Export distribution centres lead to substantial savings for a consumer electronics brand.
The consumer electronics industry has expanded steadily over the years.
Product innovation, falling prices and increased purchasing power of the consumers have been supporting an average growth rate of 1-1.5 per cent since 2013. Even since then, numerous players have entered the market for a share of the pie.
Given the growing competition, our customer –a leading manufacturer of set-top boxes and LCD TVs –decided to ramp up their production and sourcing.
The customer’s decision was driven by the fact that despite a global presence, 76 per cent of their total sales revenue was concentrated in the US and Europe.
Over the next few months, as the processes became busier, revenue and logistics operations started getting affected. The production facilities in Korea, Poland, China, India and the UK, struggled to match the scale of the ambition. The transportation, raw material storage, in-process and finished goods handling costs continued to bleed profits. The customer tried to rein in the costs by implementing judicious measurement parameters, such as measuring logistics costs as a percentage of the sales revenue.
Finally, after several unsuccessful countermeasures, the customer reached out to us for a solution that would simplify their supply chain, curb logistics cost and support their growth plans.
The customer was eager for a new solution. So, we studied their supply chain for potential areas of improvement and proposed a three-tiered plan.
- Switch export volumes shipped from Hong Kong port to Yantian port
- Establish a consolidation hub at Yantian, converting LCL (Less than Container Load) shipments to FCL (Full Container Load) and reduce airfreight costs
- Establish container optimisationand a certain range of value-added services
- Fine-tune the consolidation hub operation to eventually move into an Export Distribution Centre (EDC) operation
- Enable tighter inventory control and align lead times with overseas manufacturing
- Shift from EDC to a VMI-style (Vendor-Managed Inventory) operation that enables our customer to further reduce inventory and put quality control processes in place.
Container optimisationand export volume refinements in the first phase, are expected to yield annual savings of USD 300,000.
In the later phases, the focus will shift to an export distribution centre/ VMI setup so that the inventory, quality and lead times can be controlled better.