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Supply Chain Management Strategies for solving problems in High-tech Electronic Industry
Table of Contents
2. Characteristics and Difficulties in Managing High-tech Electronic Industry Product 3
5. Demand Driven and Agility. 8
6. Supply Chain Collaboration.. 10
List of Figures
Figure 1 - Life Cycle of SLCP………………………………………………………4
Figure 2 - Journey from open market negotiation to collaboration……………..6
Figure 3 - The conceptual model for implementing agility……………………….9
1. Introduction
In the context of rapid proliferation of new technology and fierce competition, high technology sector product life cycle is shrinking and they have to face up with significant challenges in dealing with managing short life cycle product (SLCP). Fiercely worldwide competitions and high demand volatility result in shortened product life cycle. Global sourcing from suppliers throughout the word would potentially generate increase in lead time of production. In this way, difficulties may exist in forecasting, planning, producing and distributing.
This paper will look into the characteristics and difficulties of managing high-tech electronic industry. Solutions to overcome the problems would be classified in terms of risk management, time based competition, demand driven and agility, supply chain and collaboration.
2. Characteristics and Difficulties in Managing High-tech Electronic Industry Product
In the industry of high-tech electronics, firms are faced up with increasing fierce competition, fragmented markets, sophisticated customers, rapid technological innovation and shrinking product life cycles. The ability to bring new product to the market efficiently and effectively has become one of the most important factors to determine the competitive advantages in the market. SLCP experience shrinking development from market introduction to saturation and decline stage (Day, 1981). This characteristic requires high-tech electronics manufacturers to respond faster than normal products. Lack of accuracy and speed in response would lead to failure of launching new SLCP. Delay in launching new product may become devastating as estimated by Kurawarwala and Matsuo (1996) that 50-70% of sales loss in a PC manufacturer may due to 6-8 month delay in time to market.
Figure 1 Life Cycle of SLCP (Source: Chaman, L. J. (2011), Journal of Business Forecasting)
High-tech electronic products as SLCP usually have volatile demand from customers (Fisher, 1994). Basically, in the introduction phase, SLCP may face little popularity problems. However, as the advertisements spread out and customers’ awareness arises, the demand would increase significantly. After that, when it reaches the mature stage, the sales may decline due to competitor’s imitation or market saturation. Therefore, building an agile supply chain, reducing time to market is rather important for high-tech electronic products.
3. Risk Management
According to characteristics of high-tech electronic industry, risk may happen throughout the whole supply chain in terms of supply, process, control and demand (Kersten et al., 2006). Risk management is tried to minimize, control and monitor the possibility and impacts caused by risk.
Firstly, supply side risk may happen because of global sourcing, long lead time and the reliability of suppliers. For example whether they perform as the contract requires; the accuracy of their order fulfilment and etc. The dependability of supplier play an important role in deciding the lead time of the products and also it decide the time to market. In order to avoid risk in supply aspect, measures can be taken by collaboration with suppliers. The journey to collaboration may begin from open market negotiation, cooperation, coordination and to collaboration. At cooperation stage, the company may have few suppliers and longer contract. It may be difficult for a company to build trust relationship with lots supplier, thus with few suppliers, company can build in-depth relationship with suppliers and improve the quality of service of suppliers (Christopher, 1998). For example, high-tech companies like Dell, IBM, HP, Honda, IBM, Apple, LGE and Toyota all build relationship with suppliers of 20% of item which accounts for 80% of total cost (Edwards, 2004). At coordination stage, company would have information linkage with supplier like formulate standard information platform for better communication and have vendor managed inventory. For example, the PC company Lenovo have involved in vendor management with its third party logistics company Bax Global International Express. Lenovo regularly order inventory form Bax, it takes only 2.5 hours to complete the process of receive order, confirmation, sorting, customs declaration and dispatching (Edwards, 2004). It would largely reduce the inventory cost by coordination with its supplier and its supplier would become more value at the service provided. In this way it would avoid the supply side risk. When companies move to the collaboration stage with suppliers, it would result in their supply chain integration, information and technology sharing and have joint planning. For example, Apple and LG benefit from increased visibility to technology development because they incorporated latest technologies with lower tier suppliers and it result in their product become more competitive than rivals. Apple’s strong relationship with human-machine interface supplier which accounts for more than 40% of total cost for iPad 2 have bring its cost benefit (Harland,1999).
Figure 2 Journey from open market negotiation to collaboration (Source: Speckman, R. et al., 1998)
Secondly, as for process risk and control risk, because of shorten life cycle required quick production in order to make products capture the first mover advantage. Therefore, it would potentially generate risk during the production process like machine broke down, staff mistakes (Kliem, R.L.,1999). In order to conquer the problem, company should identify the risk, analyses the risk, and take measures to control the risk. By finding out which part of process is at the highest level of risk then adjust it. For example, IBM has use six sigma to solve its process risk. Six sigma is focusing on find the root cause of the defects and variation within the manufacturing process and then use statistical methods to remove it. In terms of control, the quality standard like ISO 9002 and ISO 9004 is widely used throughout the whole industry.
Last but not least, the demand risk may arise because of the validity and high flexibility in demand of the SLCP. As for the high tech electronics products, it has conflict in production and demand. When new products like mobile phones introduced, it started at low production capacity nevertheless the demand is always high and with premium price. However, when the production capacity and experience become mature, the product may at the down stage at its life cycle. Also, at first stage it usually lack of historical data for forecasting, insufficient information for production planning (Kliem, R.L.,1999). In this way, in order to cope with validity in demand, the Accurate Response System can be adopted to address the problems. For example, Huawei a mobile company have used early selling feedback to improve its production and improve the forecasting system.
4. Time Based Competition
Since the fierce competition exists in the high-tech electronic industry require companies to shrink time to market in order to capture the first mover advantage, therefore, it is relatively important for companies to focus on cycle time management. Postponement is an effective measure to shorten the cycle time and have been used by many electronic companies (Haller et al., 2003). As electronic device have common components and differentiation components. For example, HP has use postponement in its printer to postpone the differentiation stage. Products are designed as using common components which can be produce in advance of the product design and allow bulk production. As for the differentiation part, HP based on customers order and needs to implement the Build to Order (BTO) (Fredriksson, Gadde, 2005). In this way, it has largely improved the speed of its time to market and better fulfill customers’ needs.
Another measure would reduce the cycle time is the Extended Enterprise (EE). What meant by EE is corporation with its supplier and customer. For example, Nokia though sharing order information with its supplier to make them better prepared for the order and production in advance of the real order placed. Companies could also make their suppliers to deliver the goods straightly to customers in order to shorten the stock transfer time. Because EE promote company and supplier to build trust and cooperation relationship, therefore, it would improve the response speed to change and shorten the cycle time.
Enterprises of high-tech electronic industry should also make efforts on accelerating time to serve which means to satisfy their customers as soon as possible. Within the field of high-tech electronic industry, most customers would have little experience with the product before using it. Issues may occur during the process of fulfilling the customers. Thus, it would be a serious problem in time based competition. Recently, a handset manufacturer employs a platform strategy with steady improvements of the platform. The manufacturer provides design information, testing and supply chain services for its products to its customers through this platform. The capability enables the manufacturer to leverage the product platforms already developed by it to minimize the time to satisfy its customers.
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