to Guadalajara, if I ship those circuits and then the forecast changes, the logistics and distance challenges and costs associated with those logistics are high.

The Tubes Are Warming Up

Schlumpf goes on to say that, even though supply chain management of every stripe holds a lot of utility for electronics manufacturers and those technologies have been embraced by manufacturers, there is still a fair amount of work to be done. I think most organizations are pretty far behind the ability of the technology to help them and haven't really wrestled to the ground the value proposition associated with it. In addition, many organizations have been operating in a decentralized mode. (Understandably so, given the far-flung nature of electronics manufacturing.) Schlumpf explains, You're not only changing individual work patterns, behavior and activities, you're also changing executive leadership opinions and attitudes and supplier relationships.

In addition, there are problems sharing information with trading partners' systems and even managing in-house data. Very few people know enough about their own operation to make complete use of these kinds of tools, Schlumpf says.

Wired for Business

If those problems can be overcome, however, Schlumpf agrees with Bittner that there is tremendous opportunity for improvement, particularly in the ability to connect electronically with your suppliers throughout the supply chain, provide them with forecast and change visibility, and be able to respond and react to shortage situations.

In terms of marketplace strategy, whether to use a public or private marketplace, Schlumpf believes that the smart companies are taking what he terms a portfolio approach, staying flexible and reacting to what opportunities the business climate might present. He's especially skeptical of the huge industry consortia, saying that it goes against the competitive nature of business. There's something intuitively wrong with the concept that says, For the last 25 years, we've been telling our clients that they're going to compete on the basis of competitive advantage in their supply chain, and now we're all going to do that together in a big group.' I just don't get it.

Give Me a Million of These

So what segment of the industry stands to benefit the most from enabling its supply chain? Todd Thibodeaux, vice president of market research and senior economist at the Consumer Electronics Association, says that the potential lies in the subcomponents (those Einsteinian electron tubes, capacitors, etc.) and commodity components area, as well as in the area of companies that sell finished products to smaller retailers. The subcomponent and commodity components gain in their ability to do what Thibodeaux calls positioning themselves as equal players in the logistical sense. Larger companies with proprietary systems no longer have a huge advantage over smaller competitors.

In regard to the companies that are selling to smaller retailers, Thibodeaux says technology now allows for more profits to be wrung out of a low-margin area. [The selling companies] can more easily manage those accounts with dedicated extranets for smaller customers who, under current systems, return little but cost a lot to maintain.

Thibodeaux goes on to point out that the electronics industry also stands to benefit in more ways than cost savings per part. He is especially impressed by the ability to mass produce mass customization. If a manufacturer can spool up production of crucial components on an as-needed or predicted basis, rather than pumping them out until there's a warehouse full of parts eating up storage space and weighing on the books, there are savings all around. He explains, The ability to have the correct store of product on hand for assembly or final sale and the ability to mass customize have the most important impacts and results. Which is so slick a concept it's almost Einsteinian itself.