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Dispelling E-Commerce Myths

Possibly one of the most misunderstood dynamics in the electronics supply chain is the impact of Internet-based buying and/or e-commerce.

A little more than a decade ago, brand owners became capable of selling their wares directly to customers without shipping, storing, or managing them elsewhere.

What we now know is that the Amazon.com-model has worked extremely well in the consumer/retail space where customers buy finished products. While e-commerce plays a significant role in the electronics supply chain, customer business models are simply not well suited to source, purchase, and manage large volumes of components online.

E-commerce has had an impact on how component manufacturers plan and ship goods, has increased the complexity of electronics supply chain transactions, and has prompted realignment in many supply chain relationships. In a previous report I noted that many manufacturers are struggling with the most effective way to reach their customers and manage unfinished inventory. Manufacturers are split between low-cost mass production — outsourcing to China, for example — and more variable mass customization. In electronics, distributors continue to shift their models to support both strategies. (See: Distributors Secure Role With Extra Services. )

In electronics, e-commerce has not “cut out the middleman” as many feared. Low-volume, low-mix orders, typically handled by catalog distributors, moved from paper to the digital world. Broadline distributors that have typically struggled to support this type of customer, began to provide online ordering capabilities. In some cases, this meant partnering with sites that had already set up e-commerce capabilities and sourced from a variety of inventory pools.

Other distributors developed their own e-commerce tools. At the time, analysts viewed the strategy as “betting $2 on every horse.” Roy Vallee, who has stepped aside as Avnet Inc.'s CEO and will retire from the chairman position in November, said the company was going to engage with its customers in all the ways customers wanted, and that included e-commerce. However, customers didn't opt to buy production orders online.

Instead, distributors began to use online capabilities to track customer orders, analyze data, and use that data for planning purposes. Authors of “The Chief Supply Chain Officer Report 2012” (based on a global survey of supply chain executives) note:

Perhaps the most obvious implication of eCommerce is that all companies have an opportunity to make more direct contact with their customers. For industrial or B2B brands this connection lends itself to ever deeper product information sharing, forecast collaboration and order streamlining, but is essentially just a super-powered version of the telephone-and-catalogue relationship it replaces. For consumer brands, the implications reach into order management and fulfillment and potentially mean significant changes to channels.

Large-scale order fulfillment, if anything, has shifted more toward electronics distribution. Part of the reason is the increasing variety of products that component suppliers are releasing. The CSCO report noted that the effect of the digital consumer is increasing stock-keeping units (SKUs) because customers expect a wider variety online:

A Wells Fargo investment research report last year claimed that Amazon offered 80 times the number of items as did Wal-Mart.com, suggesting that the bar for variety is getting higher quickly.

In electronics, the implementation of RoHS also increased SKUs in the supply chain as manufacturers transitioned from leaded-products to unleaded devices — sometimes manufacturing both. Distributors developed their own in-house identification systems to separate RoHS-compliant and non-compliant parts. They created separate bins and even facilities to store RoHS-compliant devices, which have to be treated differently than leaded devices.

Upon shipment, distributors had to reconcile their component-identification systems with the part numbers that customers were familiar with. The channel also had to provide documentation to confirm designated RoHS devices were lead-free. These systems have enabled distributors to manage other types of complexities, such as a wider variety of devices now offered by component makers. Chip makers that used to provide a soup-to-nuts suite of devices have now broken into specialized units for logic, DSP, and microprocessors; memory; FPGA; analog; digital; and everything in-between. Electronics customers now have a wider variety of components to choose from, but selecting these parts has become more complex.

For customers that already know what they need — engineers, labs, or prototype houses that require just a few high-mix orders — e-commerce fulfills orders quickly and effectively. Suppliers of these parts are happy to let distribution handle these orders because servicing low volumes — even digitally — is not profitable or efficient. The same dynamic applies to fulfillment orders, but for different reasons. Customers may know what components they need, but a wide array of choices means there is a “best” solution among the choices.

Even when those choices are narrowed down, there is a vast array of delivery mechanisms to consider. Can suppliers drop ship to the manufacturing site? If so, how close is the supplier's warehouse to the plant? Is there a distribution warehouse closer? If so, does the distributor have the volume the customer needs? Most e-commerce models can manage those variables for one, two, or even a dozen SKUs, but an average electronics bill of material (BOM) has hundreds of SKUs.

In future posts, I will look at the impact e-commerce has had on managing this level of complexity.

13 comments on “Dispelling E-Commerce Myths

  1. Greg Riemer
    October 26, 2012
    Two big variables that could impact much of the e-commerce discussed in this blog are social media and 3D printing. We've already seen the impact social media has had on e-commerce with the increased need for a flexible, agile supply chain. Now if you look at 3D printing and the impact these machines could have with manufacturers it's enormous. It will be interesting to see the impact and opportunity of these in the future.
  2. Ashu001
    October 27, 2012

    Rich,

    Part of the reason is Language differences but also because of some other critical issue-More often than not the lack of communication across the entire chain.

    In the spirit of going Lean and Agile(and supposedly cutting out excess fat) a lot of Expertise is lost at most Suppliers.

    Technical Expertise which can and should be retained In-house(as far as possible);You want you give them additional responsibilities but Hold them In-house Please!!!

    Regards

    Ashish.

  3. Ashu001
    October 27, 2012

    Greg,

    Social Media-Most definitely Yes.It will have massive impact on the Entire Supply Chain as customers definitely get the oppurtunity to express what they think and feel about the entire Product and Service involved.

    3D Printing-I am not so sure.Lot of work on its commercialization still needs to be done today.

    Regards

    Ashish.

  4. Ashu001
    October 28, 2012

    Rich,

    Could'nt agree more!!!

    Lol!!!

    Ashish.

  5. _hm
    October 28, 2012

    I am little surpised. For example, Digikey has all datasheets attached. It is so quick. If you need more details for design, switch to vendor website, and you find link to all catalogues realted to this part. All this takes few minutes. You do not have to wait for snail mail for days or for weeks. Also, FAE are also pretty quick to reply and visit you. I love this model for its alacrity. As regarding sample, you can order them online too, and if you give fed-ex,UPS account number, they are with you next day.

     

  6. Taimoor Zubar
    October 29, 2012

    @Greg: How do you think 3D Printing would have an impact on E-commerce? It's not like manufacturers would sell things online which the consumers will be able to download and print on their own without the need of physical delivery. I don't see how 3D printing will have an impact on E-commerce.

  7. Taimoor Zubar
    October 29, 2012

    ” I'm often surprised by the number of times I see too little data displayed”

    @Rich: I think that's done to make only the relevant information available to the customers and make it simpler. Too much information often complicates things.

  8. Houngbo_Hospice
    October 29, 2012

    @Rich,

    “Ordering is fast. Answers aren't.”  

    Are you saying that most companies are quick to take client's money without providing the necessary information that is needed to facilitate transactions?

  9. Greg Riemer
    October 29, 2012

    This blog highlights how 3D machines could impact the retail world http://www.mytmc.com/Blog/post/2012/06/21/Hot-Off-the-Press.aspx. Retail stores are full of product that is low cost high margin items. What if retailers had machines and could customize certain products for their customers at their stores? These machines could also decrease product development and manufacturing time which could allow for new products in retail stores in a quicker time frame.

  10. _hm
    October 29, 2012

    @Rich: Try Altera, TI, Silicon Lab, Linear Technology, AVX etc. They are pretty good and provide all information.

     

  11. _hm
    October 29, 2012

    There is so much of information on web, most FAE are unable to grasp most of it. It is you who have to do all hard work. When I talk to FAE or technical sales engineer, many time they are not aware of many information.

  12. Taimoor Zubar
    October 30, 2012

    @Greg: Retailers using these 3D printing machines to customize products makes sense. This can be useful. I had originally thought you meant 3D printing being used on the consumer end.

  13. hash.era
    October 31, 2012

    This is where the skills and their abilities are being tested. it really shows how knowledgable FAE guys are on their subject matters.

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