Smoothing Out Bumps During Supply Chain Expansion

Electronics manufacturers are expanding their supply chains for two main reasons: Their products are designed in one region but manufactured in another, or they want to accelerate growth by expanding organically. Either way, expansion across regions means significant and often costly disruption to the OEM supply chain.

"The biggest challenge we see is expectation," Ravi Kichloo, head of the global business migration team at Avnet Inc. (NYSE: AVT) Electronics Marketing, said in a phone interview. End customers expect the same level of quality from their manufacturers, no matter where the product is built. OEMs expect consistent pricing and delivery from component suppliers, no matter where the manufacturing facility is located. So companies are faced with a choice: Duplicate their supply chain from scratch, or outsource the portion that makes sense. Increasingly, says Kichloo, suppliers and customers are turning to distribution to manage business migration.

Global distributors such as Arrow, Avnet, Digi-Key, Future, Mouser, TTI, and WPG have already invested in the infrastructure needed to duplicate services across regions. "We already do BOM analysis, pricing, programming, proximity warehousing, inventory pipelining, VMI, and buffer programs," says Kichloo. "We have made an effort to support those services globally while maintaining the nuances of regional practices. We have the skill and scope and the team in place to be able to do this."

Additionally, he says, distributors are helping customers anticipate the types of problems they'll run into as they transition. Component availability and pricing differ from region to region. Warehousing is literally all over the map. Transferring IP for programming purposes puts that IP at risk.

"Now that they have multiple locations, they have to look at planning and forecast management, aggregating demand for multiple sites, and new business partners. We can make recommendations [on those partners] based on our experience with EMS providers and contract manufacturers."

Distributors also have to consider supplier relationships during a supply chain transition. Suppliers may lose visibility into customer forecasts as business moves overseas. "We collaborate daily with our suppliers -- that is what we do," says Kichloo. Additionally, distributors can help smooth out some of the pricing differences that occur from region to region. "More suppliers are providing global pricing, but we still have a ways to go."

The profile of the global customer is changing, he said. Large manufacturers and OEMs with high-volume, low-mix profiles were the first to expand overseas. Now, second- and third-tier manufacturers -- typically low-volume, high-mix ones -- are also expanding. Because of that complexity, few of these companies are developing their supply chains from the ground up. This is part of the reason Avnet moved its supply chain migration responsibility to to Kichloo after Gerry Fay, who was formerly the senior vice president for Supply Chain Solutions at Avnet Electronics Marketing, was recently promoted to chief logistics and operations officer for Avnet Inc.

"This is an important initiative for us and an activity that continues to grow as it becomes more global," Kichloo says. "It's important for suppliers, distributors, and manufacturers to collaborate very closely amongst themselves. This way, we can guarantee the transition will be smooth."