Mike Heljula, Director of Business Process Excellence at Arrow Electronics, highlights the role distribution plays in improving the effectiveness, flexibility and performance of the supply chain, helping customers take full advantage of ongoing industry recovery.
The global economic meltdown wreaked havoc on the delivery chain between customers, distributors and suppliers and the consequences are still being felt. From a situation where customers could provide notification of requirements some six months in advance, forecast visibility fell dramatically, often to a few weeks or less. The recovery has also presented its own challenges. Some component manufacturers found it hard to bring capacity back on line, resulting in lead time extensions and even allocation. This situation has been exacerbated by a trend towards ‘safety’ ordering of volumes in excess of current requirements. Such over-ordering, in turn, can lead to significant overstocking throughout the delivery chain.
Clearly companies want to implement supply chains that smooth out fluctuations in supply and demand, have the tolerance to cope with variable forecast visibility and are optimised to ensure that the right products are in the right place in the right format at the right time. Furthermore, by supporting reduced stock inventories and lower acquisition costs, effective supply chains also help to increase profit margins and improve flexibility. More and more companies want distribution partners to help them build these high-performance supply chains, which is why choosing the right distribution partner has never been more important. So what sort of criteria should be considered?
The distributor as consultant
Firstly, a good distributor should be able to act in the role of supply chain consultant. Not all companies employ supply chain experts or are absolutely clear about their requirements or the available supply chain options. Thus they look to the distributor to identify the best solutions for their needs.
Arrow, for example, has a team of Supply Chain Solution Managers (SCSMs) who work closely with customers from concept through implementation and beyond.
SCSMs help companies to understand the total cost of acquisition (TCA, also known as total cost of ownership) – the measure of all of the costs associated with bringing materials to the business and presenting them in the appropriate format so that they are ready for use by the production team – as a baseline measure to be used for monitoring the cost reductions that can be achieved through supply chain enhancement. TCA measures can also be used to benchmark customer supply chains against industry sector best-in-class standards. Beyond implementation SCSMs remain involved with customers, carrying out regular reviews and proposing any changes that may further improve supply chain performance.
Effective inventory and logistics management is at the heart of a high-performance supply chain and, therefore, should form a key part of distributor evaluation.
Speed and cost of supply chain implementation and modification will also be important. By taking a modular approach to common supply chain elements and strategies, distributors can help customers to build flexible supply chain solutions that are optimised to specific requirements but without incurring the time and cost penalties associated with true custom implementations.
In this scenario typical logistics modules are likely to include solutions for automatic delivery, delivery-on-schedule, material requirement planning (MRP) Kanban, minimum/maximum (MIN/MAX) order point processes in which stock is automatically replenished to a previously defined quantity and strategies for delivering product in the most cost-efficient batch sizes. The availability of effective interfaces for electronic data exchange may also be important – for instance via Electronic Data Interchange (EDI) – in terms of cost-effective communication of data such as invoices, orders and delivery notes.
An effective supply chain isn’t just about storing and shipping components. Certain components require ‘finishing’ whereby processes are performed on them before they are ready for production. Recognising this, many distributors now offer additional, ‘value-added’ services that can be easily combined with inventory and logistics solutions to ensure that devices delivered to manufacturing are fully ‘production-ready’.
Such value-added services may include device programming and laser marking and labelling with date codes, logos or other identifiers. In addition packaging-related services are also becoming increasingly popular, including the provision of special packaging, cropping/forming and the taping and reeling of components to customer-specific specifications.
The best distribution partners will continually assess the entire inter-company chain and have effective tools for stock monitoring, article spectrum, forecast analysis and other factors that ensure prompt problem detection and resolution. Such tools may also identify unnecessary task duplication. At the same time, good distributors recognise that customer and supplier requirements are constantly evolving and will provide the advice, guidance, support and solutions to ensure that the supply chain evolves accordingly.