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New roles, new demands
Every business worth its salt knows that when times are changing, it has to change with the times. For logistics companies serving the electronics industry, change has come in the form of a dynamic environment that's looking far more complicated as rivals line up with creative offerings and customers demand services well outside the sector's traditional offerings.
The challenges facing logistics companies are immense: an expanding global supply chain that is moving into new geographical territories in Europe and Asia, growing demands from customers for more flexible and customized services, and end-of-life issues for various technology products that must be disposed of in an environmentally friendly way. Service providers must respond with innovative programs that establish deeper relationships with their electronics customers, according to industry sources.
"It's a time for assessment, a time for recognition that customers are expecting a lot more in the way of physical services and on-the-ground presence, information services and even managed services," said Beth Enslow, senior vice president of enterprise research with the Aberdeen Group. "Third-party logistics players need to do some soul searching and figure out what their portfolio is going to be, because other companies out there are looking to provide logistics services to the electronics industry."
One logistics provider adjusting to the new realities is United Parcel Service of America Inc. (UPS), which has a reverse-logistics program with Toshiba Corp., tailor-made for servicing laptops under manufacturer warranty. In a bid to reduce costs and improve customer service, the Japanese company turned to UPS six years ago for an integrated logistics model that entailed moving its parts warehouse next door to the technical-repair center at the UPS hub in Louisville, Ky. UPS also provides the technicians who repair the laptops.
By relocating its parts warehouse and the repair center — previously some 20 minutes away from each other in Memphis, Tenn. — Toshiba eliminated the travel trips between locations. More important, by leveraging the UPS stores and transportation services across the country, customers can either drop off their computers or have them picked up and delivered to an airport hub that has a 19- to 20-hour operating window.
"Because we are at the end of the runway, we can get it in at 5 o'clock in the morning and we can ship until 1 o'clock in the morning," said John Pinto, director of operations for service and support at Toshiba digital products division.
Pinto said the model has shortened shipping and repair times that used to take seven or eight business days — four days of repair time and three to four days for shipping. Today customers can request the express model. "We can do it as quickly as three days, because express units are also prioritized at the depot. So one day shipping, one day repair and one day back — that's three days; that's the express model," Pinto said.
Raj Penkar, director of consulting services and an electronics industry expert at UPS, said the company's inventory-tracking systems, its transportation infrastructure and its airport facilities are a perfect combination of services that assist its repair program.
"The whole reverse-logistics process that we put in place for service parts is very useful for repair and returns operations," Penkar said.
Certainly, Toshiba's choice of UPS was easier because the two companies had already worked together on a much smaller scale. But when Toshiba put a request for proposal out to other large providers of logistics services, Pinto said UPS had something the others didn't.
"Our primary objective was not just selecting a third-party logistics provider; it was selecting a repair partner," he said. "What we were looking for was an end-of-runway solution, so UPS' supply chain ended up being our best fit."
Don Stevens, DHL International's vice president and sector head for the electronic components division of its global customer solutions business unit, said his company would gladly arrange a swap for items that are malfunctioning or to diagnose a problem. It has no intention of going even deeper into the supply chain to provide manufacturing or repair services.
"We have technicians doing a limited amount of work," Stevens said. But DHL's repair program in no way matches that of UPS. "If you are comparing us to UPS, we are not as far down the road as they are."
Similarly, Federal Express Corp. says it does not have a repair program, preferring to stick to its core competency — the shipping and transporting of goods.
The issue of a third-party logistics provider (3PL) repair service illuminates the different approaches that traditional 3PL companies have taken. Yet David Yakich, direct-fulfillment program manager at Xilinx Inc., wonders whether 3PLs should get involved in repair service management. "There's a lot of competition from contract manufacturers in the area of being able to do repairs and returns. Contract manufacturers are building the products, so they have a repair and replacement program that to me makes more sense, vs. a UPS that does not build any product," Yakich said.
Inventory management
Xilinx, for example, shifted away from a traditional third-party fulfillment program, where all its parts were bought or sold via distribution. Now, the semiconductor company directly sells to its customers, fills the orders and conducts technical support. In making the change, Xilinx chose to forgo 3PLs and picked Avnet Logistics, a business unit of the top-tier components distributor, for its services.
Xilinx, a programmable-logic vendor, established Virtual Direct three years ago. Servicing 15 of its largest customers, the program streamlines the flow of parts to contract manufacturers assigned to build products for the OEMs.
"We might have one large-end customer that might have five or six contract manufacturing sites, and many of those sites might use the same parts from Xilinx," Yakich said. "The supply chain was fairly complex and there was an awful lot of inventory in multiple places."
By using Avnet Logistics to electronically connect with the manufacturing sites, and creating forecast intelligence from multiple EMS providers, Yakich says the supply chain was streamlined, tangibly reducing inventory that Xilinx, the contract manufacturer or the OEM would maintain.
In addition, the process uses Xilinx warehouses in Singapore and Ireland as hubs for the direct fulfillment of product shipped to contract manufacturing sites. This eliminates a distributor having to use multiple warehouses to store inventory.
"We feel that we get a benefit from Avnet Logistics because they understand our business and the requirements vs. a pure third-party company," Yakich said.
While it uses Avnet for shipping and warehousing, Xilinx gets the most value out of Avnet's ability to connect the vendor with its contract manufacturing sites while analyzing demand requirements. "Avnet has that expertise that we haven't found elsewhere," said Yakich.
Avnet Logistics president Jim Smith said the company sees further opportunities among midsize manufacturers that need help managing their entire operation on the back end. Both inbound and outbound strategies stand to be improved, Smith said. Through better inventory control practices, operations, warehousing, production automation and product shipping, midsize companies will be able to better serve their customers.
Elongated supply chain
"As high-tech companies get pushed more into the interior, they'll have to rely on surface transportation to get the goods from the factories to the air centers. That's going to be a challenge," said Bob Ferrari, director of supply chain research for IDC Manufacturing Insights.
Another issue on the horizon is the disposal of computers and related products that must adhere to environmental standards. According to Linda Taylor, who leads the manufacturing-industry strategy team at FedEx services, this is yet another issue that 3PLs will be grappling with in the near future. "This is something we've been watching very closely at Federal Express, to understand how we need to modify or provide any additional services to help make sure our customers meet those requirements," she said.
Nicole Lewis is a Miami-based business and technology writer. She can be reached at Lewis_nicole@bellsouth.net.
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