Spread Lean through Your Chain

July 9, 2012
The consumer electronics sector offers a great model for making the lean model work for partnerships.

The opportunities to remove waste from a supply chain are based on the elimination of excess inventory, time and cost. Nowhere are those requirements more important to supply chain health than in the consumer electronics sector. There are several key operating choices that these companies make in determining how to best manage their product flows into markets. These decisions involve postponement services, direct-ship to major customers and vendor managed inventory programs (VMI). Each of these strategies offers distinct benefits to customers, and correct use of these by a company, in conjunction with their specific customer requirements, will help lean out their network.

Postponement Planning

This involves the stage in the distribution process where companies decide to personalize their products for a particular consumer-based requirement. The array of postponement activities is quite broad, as software-loading, special packaging, kit assembly, and other personalization modifications to base products often are what help companies differentiate their items.

Global 3PLs are enabling end-to-end supply chain management capabilities, beyond traditional freight-forwarding and transportation management activities. Companies can leverage a 3PL network to consolidate shipments and provide postponement activities at different points in the outbound channel.

Hard disk drive companies, some of whom had their manufacturing capacity temporarily decimated this past year due to the national disasters in Southeast Asia, have moved their postponement work into destination markets, such as Europe and North America. This allows for consolidated shipments of raw goods, lower cost transportation, and increased flexibility to customize these items to unique retailer requirements in the destination market.

Direct Ship to Retail

Shipping from manufacturing to retail customers is another growing trend for consumer goods manufacturers seeking to lower inventory carrying and transportation costs. The personal computing market and gaming industry have increasingly used this strategy, which has been well received by many of the big box retailers.

In this model, full container loads and full truckload shipments move directly from manufacturing origin points (usually in Asia) directly to big box warehouse locations, thereby passing the company’s distribution centers and eliminating the need to receive and reship these items to the retailer. The consumer goods company can maintain its price for the products to its retail customers, but can also remove its own handling costs and boost margins by removing this process step.

Vendor Managed Inventory

VMI programs were traditionally a manufacturing technique to reduce inventory levels at the point of production, but now several consumer goods and retail organizations have implemented variations of VMI to drive costs out of their business. One method involves postponement, in which packaging and other components are carried by the 3PL or postponement company until the products are finished and ready to be sold into the outbound channel. Raw components are shipped into the destination market in quantities that meet sales forecasts, but conversion of these products from raw goods to finished state does not occur until a demand trigger is received by the retailer.

In other cases, base units are packaged in bulk at the point of origin, but accessories that ultimately will be added to the base item to be sold as a kit or a bundle are held on VMI or consignment until final orders drop for these combined units.

Flexible network design, along with basics such as postponement, direct-shipping and VMI programs, are examples of how lean principles can be applied supply-chain-wide. For companies to thrive in today’s world of short product life cycles and growing consumption levels, lean principles will have to be implemented as a way of doing business.

Terry Haber is a senior vice president of supply chain, and technology sector leader for CEVA Logistics in the Americas Region (www.cevalogistics.com). He oversees the development and growth of the technology sector throughout the region.