TechData HPE

Smart Product Innovations Increasing Supply Chain Time and Cost Burdens

Tech Data improves lead time variability and reduces supply chain expenses

With the IoT explosion creating more innovation in the industry and more and more products becoming “smart” products, common consumer products are becoming obsolete in half the time they once did.

This, in turn, creates a burden for many manufacturers who are trying to keep up with the pace of innovation—especially if they leverage large networks of downstream dealers and resellers to bring their products to market.

Chapter 1

Executive Summary

One of the world’s leading manufacturers of imaging and information solutions for business and home use needed to respond to the growing pressures from their global community of 600+ dealers and resellers who struggled with order lead times and processing delays. They needed a complete restructuring of distribution logistics and the conversion of various internal and third party order support functions into a centralized operation while maintaining a margin profile that would provide enough cash flow to support ongoing product innovation.

Chapter 2

The Situation

Profile: The Company

  • Leading manufacturer of imaging and information products for businesses and end consumers.
  • Global Employees: > 50,000+
  • Net Sales 2018: > $21B+
  • Net Income 2018: $5.6B
  • Global Headquarters: Japan
  • Products: Consumer, office and commercial products

One of the world's most successful brands in imaging and information products with strong market share in business solutions as well as the US consumer market, the company had a well-established supply chain logistics infrastructure. As one of a number of equally significant brands under a large parent company, several components of that infrastructure were built on a core of co-located facilities and shared services.

Facing a period of stagnant growth and new market pressures driven by increasingly competitive product innovation pressures, the company engaged with one of the top consulting firms to evaluate all aspects of their business. In evaluating the supply chain and existing route to market processes, four key areas were identified for focused improvement and business modernization:

  • Cost controls
  • Lead time delays,
  • Processing complexity
  • Dealer service levels and experience

Costs

While the company remained in a state of neither growth nor decline, other business units within the corporate structure were facing significant change in the form of an overall decline in sales and/ or supply chain restructuring. This overall shift in the corporate dynamic was impactful as the company was burdened with a disproportionate amount of the corporate allocation, paying a premium for underutilized facilities and shared services that were established to support a much larger corporate structure, now in decline.

Lead Time Delays

The downstream network of more than 600 global sub-distributors, dealers and resellers that represent a significant share of the route to market success of the company’s products, had raised several concerns about the delays in delivery lead times and the inconsistent reliability of and access to estimated arrival time (ETA) of shipments. Through the efforts of a third-party survey process, the company was able to identify the top-ranked issues from its reseller network.SMCS PP ChartThese inconsistencies in lead time, delivery estimation and lack of visibility into shipment status prevented the dealers from being able to provide quality service levels to their customers.

Processing Complexity

Further research on the company’s order execution and delivery support functions identified inefficiencies caused by excessive complexities in their process flows. A number of the critical path functions in the process were managed by a mix of external and internal resources. The credit and collections functions were outsourced to one partner, third-party logistics to another partner, planning, invoicing and order management was managed in house, while support staff in groups like Information Technology and accounting was managed in a shared services model operated by their larger parent corporation. This disparate structure created complexity in the management and control of critical logistics functions.

Dealer Network

The company knew that they needed to improve the dealer experience in a number of ways. Reduction in order-to-delivery lead time, improved order and ETA status, and timely order and credit processing were a few areas that required improvement. The delivery execution delays where not only impacting the dealers’ ability to provide satisfactory levels of service to their customers, they also created lags in the order processing and credit processing – the impact of which created a situation where their cash flow was tied up for longer periods of time, creating even greater financial stresses for them.

Chapter 3

The Selection Process

In their ongoing engagement with the consulting firm, the company selected to leverage the expertise of a third-party logistics company (3PL) to help them create a solution strategy that would ultimately become part of the long-term solution. The driving factors behind the decision to turn the logistics operations over to third-party provider were:

  • Leveraging the expertise of global shipping specialist with proven global capabilities
  • Getting the option of variable\flexible pricing options vs. fixed op-ex costs
  • Gaining control of overhead costs inherent in growth and demand variables
  • Reallocating resources from operations to investments for growth initiatives and innovation

Aside from the capabilities to take on the operations of the high-volume global supply chain logistics of one of the largest business and consumer products manufacturers, the chosen logistics provider was going to be tasked with presenting a solution that included the following criteria:

  • Develop a solution to help to decrease the overall operations costs or have a cost-neutral impact
  • Normalize lead times that would result in a marked reduction in overall time to end buyers
  • Manage all operational functions under a single party
  • Create execution and processing improvements what would result in an increase in cash-flow manageability for dealers
  • Provide a measured improvement in overall dealer satisfaction and experience

After completing an extensive selection process the company selected the solution outlined by the team from Tech Data. Additionally, Tech Data was selected as the partner of choice to execute on the modernization and long-term management of their supply chain operations. When the selection process was later reviewed, the company shared ultimately, their decision was made due to Tech Data's:

  • Previously established relationship with the company as a distribution provider
  • Well established and mature global logistics capabilities
  • Tenure as a technology-focused supply chain specialist
  • Proven track record of implementing similar modernization projects for other OEMs

Chapter 4

The Solution

The selected solution that Tech Data presented included recommendations to address all the identified areas of improvement. Some of the details of the proposal included:

  1. Developing a geographically optimized logistics solution that would allow the company’s product to be placed closer to the end consumer.
  2. Incorporating a cross-dock facility on the west coast for inbound containers. Distribute from the cross-dock facility to a network of four additional logistics centers throughout the US. 
  3. Creating a variable fee structure for all logistics activities that was accretive to the company’s operating income.
  4. Implementing Tech Data’s Hybrid Operating Model which allowed the company to use Tech Data as a single managed service provider for:
    1. All logistics activities
    2. Product planning, order management, credit, invoicing and collections for fulfillment customers
    3. IT development needed to support business needs and dealer experience.
  5. Integrating Tech Data's SAP system with the company’s own system to ensure a seamless data transition; ensuring that all relevant data points were transmitted timely and efficiently so that the company could maintain existing management, financial and KPI reporting.

Chapter 5

The Outcome

Prior to initiation of the project, there were well-established key performance indicators identified to measure progress and outcomes that had been mutually established by the company and Tech Data. In the instance of this particular project, there were measurable process improvement results early in the first year of implementation. As such, the company was able to quickly identify the anticipated return for their investments and efforts. Below are the details of the improvements in each of the target focus areas.

Costs

Six months into the program, the proposed variable pricing structure proved to be more than 90% accurate, identifying the greatest variances in dimensional and accessorial freight charges, which had been omitted in the company’s budget. Having executed a variable pricing strategy, the company was invoiced monthly for “price per put away task,” “price per pick,” “price per carton/pallet pack,” and “price per cubic ft. occupied,” so they only paid for services performed and actual space occupied. Actual logistics fees were able to remain cost neutral, but the company was no longer burdened with the overhead costs that didn’t directly support their business.

The cross-dock operation afforded the company a cost benefits greater than one million dollars, versus shipping containers direct to each regional logistics center. This savings were directly attributed to maintaining greater than 80% cube utilization on the 53’ multi-SKU intermodal containers that Tech Data loads and ships to its regional logistics centers.

Lead Time

One of the noticeable improvements after the company integrated with Tech Data was a significant reduction in overall order cycle time. Pre- and post-integration order cycle times can be found below:

  • Order-to-delivery note cycle time
    • 45% improvement on order released to the warehouse on day zero
  • Delivery note to PGI (post goods issue) cycle time
    • 6% improvement on ship same day as released to the warehouse
  • PGI to the actual delivery cycle time
    • Two-day reduction in time required to deliver 99.5% of all shipments
  • Average Transit Time
    • One-day reduction in average transit time.

Processing Complexity

In addition to the reduction in hard costs, corporate overhead and order cycle time, the integration with Tech Data also helped significantly reduce complexity. Tech Data assumed the role of credit & collections and warehousing – two functions that were outsourced to different organizations before the partnership. Tech Data’s global SAP ERP was a single connection point for the company and the appointed program management staff was a single conduit through which the company shares its voice to Tech Data.

Additionally, the fulfillment half of the Tech Data Hybrid Model allowed the company to turn over 600+ dealers to Tech Data management, at which point Tech Data assumed the order taking, invoicing purchasing planning and day-to-day contact with the company’s customers. This reduction in administration and SG&A allowed the company to better focus on selling, and less on transactional tasks associated with order taking.

Improve the Dealer experience

Obtaining a greater experience for the dealers, distributors and resellers that carried over 60% of the transactional volume for the company was as critically important to the success of the future growth of the company as any other factor in the project. Direct feedback from this dealer community as measured by a post-implementation feedback review validated that Tech Data helped the company achieve improvements in the top areas of frustration for the dealers:

  • Overall improved lead time
  • Better order tracking & ETA visibility
  • Optimized in-house credit & order management processes
  • Improved dealer cash flow management

Chapter 6

Summary

As a result of this significant transformation, the company’ sales and marketing teams can now spend less time involved in supporting their dealers with order and back office questions and problem resolution; and can focus solely on revenue-generating activities. Dealers are not being asked to “buy in” excess incorrectly forecasted inventories, but are now focused on “selling through” demand that’s generated by their customers. While this company was content to provide better service to their dealers in a cost-neutral position, they in fact, have realized an estimated 12.7% reduction in overall tangible cost (transportation and handling alone) and have been able to reduce and redeploy associates into revenue-generating positions. This along with a much more reliable supply chain with faster-turning inventory has truly positioned this company for exponential profitable to grow. The dealer community has applauded this company for its bold and aggressive transformation and willingness to acknowledge and address the operational challenges they have faced for several years. Tech Data has now set the foundation of the program and is in a position to seek additional ways to provide on-going value through continuous improvement strategies and investments.

close chapters modal

About Tech Data Global Lifecycle Management

Short and reliable delivery cycle times are paramount in supply chain management, but it doesn’t end there. Global Lifecycle Management delivers all of the services required to get the maximum value out of every technology product you make, from service and support to asset tracking, to proper and compliant product disposal and replacement at end-of-life. Let us help you every step of the way. 

Fill out the form below to get in contact with a services expert today.