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2003 © UTD
Lecture Series: Consumer Electronics Supply Chain Management
Center for Intelligent Supply Networks (C4ISN)
Mohit Junejai2 Technologies
Divakar Rajamani, Ph.D.UTD
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2003 © UTD
Lecture 1: Introduction to Consumer Electronics (CE) Supply Chain Structure
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2003 © UTD Slide 3 Center for Intelligent Supply NetworksC4ISN
Agenda
CE Products and Supply Chain StructureProduct and Industry CharacteristicsIndustry Drivers and IssuesFuture Trends in ProductsFuture Trends in Industry
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2003 © UTD
CE Products and Supply Chain Structure
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2003 © UTD Slide 5 Center for Intelligent Supply NetworksC4ISN
End Product Offerings - Diverse Product Range
PV-SD5000
Digital Still Cameras
Electric Shavers
Plasma TV
VCR’S
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2003 © UTD Slide 6 Center for Intelligent Supply NetworksC4ISN
Consumer Electronics US Market Sales
US Consumers bought 95 billion dollars of CE product in 2002
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2003 © UTD Slide 7 Center for Intelligent Supply NetworksC4ISN
Supply Chain for End Product
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2003 © UTD Slide 8 Center for Intelligent Supply NetworksC4ISN
Supply Chain Structure for CE
Defined byProduct
Lead timeCubeLife cycleMarginVolume
GeographySales MarketManufacturing locationsTransportation / Logistics
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2003 © UTD Slide 9 Center for Intelligent Supply NetworksC4ISN
OEM Manufacturing Divisions are Typically by Product and Global
Low cube high margin product build offshore and can use air freight
CombosUS
TVMexico
SpeakersPuerto Rico
VCRIndonesia
Fax
Malaysia
Audio Systems
Singapore
Audio, CamcorderPhones Japan
Microwave
China
Low cube low margin build offshore and shipped for global
consumptionHigh cube product assembled for
local consumption
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2003 © UTD Slide 10 Center for Intelligent Supply NetworksC4ISN
OEM Sales Companies are Localized by Geography and Focus on Local Markets
CombosUS
TVMexico
SpeakersPuerto Rico
VCRIndonesia
Fax
Malaysia
Audio Systems
Singapore
MicrowaveChina
Audio, Camcorder,
Phones,Japan
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2003 © UTD
Product and Industry Characteristics
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2003 © UTD Slide 12 Center for Intelligent Supply NetworksC4ISN
PV-SD5000
Digital Still Cameras
Electric Shavers
Plasma TV
VCR’S
CE Product Characteristics
4-month life cycle
50 % sales done in
December
Hi TechLow turn
High Margin
CommodityLow TechHigh Turn
Low Margin
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2003 © UTD Slide 13 Center for Intelligent Supply NetworksC4ISN
Industry Characteristics
Primarily built to stockLong supply chain lead times (typically 4 months)Customer service is a big issueGlobal manufacturing and market baseTypical CE OEM’s in manufacturing are aligned along product divisions and sales companies are aligned along geographiesThe supply chain requires tremendous coordination between Design, Manufacturing, Distribution and Transportation
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2003 © UTD Slide 14 Center for Intelligent Supply NetworksC4ISN
Industry Characteristics4 month lead time
Built to stock Delays,Out of stockOverstocked
Coordination
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2003 © UTD Slide 15 Center for Intelligent Supply NetworksC4ISN
OEM’s are the Major Players in CE
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2003 © UTD
Industry Drivers and Issues
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2003 © UTD Slide 17 Center for Intelligent Supply NetworksC4ISN
Industry Drivers for Suppliers
Semiconductor (15%):Strategic, capacity shared with other segmentsLong lead-times, constrained material
Electric and Electronic parts (35%)Core technologies, such as laser pickups, ni-cad batteries, printing engines, light sensors, motors, etc.Designed into the product
Processed parts (25%)Non-strategic, such as bodies, gears, fasteners, wiringEither custom or standard
Contract manufactured products (15%)Indirect and other (10%)
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2003 © UTD Slide 18 Center for Intelligent Supply NetworksC4ISN
Industry Drivers for OEM’s
Asian OEMsLengthy supply chain creates need for collaboration between centralized product divisions and regional distribution divisionsLack of transparency between product and distribution divisions worsens bull-whip effect
North American and European OEMsShorter supply chains with more local assembly reduces internal collaboration requirements, but increases need for supply collaboration
GeneralSlowing growth and commoditization of core product categories (home audio / video, home appliance) squeezing marginsHigh competition in growth categories (personal electronics)High degree of custom parts content and engineering centric culture designs in extra cost and inflexibility to supply chain
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2003 © UTD Slide 19 Center for Intelligent Supply NetworksC4ISN
Industry Drivers for Sales Companies
Own the channel relationship, compete on differentiated customerservice, and content deliveryResponsible for customer service and inventory, but depend on product divisions for replenishmentDependencies and lack of transparency to true supply/demand situation leads to order/inventory manipulation that amplifies the bull-whip effectVulnerable to product obsolescence and clearance costs, especially in short product lifecycle categories (personal electronics)Transportation cost minimization a major issue for bulkier categories (TV, appliance)
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2003 © UTD Slide 20 Center for Intelligent Supply NetworksC4ISN
Industry Drivers for Retail
North AmericaRise of category killers (Best Buy) consolidated purchasing and pressuring OEM marginsGrowth of internet retail (Amazon, Buy.com, ApplianceOrder.com) offering electronics and durables pushed traditional retailers on the web
Europe and AsiaMore fragmentedSmaller stores with little in-store inventory puts premium on efficient fulfillment and visibility to product availability commitmentsOEMs showroom and company stores act as independent channels
GeneralLooking to improve collaboration with key suppliers
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2003 © UTD Slide 21 Center for Intelligent Supply NetworksC4ISN
Industry Drivers - Consumer Behavior
Men in general are more interested in CE products than womenOverall type of CE products owned by men and women do not differ Both are equally likely to initiate a purchase Men tend to contact manufacturers for product help while women look for help at homeBoth are showing a trend of decreasing interest –commodity
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2003 © UTD Slide 22 Center for Intelligent Supply NetworksC4ISN
Industry Drivers – Consumer BehaviorCE Consumer Statistics by Product Category
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2003 © UTD Slide 23 Center for Intelligent Supply NetworksC4ISN
CE Industry Issues
High degree of parts customizationLong R&D design process timesLong lead time to create additional capacity for custom partsPoor customer service / supply flexibilityLow re-use of partsShort component life cycles leading to service issues
High supply risk due to reliance on custom partsShort product lifecyclesHigh demand unpredictability, inflexible manufacturingUnresponsiveness to demand signals due to manual monthly planningFragmented procurement across factories
Inventory boom-bust cycle (bull-whip effect)Low customer service levelsGeographically fragmented supply chainMargin erosionHigh spares inventory, inconsistent availability
Stock outsReducing marginsHigh logistics costsHigh inventory, store level stockoutsHigh promotions costs
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2003 © UTD
Future Product Trends
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2003 © UTD Slide 25 Center for Intelligent Supply NetworksC4ISN
The Shift From Analog to Digital
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2003 © UTD Slide 26 Center for Intelligent Supply NetworksC4ISN
Digital Imaging
New Digital Products
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2003 © UTD Slide 27 Center for Intelligent Supply NetworksC4ISN
Emerging Digital Technology
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2003 © UTD Slide 28 Center for Intelligent Supply NetworksC4ISN
CE Product Trends
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2003 © UTD
Future Industry Trends
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2003 © UTD Slide 30 Center for Intelligent Supply NetworksC4ISN
CE Industry Trends
Retail ConsolidationStrong Regional and National RetailersIncreased CompetitionContinuous Downward Price/Margin PressureShorter Product LifecyclesIncreased Pressure on Inventory Levels Business is Rapidly moving to Digital & Networking Products
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2003 © UTD Slide 31 Center for Intelligent Supply NetworksC4ISN
Supply Chain Structure Trends in CED Industries
Elimination of layers – reduce DC-DC flowDirect Ship (Factory to retailer)Drop Ship (Factory to regional DC)VMI (Manufacturer manages shelf inventory)Air Freight (Typically direct ship)Internet
Increased information sharing across the supply chainMulti-enterprise planningSharing of information on new products , Sales & Mktg., etc. across the supply chain
OutsourcingAssembly to third partiesKitting to Retailers
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2003 © UTD Slide 32 Center for Intelligent Supply NetworksC4ISN
Summary: Dynamics in the Consumer Electronics Industry
Shortened product lifecycles -digital technology products like DVD, Digital Camcorders have lifecycles of less than four months
Convergence of industries like consumer electronics,HomeGateway,Wireless A/V, Home networking
New business models driven by non-consumer electronics companies e.g., Initial product revenue sharing, Down stream revenue sharing
Widely different retailers needs and expectations, e.g., varying SCM requirements
Broad channel strategies and distribution models, e.g., internet selling, electronics super stores, A/V specialist, warehouse clubs
Increasing price pressures due to:global productionaccelerated price erosion
Traditional analog categories becoming a commodity – loss of customer brand loyalty
Technological Developments Competitive Pressures