Freight forwarders work closely with customers in the electronics industry to forecast and to establish intelligent contingency plans for moving cargo under tight constraints.
Electronics manufacturers have some of the most complex supply chains in the world. The fact that these supply chains span the globe means logistics managers have no choice but to ship by air cargo. Capacity issues have put stress on their relationships with carriers in recent years, however. That has inspired some shippers to build closer relationships and be more innovative with their ground networks.
Electronics shipments account for 40% of the value of international air cargo, according to The International Air Cargo Association (Miami, www.TIACA.org). The electronics industry combines high value-to-weight with specialized products assembled at various points throughout a supply chain. The result: far-flung distribution channels and complex, labor-intensive production processes that rely on pools of the most affordable labor.
This article looks at the global electronics supply chain through the eyes of three industry players: a contract manufacturer, an international freight forwarder and a computer retailer. Each has found different ways to make best use of air freight.
The Contract Manufacturer
Some technologists say the space shuttle represents outmoded technology, but Richard Williamson says he'd use it if it would help him transport freight faster between the United States and Asia. Williamson is director of global logistics and trade compliance for Celestica (www.celestica.com), an electronics contract manufacturer headquartered in Toronto serving the computer, communications, consumer electronics, defense and automotive markets. To better meet the needs of these customers, Celestica has been gradually restructuring its supply chains and moving operations from high cost to low cost locations. This means that supply chains that were once 1,500 miles long are now 15,000 miles long.
Air cargo represents 85% of Celestica's shipments. Its carriers handle printed circuit boards, subassemblies and full box assemblies. It may ship printed circuit boards from China, match them up with subassemblies in Mexico, and then forward them to the United States for final configuration before the product is shipped to Europe. Because of the high value of these products, they can't be stationary for long periods without incurring high holding costs.
"While these supply chains are evolving, there are new product introductions as well as changes in manufacturing, so it's a moving target all the time," says Williamson. "You can't afford even 5% of this to stop. It has to roll all the time."
Relying on air cargo carriers to keep shipments in motion is one of Williamson's biggest challenges. Over the last three years Celestica's freight volume between Asia and North America has soared 400%. Such rapid growth may be a good problem to have, but it hasn't been easy to manage considering the airlines' consolidations and capacity limitations.
"At this point they can't build airplanes fast enough," Williamson says. "This is why it helps to be a big fish in a big pond. You have to know who you're dealing with and work with providers who have consistent service, are reputable and have clout. We deal with about a dozen carriers, and I have senior contacts at every one. For every carrier I have a global account manager responsible to me. I have a global contact and they have a regional person in each region, so we have direct lines of communication."
In addition to knowing the right people, it helps to have predictable volume that enables the company to reserve blocks of space with the carriers. Celestica's volume commitments to carriers have allowed it to make service commitments to its clients.
The company has reduced shipment times from Asia to North America and Europe from four days to two. In some cases it's next day. Sometimes the planes move faster than the information.
"Many times our stuff is already there before anybody is there to meet it," Williamson says. "Because many of our markets still use EDI, some of our planes are landing and unloading before the information gets there. The biggest consequence comes with Customs. This is why we have processes set up to let Customs agents and brokers know what's coming in detail. Our on-time delivery is in the high 90s."
He's optimistic that as more carriers add Boeing 747 extended-range aircraft to their fleets the capacity problem will become more manageable. The ability to nose-load these planes will help minimize delays, he believes.
"Being able to nose load instead of side load is a lot quicker," he says. "I was in Europe a couple weeks ago at a Cargolux facility and they can turn a 747 around in two hours now."
Last year Celestica moved 900,000 shipments through 17,000 lanes. Williamson attributes the ability to manage such volume to the strong relationship that they've developed with freight forwarders. This has helped get better performance from the reduced number of carriers the company now uses.
"Like everyone else we had tens of them until we went through a global RFQ and moved that number down significantly," he says. "In that way we have more leverage with our carriers but we also have a partnership with them. Technology will help in the mechanics of communication, but when push comes to shove, it's a matter of getting on the phone and talking to each other."
What helps keep this relationship effective is the ability to forecast accurately and give shipment information to carriers as much in advance as possible. The more timely the information, the better the possibility that the forwarders will get the space it needs. When that space just isn't available, it helps to have contingency networks.
Relying on ground transportation can also result in significant cost savings, especially in Asia. According to Williamson, when shipping within a 1,500mile radius, it can be faster and cheaper to keep shipments on the road.
"By the time you pick up the product, put it on an airplane, fly it, land at the airport and take the freight off, a truck could have been there a day before within that 1,500-mile radius," he says. "There's a lot more ground service in Asia than years ago. You wouldn't think you could drive a truck from Singapore to Thailand but we do it all the time. You can also drive a truck from Singapore to Shanghai. Every day there's another new superhighway opening. We use that to our advantage."
He adds that new combinations of ground and air can also be effective. For example, some locations in Asia are inaccessible by air due to route and volume restrictions.
"If I have a capacity issue in Bangkok because I have a new airport and new freight handlers and it's taking me a day or two to get things coordinated there, I might as well move it quicker to a port like Singapore and then put it on a truck and move it up to Thailand and I can have it there in 40 hours," he says.
Such supply chain creativity has helped Williamson maintain high service levels, contain costs and pass savings on to customers. He credits the electronics industry for making the transportation infrastructure in Asia and Eastern Europe more robust, and freight forwarders for helping to build the logistics infrastructure.
The Forwarder
By working closely with customers and carriers in forecasting and planning, freight forwarders are establishing intelligent contingency plans to move cargo under tight constraints. They help plan upcoming moves, determine when carriers have capacity and on which days of the week, then work out strategies to move the cargo.
"The ability for a company like us to customize our solutions is becoming more critical for electronics manufacturers," says John A. Fitzgerald, global v.p. of sales and marketing for SEKO (Itaska, Ill., www.sekoworldwide.com), a transportation and logistics company offering expedited and time-definite airfreight services, ground and ocean logistics. "Their technology changes year after year. For one client we move a component in a small box. Its units are 30,000 microchips. These things are getting smaller and smaller and the technology more enhanced. What they do today will be dramatically different two years from now."
Fitzgerald says supply-chain managers for electronics manufacturers are among the last groups in their organizations to get funding for new information technology. That means that they often have to rely on their freight forwarders to help manage information and inventory flows in their distribution networks. That's what happened with one of SEKO's recent customers.
"With the help of our IT department we were able to manage their inventory," Fitzgerald says. "With the cost per square foot to store inventory, it's way too expensive for electronics manufacturers to warehouse raw goods. By having this visibility in our VMI program, the OEM can feed it to the line on a more timely basis. In the past when they didn't have this kind of visibility they would airfreight product. Now they actually use less premium airfreight and can use more deferred air freight or in some cases ocean freight and ground."
Fitzgerald attributes this evolution in his business to the fact that some electronics manufacturers are pumping their dollars into what makes them more dollars, hence the disconnect between transportation and IT.
"I met with the v.p. of distribution at Sperry years ago, and I remember saying to him if we could just get one of their computers from one of their departments we could do some interfacing together. He said, ‘We only make computers, we don't use them.' "
"IBM and HP are tremendous companies, but not every one of their divisions and locations has state-of-the-art systems," Fitzgerald adds. "As a result they may use 3PLs and IT companies for software support."
The Retailer
The consumer at the end of the electronics supply chain doesn't want to hear about a manufacturer's internal capital budgeting problems. They want the product they ordered to be delivered when they want it. Anything short of that and the blame is generally aimed at the retailer.
CDW (Vernon Hills, Ill., www.cdw.com), an online retailer of computers and related products, used to rely a lot more on air freight to help it serve customers on the West Coast. As capacity issues became a challenge, CDW executives decided to add distribution strength on the ground.
The retailer recently added a 513,000sq.-ft. distribution center in North Las Vegas to its network. With this facility, technicians can configure more than 1,800 systems to customers' specifications each day.
"We used to ship via air freight in place of ground because it got [product] to customers quicker," says Doug Eckrote, senior v.p. of operations for CDW. "Now our customers can get it next day, and that has really cut into our air shipments going out."
On the incoming side, Eckrote believes that if companies oversee their supply chains properly and do a good job of predicting shipments, a retailer shouldn't have to use air freight. The only components that CDW now sources via air are memory components and a few laptops that come directly from overseas.
"These components come in such a small package, and with the way prices fluctuate on memory, suppliers save money shipping by air versus having to stock a lot of it," Eckrote says. "You don't want to be stuck with a lot of that inventory."
Some air freight challenges for CDW revealed themselves when it began offering higher-end products such as rack-mounted file servers and large battery backup units. Some of these products don't fit easily into the cargo bay of a jumbo jet, so they can't be delivered by overnight air. In some cases products like battery backup units are restricted cargo. In general, security-related paperwork requirements are having an impact on shipment cutoff times.
"With everything shipping out of our facilities the same day an order is taken, the longer we can have in cutoff times the better service we can provide customers," he says. "In some cases for air service, shipments have to leave here two hours earlier than a ground shipment. Plus you never know what will happen from a security standpoint. Some of the new rules have a lot of paperwork requirements so we have to work with our carriers to make sure we have security issues taken care of."
Top 10 electronics contract manufacturers
Ranked by annual revenue (millions)
1. Foxconn Technology Co. (Hon Hai Precision Industry Co. Ltd.), Taiwan ...............$27,773
2. Flextronics, Singapore .............................................................................................$15,566
3. Sanmina-SCI, San Jose, Calif. ................................................................................$11,734
4. Solectron, Milpitas, Calif. .........................................................................................$10,561
5. Jabil Circuit, St. Petersburg, Fla. .............................................................................$10,267
6. Celestica, Toronto .....................................................................................................$8,811
7. Elcoteq, Espoo, Finland .............................................................................................$5,655
8. Benchmark Electronics, Angleton, Texas ..................................................................$2,907
9. Venture Corp. Ltd., Singapore ...................................................................................$2,038
10. Universal Scientific Ind., Taiwan ..............................................................................$1,596
Source: Company financial reports, VentureOutsource.com
