Logistics Manager

It’s not just the products that change rapidly, it’s also the route to market. You need to be quick in more ways than one to succeed in the hi-tech market, says Malory Davies.

Apple chief Tim Cook managed to scandalise Apple enthusiasts a couple of months ago when he tweeted a picture that seemed to show Microsoft Windows being used at a factory that makes the new Mac Pro. But, leaving aside the inter-behemoth rivalry, what was really significant about Cook’s picture was the fact that it was taken in a factory in Austin Texas – not China.

Apple moved all its manufacturing to Asia ten years ago. But now, some of it at least is going back home to the US. The Austin plant was set up to manufacturer the top of the range Mac Pro.

And a second plant is now under construction at Mesa in Arizona – a move so significant that Arizona governor Janice Brewer was moved to say: “Apple will have an incredibly positive economic impact for Arizona.”

It’s not only Apple that has been rethinking its supply chain. A white paper by Lisa Harrington for DHL Supply Chain points out that Motorola has also chosen to base a production plant in Texas.

“For nearly two decades, trade flows have been long-distance and east-west oriented,” said Harrington in the white paper, Path to Growth: Shaping Tech Sector Supply Chains In Emerging Markets.

“But these long-distance supply chains are being replaced, at least partially, by shorter, regionally based trade flows to meet the new global demand and changing market dynamics. The regionalised global supply chain, in which goods are produced and sold/ consumed in the same geographic region, is emerging as the new paradigm.”

And Jan Thido Karlshaus, vice president of technology at DHL Supply Chain, highlights the fact that while emerging markets were once seen primarily as a place for sourcing products, based on low-cost labour: “That paradigm has changed. Emerging markets are fast becoming engines of demand, a trend that carries tremendous implications for technology sector supply chains.”

The DHL report picks up on three trends that characterise the challenges and opportunities for the technology sector in emerging markets: regionalized supply chains; shortening product life cycles; and shifting demographics.

Shortening product life cycles puts additional stress on technology supply chains. “Long lead times for products being manufactured in emerging markets combined with dynamic global consumer demand can quickly lead to product obsolescence. As a result, companies must have supply chains that are agile enough to fully support rapid new product rollouts, to maximise their profit opportunity window and reduce margin erosion,” says the report.

In terms of demographics the report focuses on two trends in emerging markets, urbanisation, and the growth of the middle class. The World Bank predicts that the developing world’s middle class is set to double to one billion people by 2030.

Structuring a supply chain to respond to these changes is sure to be a challenge. Harrington highlights the importance of flexibility, scalability, cost-effectiveness and risk tolerance.

And these issues, particularly the rate of change in the market, are having an impact on how manufacturers and retailers manage their supply chains.

The approach adopted by computer giant Dell was explained by Gearoid O’Donoghue, director in Dell’s global procurement organisation, at the Logistics & Supply Chain Conference in April.

The company has built a $57 billion business with its configure to order (CTO) strategy for personal computers.

However, O’Donoghue highlighted four key trends in the technology market that were impacting on the company’s strategy: mobility, cloud computing, big data and security. “These are causing us to reinvent our supply chain.”

To meet these diverse needs, Dell has developed three fulfilment models. The first is for catalogue products that are held in stock. It calls these “Smart Selection” products and it aims to ship these on a next day basis.

The second model is also for catalogue products but these are build to order where goods are not held in stock.

The third model is for commercial customers and products that are built to order and will also require additional configuration.

Dell is also reconfiguring its global movements. O’Donoghue highlighted the use of the deferred air network which allows for consolidation to optimise routeings. Dell is also making increasing use of block trains from China to Europe. These have the advantage of taking 16 days as opposed to 35 or more for ocean. Dell is also looking at the use of “warehouses on the water”, he said.

Jonathan Smith, head of reverse logistics at iForce, says: “The speed at which technology and electronics are becoming out of date is the biggest threat for retailers and has resulted in new ways of purchasing technology for consumers, so that these items stay ‘sold’, such as a 12-month+ upgrade option when paying monthly.

“Retailers are also working on strategies to keep their products sold and to reduce the number of returns that are created through technology’s unavoidable high turnover. One example of this is that some retailers are now offering technical support, so that the returns created due to lack of technical understanding are greatly reduced. This has been more evident in the last 12-18 months.”

Smith highlights the importance of an efficient returns process: “The routes by which people can buy and return purchases are increasing all the time, and particularly the boost in the number of returns outlets, via general stores, supermarkets and the like, are creating a world where the fast-moving technology changes could potentially be less of an issue. Products are returned more quickly, in turn reimbursing the consumer or retailer sooner.

“Most importantly a grade A, high-value electrical item, such as the latest iPad or Smart TV, could be returned back into e-fulfilment within 24 hours; reducing margin erosion due to more out-dated versions of certain technology.

“An efficient returns processing system for hi-tech and electronics is crucial in the most fast-paced of retail environments. A fast turn-around helps to resolve the ‘out-dated’ technology issue and reduces the risk of margin erosion for retailers.”

Some 3PLs have dedicated facilities for hi-tech products. Ceva recently launched a 968,750 sq ft “TechCity” hub in Bergamo, Italy, which is dedicated to the warehousing, handling and cross docking of products for the electronics sector.

“We decided to create a sector focused multi-user hub to share knowledge and innovation, optimizing transport flows and productivity,” said Giuseppe Chiellino, Ceva’s managing director, Italy.

The hub offers consolidation of small pieces, Full Truck Load transport, technical courier services and a security system specifically designed for this sector.

EXTENDED SUPPLY CHAINS: Why air rules in hi-tech

Tuesday 9th September is widely touted as the launch date for Apple’s newest mobile phone – the iPhone 6.

Apple, as always, is saying nothing. And its suppliers are sworn to secrecy. But, if you have had problems booking airfreight out of China in the past few weeks, that might be the impact of Apple moving inventory into its retail markets ready for the launch.

Air cargo could have been invented for the hi-tech market. And it’s a feature of the market that a big product launch can shift the entire air cargo market, says John Cheetham, regional commercial manager Asia Pacific & India at IAG Cargo.

Air cargo plays a critical role in the supply chain for hi-tech goods. Moving goods by sea might be cheaper than air but the transit time is typically four weeks from China to Europe.

Cheetham points out that all this time at sea can be a problem for a electronic devices as speed to market is an important factor.

The market is not simply focused on moving finished goods out of production centres in the Far East. These is also a significant market in moving components into China particularly. Not only that, says Cheetham, the electronics market is quite seasonal so the fourth quarter sees a significant spike as retailers ramp up for Christmas. As a result capacity is likely to be a lot tighter in the months before.

Many hi-tech products such a mobile phones are fashion items; consumers want the latest technology and the newest styles. Short product life cycles mean that goods have to be moved quickly and that means going by air.

The past few months has seen the major airlines adjusting their freight capacity from the Far East to take advantage of the developing market.

IAG Cargo decided to transfer freighter operations from GSS and purchase capacity on Qatar Airways-operated air cargo freighters.

This gives it five B777F flights a week between Hong Kong and London. IAG has also been expanding its cargo capacity with new aircraft in its passenger fleet.

In February Cathay Pacific launching a twice-weekly freighter service from Hong Kong to Columbus – its 12th freighter destination in North America. In April, Lufthansa Cargo added a daily Boeing 777 freighter service out of Shanghai Pudong Airport. And in June American Airlines Cargo launched a cargo service from Dallas/Fort Worth to Hong Kong, and from Dallas/Fort Worth to Shanghai with the focus mainly on electronics.

Cheetham points out that for the airlines advanced knowledge of movements is vital to planning, but “this is not always nailed down as well with hi-tech products as well other product categories”.

There are a number of reasons for this, he says. Security is a big issue – electronic devices are very small and very valuable – obvious targets for thieves – so, not surprisingly, manufacturers are careful about the release of information.

The need for speed means that IAG uses its Prioritise product for some hi-tech shipments. Prioritise allows for late cut off and early collection times, and also comes with a performance guarantee. IAG has dedicated facilities at both Heathrow and Madrid.

Originally printed in Logistics Manager 09/2014