Extron Case Study - Retail Product
Summary of Facts
Product: Configurable Mass Storage Device
Number of SKUs: 10+ SKUs from 1 basic “vanilla” configuration
- Volatile demand/poor forecast causing high inventory levels
- Client/OEM is responsible for Channel Inventory via Price Protection agreements with retailers (“owns” depreciating inventory at Retailers until it is sold to the consumer)
- Changing requirements from retailers (packaging, labeling)
- High freight costs for fully packaged product
- Significant use of expedited air freight to meet demand volatility
- Strong need to preserve Global supply base, but increase flexibility
- Product is subject to steep price reduction (approx. 5% per month or more) and obsolescence
Detailed Case Narration
The best way to describe the flexibility of our services is to tell the stories of real customers with real problems who found real solutions by partnering with Extron. With 25 years of experience serving the high technology community, and the amazing success rate Extron has enjoyed, it isn’t hard to find a myriad of examples. This example shows how Extron can assist a company who is working directly with retail distribution customers.
When client A came to Extron they were manufacturing and configuring a mass storage device that was delivered directly to retail chain distribution centers. Each of these retailers sold the product as a house brand and required special software and firmware configurations, OEM labeling, printed materials and custom packaging. A single product line increased complexity in the supply chain by proliferating into over ten customer SKUs. There was one more factor that added to the complexity of the supply chain that made managing it virtually impossible. All of the client’s manufacturing was being done in Asia, from the base unit all the way to the final retail configuration and packout.
What this meant was the reduced manufacturing costs received in Asia initially were eroded along the way through several costly events and severely reduced profits. These additional expenses were not calculated into the sales price or the company’s profit goals.
A totally off-shore fulfillment model meant that the client was forced to ship completed product (including space needed for packaging or what is commonly referred to as “air”). Shipping by air freight was prohibitively expensive, but the only alternative was to transport over sea by cargo ship, which was not possible due to steep price curves of the underlying components for the product.
Since the products were retail ready that made them not only highly value but also highly visible, it exposed the client to the increased risk of product loss before it reached its final destination in the U.S. Additionally, the lead-time needed for ocean transit all but eliminated the client's ability to respond to the elusive trends and immediate opportunities presented in the market. As a result, Ocean transport was effectively ruled out as an option. Even with air transport, the risks did not end. With a week's lead-time from order to when the finished product finally arrived in the States the client had to warehouse a significant percentage of the product for future distribution. Warehousing requires facilities for storage (expense) and depreciation of inventory (expense) as competitors introduced other competing products.
Products sitting on shelves weigh heavily on a business, they don’t generate capital and their value in the market place diminishes with every passing day, especially in products like Company A’s that have a very short product lifecycle. Since the entire supply chain was across the Pacific, reworking products locally was expensive, required expensive planning and coordination and purchasing of short runs of packaging material (or importing packaging material via air from Asia).
The alternative was dumping them on the market as excess inventory. Both options eliminated all profits and often did not even recover manufacturing costs.
Fortunately, for this customer their product was tailor made for the Extron’s Glocal Postponement solution, and the solution to all their challenges was at hand. Extron recommended the establishment of localized assembly facilities in the U.S. near final market centers. Suppliers in Asia were moved from complete configuration of final products to the production of specific components. Even though the final assembly was moved out of Asia’s lower cost labor market and moved to the U.S. and
Europe the client saw net savings.The difference between shipping costs for completed packages and bulk shipping components for later assembly more than offset the labor cost differential. At the same time bulk packaging of components meant that shipping by air became a viable option and sped up response time. This allowed customer A to more closely tie the supply of the product to the actual demand and eliminate the need to forecast demand well into the future.
The net result of this change was dramatic and immediate. Rework and dumping of aging product was eliminated, inventory turns were improved by 40% and the inventory held was fresher by eight weeks (a significant improvement for a short product lifecycle).
Client A was now better equipped to compete in a volatile marketplace by adding the advantage of flexibility. Shipments that previously took weeks now were executed in days or hours.
This client initially came to Extron only to outsource the chaos of their existing supply chain, but by listening to our experienced staff and following their advice they not only got their supply chain in order they also gained benefits they had not even imagined!
With Exton’s valuable service offering, this client is not only more efficient but also more flexible and able to “think on its feet” in their volatile market. Waste is all but eliminated and overhead and other expenses greatly reduced. All of these factors add up to greater profits and a brighter long term picture for the company.
For more information, please contact Extron at email@example.com