How OEMs Can Compress Their Cash-Conversion Cycle
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The electronics industry’s cyclical downturns and upcycles may have become less vicious over the last decade but it appears enterprises in the sector have still not fully sorted out the inventory challenges that have for long been the bane of the market, according to a research firm.
Whatever the nature of the inventory – finished goods, work-in-progress or components – the electronics industry is still struggling to find the right balance between what it makes and what customers are buying, leaving enterprises forever searching for an elusive optimal balance figure for inventories, said analysts at Gatepoint Research.
The research firm said the results of a recent survey it conducted shows the difficulties companies face as they strive to achieve the goal of balancing demand and inventory supply. Gatepoint said 36 percent of respondents to its survey said their organization had too much cash tied up in inventory while 29 percent said that they had too much excess or obsolete inventory. Another key finding was that one-third of the total respondents rated their visibility levels between “average” and “none,” while only 26 percent of respondents described their current visibility levels as “great”.
The survey, which was conducted between February and March and relied on responses from 100 executives, also found that a majority of participants view the process of managing inventory information-sharing between partners as a time consuming process that involves enterprise resource planning (ERP) and manual methods such as using emails or faxes. Less than 22 percent use automated B2B technology.
“What surprised me about the survey findings is that it’s 2015, and there’s still a substantial reliance on manual communication for sharing inventory information,” said Sean Rollings, vice president of product marketing at E2Open, which sponsored the survey. “While 42 percent of respondents say they are sharing inventory via their ERP system, satisfaction on overall visibility remains low. The satisfaction part isn’t surprising. With manual communication, you rely on individuals to share information. That means you depend on a person to share it – on their timetable. Manual processes are also rife with errors.”
Among participants in the survey, 28 percent of respondents were drawn from the high tech manufacturing sector. Other key findings in the survey include:
- Overall, VMI is not employed at all by nearly 30 percent of survey respondents.
- Only 33 percent felt that inventory levels reflected optimized cost and service levels.
- Using VMI on both buy-side and sell-side is relatively rare. Only 30 percent of those surveyed report this capability, whereas those implementing solely buy-side VMI programs outnumber those implementing solely sell-side programs by more than two to one.
- Visibility into time-sensitive supply chain data continues to be a struggle. More than half of those surveyed reported that their business cannot share daily forecast information.
- There is a sustained demand for better inventory management collaboration. Among those surveyed, nearly one-third reported collaborating “poorly” or “not very well” with trading partners.
While the survey’s authors didn’t break out results specific to high tech manufacturing, Rollings told EPS that E2Open’s work providing cloud-based and on-demand software solutions to manage supply chain operations for high tech clients reveals that vendor managed inventory strategies are quite advanced, but there are still three challenges creating friction to further adoption, efficiency, and effectiveness. The three challenges are partner trust, communication and security, he said.
“Sharing inventory, forecast, and order information with partners will always be a trust issue. However, the feedback we’ve gotten from VMI adopters is that the win-win benefits for both sides far outweighed the perceived risks,” Rollings said.
He noted that that E2Open’s high tech clients continue to say that their communication with partners is still manual in a lot of environments, even in an era of advanced electronic communications that connect companies across supply chains in different geographic locations. He also noted that companies should consider how they manage the security of their data.
“The coming of age of business networks – envisioned decades ago but long held back by issues of internet readiness, communication standards, and partner onboarding – is creating a great leap forward on sharing data as it’s available in standards that can be communicated, normalized, and rationalized for ready use and actionable intelligence,” Rollings said. “Finally, security is always a priority, but the business networks provide the leading-edge security and availability that individual brand owners cannot provide with their more limited resources.”
As supply chains continue to expand, companies are looking for real-time inventory information that can empower executives to make time-sensitive supply chain decisions to improve customer fulfillment.
“Today’s manufacturing environment means more outsourcing, more trading partners, more competition—and at the same time, less control, less cash, and shorter product life cycles,” Pawan Joshi, vice president of strategy at E2open, said in a statement. “Amidst these increased pressures, companies are shifting away from traditional inventory management programs to seek the connectivity and visibility needed across external suppliers to minimize the risk of revenue loss from stock-outs or inventory write-offs.”
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