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Warehousing & Inventory Management Innovations Enable New Business Models

The rapidly increasing pace of technological change, led by consumer electronics trendsetters such as Apple, has resulted in major changes in the ways that electronic components are produced and made available to the market. Component lifecycles are getting shorter as manufacturers move on to more profitable products, and planned obsolescence is playing a more strategic role in lifecycle management.

However, the end-of-life (EOL) phase of a particular device's lifecycle is often difficult for customers because it can cause not just a disruption in their manufacturing flow and planning, but may also have a significant financial impact as customers are forced to purchase a “lifetime” supply of devices and bear the cost of carrying the additional inventory. In some cases, if there is customer demand and no supply available from the manufacturer, customers are forced to turn to other channels and risk opening their supply chain to the gray market or, worse, to counterfeit components.

Fortunately, franchised distributors that specialize in EOL as well as obsolete components exist to support manufacturers and their customers with a full service solution to address the challenges of excess, EOL, and obsolete inventory. With robust infrastructure and controls, they are continuing to drive advances in new inventory management systems (IMS) and in new standards and processes for how obsolete and EOL components are warehoused.

A new model for electronic components warehousing and IMS
Forward-looking distributors are innovating in order to exploit the opportunity presented by obsolete and EOL components and reach a more global audience. Traditionally, mainstream distribution systems utilize a first in/first out (FIFO) approach when warehousing and inventorying product. Under the FIFO approach, product is inventoried based on the date of receipt versus date code or other product specific attributes. While this methodology works well when dealing with new product or components with fresh date codes, it does not work well when dealing with a heterogeneous inventory of obsolete and EOL components, whose buyers' needs often differ from those looking to purchase new product on the market.

Often, buyers of excess or EOL components look for a specific component based on date, features, or other attributes. As a result, franchised/authorized, manufacturer-direct distributors specializing in obsolete and end-of-life components have evolved to be more innovative in their data capture and inventory methods. These innovations include developing a customized IMS configuration to allow for specialized data fields to capture important information such as date code, lot number, and other box level details. Building a comprehensive database with these fields enables distributors of obsolete and EOL components to subsequently search for and fulfill specific requests for date-specific inventory that has been specified for a particular project.

The advent of cloud-based inventory management systems, which allow distributors to track and manage inventory from a single system across the globe and in real time, has also brought about more flexibility for materials management and warehousing/fulfillment teams by allowing real-time global access to inventory information and management. Distributors have developed these systems in-house, or are increasingly turning to specialized developers to provide them with the best-in-class IMS to meet their growing customer requirements. Many of these systems require significant time and financial investment, but ultimately, it enables innovators to exploit the growing market for obsolete and EOL components.

Specialized distributors are also investing in upgraded warehousing facilities that enable them to accept and store components for long-term product support. Buyers are seeking the peace of mind that comes with the assurance that a trusted, authorized distributor maintains facilities that will support their project requirements over several years.

Franchised distributors combat the gray market
Perhaps the most important impact of innovative warehousing and IMS procedures is the flexibility and choice it offers to buyers by helping them to avoid the gray market and the danger of counterfeit parts entering their supply chains. Defense and military projects often require much older date code, obsolete, or end-of-life products and, as a result, buyers are seeking a distributor that offers manufacturer-direct access to these products, as well as the ability to hold parts in a safe and controlled environment for processing in the future.

As a component ages, its availability decreases, causing the gray market to become a real threat. Savvy distributors are managing their businesses so as to minimize cost drivers for their warehousing and IMS improvements, allowing them to continue to compete with lower-cost gray market product.

Innovations in warehousing and IMS are being led by a new class of franchised E&O distributors who maintain a direct business relationship with the original manufacturer and/or guarantee direct traceability back to the manufacturer. Franchised and authorized distributors also play an important role as valued partners to the original manufacturers, providing visibility into gray market activity across region, date code, and vendors so that original manufacturers can better mitigate the risks to their brands and bottom lines.

Franchised distributors dealing in the EOL market must have an adaptive IMS to accommodate the increasingly stringent requirements of today's end users. Traditional IMS often are unable to meet these requirements. Distributors who invest in such adaptive IMS are significantly better positioned to manage an effective EOL product offering and have the flexibility to meet each individual customer's demands.

8 comments on “Warehousing & Inventory Management Innovations Enable New Business Models

  1. t.alex
    November 21, 2013

    For this new IMS system to work, I believe some form of standardization has to be put in place so companies can exchange their information in real-time. Is there such standardization process going on ?

  2. Hailey Lynne McKeefry
    November 22, 2013

    @t.alex, good question. To add to that, are there industry organizations creating best practices around this topic? That would be really useful.

  3. Hailey Lynne McKeefry
    November 22, 2013

    This all makes sense, I wonder what's holding organizations back from doing more of this. Lack of knowledge? budget? Time? What do you think the stumbling blocks are and how do we overcome them?

  4. t.alex
    November 23, 2013

    It is probably the legacy issue. Individual companies already have some system in place and they don't see the big benefit of moving towards another ones.

  5. jesse_securecomponents
    November 26, 2013

    This post does a nice job of summarizing the options available to buyers who face EOL and strategic planning issues. I think the rationale is sound and certainly makes sense.

    One additional point I would add is that there are a handful of independent distributors who have invested the time and resources necessary to protect supply chains from the uncertainties of the grey market. Purchasing managers who are unable to resolve their obsolescence and/or EOL issues should seek out independent distributors who have documented and certified counterfeit avoidance plans.

    A good place to start is the DLA's QTSL-approved list of suppliers. Also, AS6081 certified companies should be sought out (DoD adopted AS6081 back in June). To date, Secure Components is the lone distributor QTSL-approved and AS6081 certified, but others will carry both distinctions in the near future.

  6. Hailey Lynne McKeefry
    November 26, 2013

    @Jesse, clealry smart organizations build close relationship with trusted partners. In many cases, independants provide services and products that can't be had anywhere else.

     

    The lists and certifications you mention, QTSL and AS6081, are aimed largely at for the military correct? Do you think they are more broadly applicable to other industries as an indication of committment to quality, etc?

  7. jesse_securecomponents
    November 27, 2013

    @Hailey – Absolutely. The quality and counterfeit certifications that pertain to the defense and aerospace certainly have applicability to other industries. Parts and components sold to aerospace and defense companies are often used in life-critical applications. With that said, the level of vigilance required by distributors in that market certainly would carry over to medical, automotive and other markets where parts/components are similarly life-critical. 

  8. Hailey Lynne McKeefry
    November 29, 2013

    @Jesse, that makes total sense to me. I was wondering too if these other industries can manage the cost associated with vigilance in the way that aerospace/defense can. Are there ways to combine safety and affordability?

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