One of the distribution industry's biggest challenges is developing supply chain solutions that OEM customers will want to use. These solutions have to be quantified and then priced accordingly. The channel has tried something similar before: a fee-for-service model that detached component services from the components themselves. This didn't take off at the time, but the supply chain has changed lot since then.
In Part 1 of this article, we looked at the supply chain challenges facing OEMs. Today, Avnet's Douglas Kent talks about the solutions Avnet is pursuing and the requirements for success.
"We have to look at everything from the strategic to the tactical; helping our customer mitigate risk; develop control tower solutions that meet all of their objectives, throughout the lifecycle of their product," says Kent, vice president, Velocity, at Avnet Inc. (NYSE: AVT). "This can include tracking inventory across multiple geographies; looking at and optimizing tariffs and taxes; managing consignment and VMI relationships — anything the OEM doesn't want to do itself. We are looking at the things where our customer says 'You know, I'm not sure this is my core competency.' That's where we can step in."
This may involve dealing with members of the supply chain distributors don't typically interact with: companies that supply materials to suppliers or an OEM's EMS providers. Procuring and sharing that information is complex and not always welcome. EMS companies compete with distributors at some levels -- they both procure components for OEMs.
"If we make those kinds of requests, that's the OEM's push," Kent says. "If we do this, it will come from the OEM's desire for transparency. They may choose an EMS for their price and their prowess, but it may come down to choosing them based on their ability to share information across the supply chain. The OEM has the control tower: if it means looking all the way to raw materials at a foundry, and it's causing the OEM supply constraints, we have to ask ourselves, 'Why not [provide that information]?' "
A successful solution will also involve planning for sustainability -- ensuring compliance to environmental mandates and maintaining an OEM's earth-friendly profile. "It's really interesting when we talk about sustainability. A sustainable supply chain has three tenets: the ecological aspect; the economic aspect; and the corporate social responsibility (CSR) standpoint. We have to meet all those objectives and be ecologically friendly."
Kent knows this is a huge task, and Velocity has to meet Avnet's standards as well. "Our focus is on delivering all of those things within our culture of operational excellence. We have a methodology to bring a concept to a solution and to operate it consistently."
Avnet has a third operational pillar within its organization: every venture has to operate profitably. "That is why we are talking to our customers about what they need and how they need it; and how an entity such as a distributor can provide the services that satisfy the market's needs," says Kent. "Knowing what those needs are is a good start."