Sagging electronics sales have driven PC makers to crank up the demands they make on the distributors that supply them with parts. One of those distributors has turned the crunch into an opportunity.
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
When the electronics industry booms, so do the fortunes of the distributors that supply manufacturers like PC makers with the parts they use: microcontrollers, memory drives, power supplies and optoelectronics. But the corollary holds true as well: When sales in the PC and aerospace industries slip, it's the suppliers who feel the crunch almost immediately, glumly watching their earnings slide as their customers crank up their demands.
That's tough for those on the receiving end. As suppliers like Avnet Electronics Marketing have learned, many of their customers equate tightening their belts with tightening their inventories. That means they cut their own stocks to nothing—or nearly nothing—then demand that their distributors fill their orders at warp speed. At the same time, they place smaller orders and do it more frequently. Some customers now order the same part two or three times a week—and large customers will order a part two or three times a day, reports Jim Smith,senior vice president and director of operations for Avnet Electronics Marketing.
Because they carry virtually no safety stocks, Avnet's customers cannot give suppliers much leeway on delivery. Smith says that to win a "qualified supplier" designation with many of its customers, Avnet must guarantee delivery within a window that stretches from what he calls "three days early to zero days late." The window shrinks even further if you want to be a "preferred supplier," he adds.
Of course customers expect that speed with no sacrifice in accuracy and no increase in cost—a demand that's forced suppliers like Avnet to focus hard on their productivity levels. "Our challenge is to take the standard eight-hour work day and make it look like 16," Smith wryly observes.
Given its customers' reluctance to hold inventory, Avnet also has to make some tricky forecasting calls,balancing the risk of stockouts against the risk of getting stuck with inventory that could become obsolete virtually overnight. It has little to go on when creating those forecasts: In the electronics industry, historical data are not necessarily the best data for building forecasts."Looking in the rear view mirror while driving 80 miles per hour is unhealthy," Smith asserts. "We com bine historical information with customers' forecasts. We collaborate with suppliers to build forecasts. That way we're able to look at lead times and trends and make informed decisions.On the customer side, we're trying to work with customers to assure that the product sets they choose are easily available."
So far, at least, the company has succeeded in maintaining that delicate balance. The Electronics Marketing group, which is the largest operating group of Phoenix, Ariz.-based Avnet Inc., reported $5 billion in revenue in the fiscal year that ended in June.The group's core business is distributing semiconductors, interconnects, and passive and electromechanical components to electronic original equipment manufacturers, contract manufacturers and other businesses in 64 countries around the world. It currently serves more than 50,000 customers in the aerospace, military, industrial control and instrumentation industries, among others. Avnet is becoming increasingly active as a distributor of electronic components in the automotive and small appliance industries as well.
In the last few years, Avnet has been diversifying its business model, expanding beyond distributing electronics parts. Today, it provides other services, including engineering and design support as well as providing a lot of physical value-added services, Smith says. "We'll modify products to fit a customer's bill of material or identify it for processing in their plants. About 70 percent of our product goes out of the DCs modified in some way."
On the move
Faced with these challenges, Avnet Electronics Marketing's made substantial changes in its distribution operations in recent years. Where it once had 22 DCs, including six large centers, the group now operates 14 facilities, with two major locations. The two major locations are a 440,000-s quare-foot facility in Chandler, Ariz., and a 200,000-square-foot DC in Dallas. The Chandler facility has 326 employees, while the Texas operation has 356. Despite the added freight costs resulting from longer lengths of haul, Smith reports that centralizing operations has allowed the company to cut the cost per transaction by a considerable margin.
Those large facilities require sophisticated management systems. The Chandler facility, for instance, has 80,000 SKUs and processes 10,000 line items a day. The smaller Dallas DC has 50,000 SKUs and processes 5,000 line items a day. That volume and the small margin for error create enormous complexity.
To manage that, Avnet implemented the MOVE warehouse management system from Optum—a big departure from what had formerly been a largely manual operation. The WMS has been orchestrating operations in the large DCs since January 2001, when it was fully implemented.
Under the new paperless system, bar-code readers track inventory throughout the DC. When inbound products arrive, the system directs put away to take full advantage of cube within the DC. On the outbound side , the sys tem sends information to a wireless radio-frequency (RF) device. It has also helped keep picking tasks manageable: "With more than 400,000 square feet, the picks per order could be excessive," Smith says. "The system allows split picks independent of orders, which we aggregate on the outbound."
The process has proved so accurate that Avnet's been able to eliminate physical inventory counts. That's made everybody happy, Smith says. "When we had to do physical inventory, it took four months.We had to shut down product lines one at a time for 10 days. Now that we've eliminated the physical inventory, customer satisfaction has increased because we don't have to shut down operations."
In the bag
How does a typical order move through the system? Scott Garrett, director of warehousing operations, provides a rundown. "Once an order is entered in the mainframe, it goes through a number of checks," he says."When all those gates are passed, it's then downloaded into the WMS. The system tells the operator the location, then confirms the location. The operator scans the "license plate" bar code on the box and the system says to pick X number of parts and put the balance back on the shelf."
Small parts are placed in a bag, which is then sealed. The system automatically prints out the unit container label. That label includes the purchase order number, the part numbers and the quantities. The bag then goes into a tote. "The license plate in the bag is married to the license plate on the tote," Garrett explains. The tote is then routed to the next location, eventually making its way to a direct ship, aggregation or special handling area.
The system walks the operators through the packaging requirements. A shipping label generated by the system is automatically applied, and finally the shipment is diverted directly to the back of a truck.
"We have just over three miles of conveyor system in the building," Garrett says. (The conveyor system was designed and installed for Avnet by material handling consultants Fortna.) "All the picking locations feed into a main distribution loop. Once an order goes into packaging, it goes through a second distribution loop."
Garrett says that receiving activity, which follows a similar process, begins at 5 a.m. in the Chandler DC. License plates are applied as goods are received, and then the WMS takes over to direct putaway activities.
"When we open the DC in the morning, we have no idea what's coming our way," says Smith. "We receive 3,000 to 4,000 shipments a day, which may come in with unique demands for receiving, picking and reshipping." Yet its customers still continue to push the envelope: Avnet recently received requests to extend the shipping day, allowing customers to order later and still get quick shipments. The distributor was able to respond to that demand, Smith reports. Orders now can arrive as late as 6 p.m. and still meet cutoffs.
In fact,the system enables Avnet to turn inventory quickly, with a large portion of inbound goods being shipped the same day. But speed isn't everything; the system must be flexible as well. Garrett reports that the system meets this requirement, allowing the DC to shift order priorities on the fly. "We can make a hot order the next pick in the warehouse," he says.
Smith believes the new system gives his company a huge competitive advantage. "We can turn products extremely fast," he says. "Under the old way, we were lucky to find the packing slip. This system allows us flexibility by sequencing orders based on business rules we've put in place. If Scott wants to change the rules for a certain set of products, he can do so. It gives us a lot of flexibility."
"The system has helped us improve our accuracy tremendously," Garrett agrees. "The other thing is that we've been able to mine data and capture activity.We can drill down to the individual operator or a particular area. We've coupled that with incentive systems [for employees]. We've linked those together for quality and productivity."
Jeremy Van Puffelen grew up in a family-owned contract warehousing business and is now president of that firm, Prism Logistics. As a third-party logistics service provider (3PL), Prism operates a network of more than 2 million square feet of warehouse space in Northern California, serving clients in the consumer packaged goods (CPG), food and beverage, retail, and manufacturing sectors.
During his 21 years working at the family firm, Van Puffelen has taken on many of the jobs that are part of running a warehousing business, including custodial functions, operations, facilities management, business development, customer service, executive leadership, and team building. Since 2021, he has also served on the board of directors of the International Warehouse Logistics Association (IWLA), a trade organization for contract warehousing and logistics service providers.
Q: How would you describe the current state of the contract warehouse industry?
A: I think the current state of the industry is strong. For those that have been focused on building good client relationships over the years, I think it’s a really exciting time. Coming out of all the challenges of the past few years, I think there’s a lot of opportunity for growth and deeper partnerships. It’s fun to see the automation and AI (artificial intelligence) integration starting to evolve [in a way that’s] similar to what we saw with WMS (warehouse management systems) in the early 2000s.
Q: You are now president of your family firm. Is it an advantage having grown up in the business as opposed to working elsewhere?
A: I definitely believe it was an advantage growing up in the business. Whether it’s working with family or someone else in the industry, there’s always an advantage when you have mentors[to guide] you. I’ve been blessed to have several mentors, some in the industry, others just in life, and I’m thankful that they were willing to mentor me and that I was willing to listen to them.
Q: What are the biggest challenges currently facing 3PLs, and how are you addressing them?
A: Labor and legislation are both tough right now. The two seem to have a lot to do with each other, and it can make it tough to find and retain people. So I think we’ll see more and more automation of processes industrywide.
Q: Third-party service providers often must handle a wide variety of products for a lot of different clients. Does this variety make it difficult to invest in automation and other new technologies?
A: It can make things more difficult when looking at certain automation, but it’s in the “difficult” that a lot of opportunities lie. It would be tough to find a single solution that fits every client’s needs, but there are always opportunities to improve in certain areas. It just takes a bit of vision and commitment, and a willingness to invest in your own long-term success.
Q: As a 3PL, what do you look for when selecting the clients you work with?
A: Quality relationships that will last a long time. When both parties are happy and working together in the same direction, everyone wins.
Q: You’ve been a board member of the International Warehouse Logistics Association since 2021. Why is your involvement with this organization important to you?
A: I think it’s important to understand what’s happening in the industry. IWLA is a great resource for staying up to date and getting a solid education when it comes to the latest logistics trends. I also think it’s important to give back and pass along what we’ve learned to those just getting started in the business. As important as it is to have a mentor, it’s just as important to mentor and help others.
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.
The market for environmentally friendly logistics services is expected to grow by nearly 8% between now and 2033, reaching a value of $2.8 billion, according to research from Custom Market Insights (CMI), released earlier this year.
The “green logistics services market” encompasses environmentally sustainable logistics practices aimed at reducing carbon emissions, minimizing waste, and improving energy efficiency throughout the supply chain, according to CMI. The market involves the use of eco-friendly transportation methods—such as electric and hybrid vehicles—as well as renewable energy-powered warehouses, and advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) for optimizing logistics operations.
“Key components include transportation, warehousing, freight management, and supply chain solutions designed to meet regulatory standards and consumer demand for sustainability,” according to the report. “The market is driven by corporate social responsibility, technological advancements, and the increasing emphasis on achieving carbon neutrality in logistics operations.”
Major industry players include DHL Supply Chain, UPS, FedEx Corp., CEVA Logistics, XPO Logistics, Inc., and others focused on developing more sustainable logistics operations, according to the report.
The research measures the current market value of green logistics services at $1.4 billion, which is projected to rise at a compound annual growth rate (CAGR) of 7.8% through 2033.
The report highlights six underlying factors driving growth:
Regulatory Compliance: Governments worldwide are enforcing stricter environmental regulations, compelling companies to adopt green logistics practices to reduce carbon emissions and meet legal requirements.
Technological Advancements: Innovations in technology, such as IoT, AI, and blockchain, enhance the efficiency and sustainability of logistics operations. These technologies enable better tracking, optimization, and reduced energy consumption.
Consumer Demand for Sustainability: Increasing consumer awareness and preference for eco-friendly products drive companies to implement green logistics to align with market expectations and enhance their brand image.
Corporate Social Responsibility (CSR): Companies are prioritizing sustainability in their CSR strategies, leading to investments in green logistics solutions to reduce environmental impact and fulfill stakeholder expectations.
Expansion into Emerging Markets: There is significant potential for growth in emerging markets where the adoption of green logistics practices is still developing. Companies can capitalize on this by introducing sustainable solutions and technologies.
Development of Renewable Energy Solutions: Investing in renewable energy sources, such as solar-powered warehouses and electric vehicle fleets, presents an opportunity for companies to reduce operational costs and enhance sustainability, driving further market growth.
A real-time business is one that uses trusted, real-time data to enable people and systems to make real-time decisions, Peter Weill, the chairman of MIT’s Center for Information Systems Research (CISR), said at the “IFS Unleashed” show in Orlando.
By adopting that strategy, they gain three major capabilities, he said in a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI.” They are:
business model agility without needing a change management program to implement it
seamless digital customer journeys via self-service, automated, or assisted multi-product, multichannel experiences
thoughtful employee experiences enabled by technology empowered teams
And according to Weill, MIT’s studies show that adopting that real-time data stance is not restricted just to digital or tech-native businesses. Rather, it can produce successful results for companies in any sector that are able to apply the approach better than their immediate competitors.
“ExxonMobil is uniquely placed to understand the biggest opportunities in improving energy supply chains, from more accurate sales and operations planning, increased agility in field operations, effective management of enormous transportation networks and adapting quickly to complex regulatory environments,” John Sicard, Kinaxis CEO, said in a release.
Specifically, Kinaxis and ExxonMobil said they will focus on a supply and demand planning solution for the complicated fuel commodities market which has no industry-wide standard and which relies heavily on spreadsheets and other manual methods. The solution will enable integrated refinery-to-customer planning with timely data for the most accurate supply/demand planning, balancing and signaling.
The benefits of that approach could include automated data visibility, improved inventory management and terminal replenishment, and enhanced supply scenario planning that are expected to enable arbitrage opportunities and decrease supply costs.
And in the chemicals and lubricants space, the companies are developing an advanced planning solution that provides manufacturing and logistics constraints management coupled with scenario modelling and evaluation.
“Last year, we brought together all ExxonMobil supply chain activities and expertise into one centralized organization, creating one of the largest supply chain operations in the world, and through this identified critical solution gaps to enable our businesses to capture additional value,” said Staale Gjervik, supply chain president, ExxonMobil Global Services Company. “Collaborating with Kinaxis, a leading supply chain technology provider, is instrumental in providing solutions for a large and complex business like ours.”