Effectively reaching rapidly-developing emerging markets is often a challenge for businesses that require bricks as well as clicks. For example, unlike the travel industry – where an inventory of airline seats or hotel rooms is literally virtual – the electronics industry requires its inventory to stored and physically moved around the globe.
Technology, of course, has aided both movement and expansion in the electronics industry. Americas-based electronics distributors, for example, began developing programs that helped them track component sales in foreign markets even before ERP/MRP systems became ubiquitous. Electronics companies are among the more aggressive users of supply-chain technology, according to a recent report by Accenture. However, despite the vital role that technology plays in helping companies manage the complexity and volatility in global operations, only 48 percent of the more than 1,000 global companies surveyed by Accenture use technology extensively in their emerging market supply chains. Forty-five percent of the companies from the 10 industry sectors surveyed for “Supply Chain Success Factors in Emerging Markets” make only moderate use of technology, automating some essential activities but supporting them with manual processes, said Accenture.
There are some break-outs, Accenture found: 73 percent of supply chain leaders use technology extensively to support their emerging market presence, versus only 31 percent of lower performers. In fact, nearly three-quarters of the leaders said they had made heavy investments in such automation tools as manufacturing systems, ERP and supply chain systems, Accenture said.
Global electronics distributor Avnet Inc. -- named by Gartner as one of the top 10 high-tech companies in the “2014 Gartner Supply Chain Top 25: High Tech” – has used technology and a proven strategy to expand around the globe. “One of the benefits is the infrastructure,” said Lynn Torrel, senior vice president global supply chain and strategic accounts at Avnet, in an interview. “We centralize a lot of the back office functions in the regions – whether it is the Americas, the EU or Asia – and lead [in the new country] with a sales office so we can quickly move into that market. The office benefits from the centralized functions we have in place and they can be quick and agile – moving forward is easier when you have the full support of the back office operations.”
The commitment to technology by supply chain leaders is significant as the Accenture study found that companies with leading supply chains are more likely to generate stronger growth in emerging markets than those with average or low-performing supply chains. They are more than twice as likely as other respondents (58 percent versus 22 percent) to have achieved growth of 20 percent or more in their priority emerging markets in the past two years.
U.S.-based IP&E specialty distributor TTI Inc. recently expanded its European warehouse to accommodate growth and to provide services such as cable and wire re-spooling.
Electronics distributors face the unique challenge of servicing their suppliers – component and systems OEMs—as well as customers (buyers of these products). Both constituencies have urged distributors to expand into developing markets. However, just communicating with these partners requires a variety of technologies. Distributors must take forecasts from their customers and weight them against the production forecasts of their suppliers. “We communicate with them [both customers and suppliers] via EDI, Excel spreadsheets; some have their own portals,” Torrel explains. “We have 100,000 customers -- Avnet has continually adapted and used technology to provide great service.”
Analytical technology is one of the areas supply chain leaders invest in most heavily, according to Accenture. Distributors frequently take multiple customer forecasts – how many components they think they’ll need – and communicate that back to a myriad of suppliers. The channel also estimates any upside or downside inventory it has to hold, and figures out whether some customers can use parts that other customers ultimately don’t buy. “We frequently use EDI for this process,” said Torrel. “We then negotiate an agreement through which we will service a certain number of parts with the flexibility and type of program [customers] want. If it is a consignment relationship, we identify what percent of usage [we can expect from that customer] and manage their forecast against component manufacturer leadtimes. There’s a lot of volatility there but we help smooth that out for both partners.”
“Volatile conditions continue to complicate growth and production in emerging markets and the strategic use of digital technologies in supply chains, particularly big data analytics, can be instrumental in providing the up-to-date information needed to make decisions and respond rapidly,” said Mark Pearson, senior managing director, Accenture Strategy, Operations, in a release. “Supply chain leaders make extensive use of technology in their operations and show that enhanced agility turns uncertain market conditions into a source of competitive advantage.”
One of the key functions of the electronics distribution industry is to protect customers from risk. Risk takes many forms, from inadvertent non-compliance to regulations to product shortages from catastrophic events. "When you think of some of the changes taking place —government regulations; geopolitical or natural disasters – a robust supply chain extremely important,” said Torrel. “We continue to leverage the technology we developed, and we think it is important to continue to innovate new solutions for the supply chain.” For example, Avnet may develop a custom solution for one customer and then roll out similar programs for other customers.
Developing custom solutions in-house requires a significant investment from distributors. However, if the distributor is able to adapt aspects of those solutions for a wide customer base, it spreads those costs out. “We have incredibly creative supply chain experts [at Avnet], and what they are tasked to do is develop innovative supply chain programs – some require a lot more work than others – so we do measure [programs] based on metrics such as inventory turns or return on investment,” said Torrel. “But we develop that solution to help [our customers] increase their business with an eye toward solutions that can also help our business.” For example, Torrel said, Avnet developed a solution for a healthcare customer that required conformance to specific Federal Drug Administration (FDA) regulations, in particular, product quality and labeling. Now that Avnet has structured a solution toward those requirements, other customers can benefit from those efforts.
According to Accenture, other practices that supply chain leaders apply in emerging markets include:
- Differentiating themselves by complementing a low-cost structure with a greater focus on quality and market knowledge.
Recognizing that success requires value as well as a lean cost structure, supply chain leaders are more than twice as likely as non-leaders (17 percent versus 7 percent) to differentiate themselves on the basis of quality rather than cost as a primary measure of supply chain success in emerging markets.
- Leaders apply a broader range of supply chain models in emerging markets.
Supply chain leaders are more inclined to invest in the full range of options available to them, including plants, distribution centers, and suppliers in the region; established operations in the market; or hiring local talent to help manage the supply chain.
- Supply chain leaders invest more aggressively.
To help them achieve their growth goals in emerging markets in the next three years, leaders plan to invest aggressively in their operations, with 22 percent of them planning to invest more than $40 million in their supply chain. Interestingly, banking respondents (29 percent) had the greatest propensity to say they plan to invest more than $40 million to build supply chain capabilities.
Leaders (66 percent of them) are more likely to invest in capabilities to improve the operational excellence of their supply chain execution by standardizing, streamlining and automating processes, using shared services and modernizing IT systems. They also are more likely than lower performers to prioritize investments in their physical infrastructure, (e.g. manufacturing facility expansion and wider warehouse networks) and customer analytics.
Avnet is the only distributor to be recognized by Gartner on the top 10 list of high-tech companies. This is the first year Avnet has been recognized in Gartner’s supply chain ranking of high-tech companies.