Trends—May 2010

Trends—May 2010<br />

Despite Interruptions European Integrators Express Themselves

When an ash cloud from Iceland’s Eyjafjallajökull volcano forced the closure of most European airports and airspace in April 2010, express carriers TNT and DHL activated contingency plans and ramped up ground operations to cope with the service disruption.

"The ground network allowed TNT to keep delivering customers’ goods in Europe when flying was impossible," says TNT spokesman Cyrille Gibot.

DHL responded in kind, setting up alternative ground routes across Europe, expanding its truck fleet, and increasing flight frequencies in other regions around the world.

In addition to TNT’s regular road network (headquartered in Duiven, the Netherlands, and running 700 trucks on European roads every day), the carrier added extra line hauls to move shipments by road to and from its air hub in Liege, Belgium. The Belgian airspace closed on April 15, but TNT’s air hub remained open.

"We used it as a second European road hub and hired additional trucks and light vehicles to handle urgent demand for medical shipments, as an example," explains Gibot. "In countries such as France, where TNT is a large domestic player, we also hired extra road vehicles."

DHL routed additional flights from its U.S. international hub in Cincinnati to Europe through its Vitoria, Spain, facility to keep shipments moving through the network.

TNT’s B747-400 from Asia landed in Liege and Frankfurt just before the complete closure of European skies, "so we were able to truck materials to Liege before feeding them into the road network," adds Gibot. Some deliveries were delayed, but TNT eliminated almost all backlogs in Europe five days following the eruption.

Additionally, TNT’s priority agreement with Eurotunnel enabled it to transport freight between the United Kingdom and continental Europe.

—Perry A. Trunick

LCD Suppliers Tune in to Cost Control Measures

Big screen TVs come at a cost for both manufacturers and consumers. Despite the explosive popularity and growth of the global large-sized LCD market in recent years, panel suppliers are struggling to maintain profitability due to the volatile nature of consumer spending, according to iSuppli, an El Segundo, Calif.-based electronics market research company.

"As applications have shifted from a corporate to a consumer focus, conditions in the large-sized LCD market increasingly are dictated by seasonal factors, with slow demand in the first half of the year, followed by strong sales during the last six months of the year," explains Sweta Dash, senior director of LCD research for iSuppli. "Profitability also is oscillating roughly according to these seasonal trends, compelling panel suppliers to seek ways to reduce costs."

Panel materials and components can contribute as much as 75 percent of total expense, which, combined with supply tightness, limits opportunities to reduce costs. So LCD television suppliers and manufacturers are looking to control spend by bringing more assemblage and production in-house.

LED chips, by example, are a prime target for insourcing because LED-based panels generate higher revenue, prompting suppliers to routinely introduce new models. Many are developing internal sources for these components, allowing them to slash costs, control supply, and improve profitability.

Television brands and contract manufacturers are similarly striving to bring down the costs of LED-based panels by buying only the cell and partnering with other manufacturers, or even panel suppliers, to develop their own backlight and module assembly facilities.

Although this has created some tightness in the market because module production lags behind cell production, it also makes the supply chain more flexible and capable of reacting faster to changes in the market.

Wholesale Change Sparks Inventory Debate

Since the early 2000s, U.S. inventory levels have been steadily pushing downward, largely because of better supply chain processes. Companies became leaner and more responsive to demand, allowing them to scale supply accordingly. But beginning in 2008, the onset of a global recession triggered a sharp jump in inventory-to-sales ratios across the entire supply chain—among wholesalers, retailers, and manufacturers.

More recently, in January 2010, U.S. wholesale inventories unexpectedly dropped 0.2 percent according to the U.S. Department of Commerce, suggesting either consumerism is increasing again or suppliers are struggling to fill stock.

While some Wall Street analysts see this shift as a sign that demand is building in the wake of the recession, it may also indicate that wholesalers are not managing inventory efficiently, letting old stock build up, and failing to replenish on demand. Slack consumer spending over the past few years has stifled production and kept inventory levels flush—perhaps propagating bad inventory management habits and neutralizing the efficacy of lean strategies.

If demand is indeed on the rebound, it may signal good news for the U.S. economy, ultimately stimulating more production and job growth.

Arrow Electronics Comes Full Cycle

Product lifecycle management is a top priority for the high-tech industry, especially as new products flood the market and a great deal of time is allocated toward managing material and process spend—from design through manufacturing to end-user disposal. Tying back-end supply to demand-side variables is vital to successful product launches. It’s also important when new SKUs don’t sell, when companies need to scale production up and down, or when products are no longer usable and need to be safely scrapped or recycled.

That’s why Arrow Electronics’ recent M&A activity is noteworthy. The Melville, N.Y.-based wholesaler acquired Converge, a provider of reverse logistics services; and Verical, an e-commerce marketplace geared toward end-of-life parts sourcing.

The additions greatly expand the distributor’s competencies pulling parts to demand, and pulling product from market for recycling and reuse. More strategically, the move places Arrow Electronics squarely in the 3PL space, managing reverse logistics for its customers, and providing an e-commerce channel for discounted parts supply.

Google’s Stock Rises

It was only a matter of time before Google found a way to leverage its ubiquitous Web presence as a supply chain force equalizer—specifically helping consumers match demand to supply. The online search engine recently debuted new functionality that allows users of its Product Search service to check whether products that appear in query results are in stock at select nearby stores.

Using mobile devices such as the iPhone, Palm WebOS phones, or Android devices, online shoppers can check the availability of specific inventory at participating retailers including Best Buy, Sears, Williams-Sonoma, Pottery Barn, and West Elm.

Google hopes to lure more retailers to the program, creating yet another channel for companies to tap demand and consumers to find available inventory.

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