Standing out from the crowd

Standing out from the crowdDifferentiating yourself from a rival firm isn’t easy butdistributor Avnet and contractmanufacturer Keltek believe an in-plant partnership gives them the edge they need. Jon Mainwaring explains
As the electronic components distribution market becomes ever more competitive, distributors are looking for further ways in which they can differentiate themselves from rival firms.
Avnet recently set up one of the first ever in-plant warehouses to be run by an electronic components distributor within a customer’s site in the UK. The customer is Keltek, a contract electronics manufacturer (CEM) with an annual turnover of $5bn and sites at Maldon, in Essex, and Kelso, Roxburghshire.
Operating, as it does, in the contract manufacturing industry, Keltek’s management has long been looking at ways to differentiate its business. “The CEM market is under fairly significant pressures,” says Keltek’s group chief executive Mike Jarman. “It’s growing at three times the rate of the rest of the electronics industry.”
Such pressures include the need to have the flexibility to supply customers with short runs of highly varied products, over a long period of time. “What we’re seeing is far shorter product commitment, with longer contractual agreements,” says Jarman. “How do we do that and obviate risk?”
This has led Keltek to try out Avnet’s solution of making the supply chain as competitive as possible. “We’re using logistical skills to help with our primary activity,” says Jarman.
The warehouse is managed on-site by Avnet personnel at Keltek’s Kelso plant. Also, the inventory held within it is owned by Avnet until it is requested by the Keltek shopfloor just before it is to be used in production process. By operating such a system, Keltek is relieved of having to invest in huge stocks of components which might not be used for weeks. So, in this way, Keltek is able to free up capital investment which it can then go on to use for other, more value-adding, activities.
But it does not end there. By having the Avnet personnel devoted to managing stock at Keltek’s site, the redundancy inherently associated with Keltek’s warehouse staff has been taken out, at least when it comes to components supplied by Avnet.
“Approximately 25 to 30 per cent of [the warehouse staff’s] time is spent rescheduling and expediting orders,” says Richard Whitehead, Keltek’s group value engineering manager. “So, we’ve got people, who are more than capable, effectively spending 30 per cent of time administering systems that add no value.”
Now, Avnet’s strength in managing logistics is replacing Keltek’s weakness. “What we’re talking about here is operating at the customer-partner level,” says Jarman. “Taking non-value adding activity out of the chain.”
Avnet has a number of advantages when it comes to supplying and managing the logistics of components. “By virtue of our worldwide position, we buy as competitively as any other distributor in the world,” says Andy Groom, managing director of Avnet EMG, highlighting just one.
Another is the issue of obsolete stock. If Keltek does not have any need of stock that has already been earmarked for it by Avnet, than that is not a problem because, with the in-plant warehouse system, the company does not pay for components until it uses them. In the past it was quite different, according to Jarman. “We’ve been in the situation where the product life cycle has been terminated earlier than expected,” he says. “It has required some fairly heavy negotiation to resolve.”
The software used in the warehouse system is an extension of Avnet’s SAP R/3 software which has been used by the company to link its 14 operations in different countries into a single European company. “What we’ve done is replicated the functionality that exists in Avnet UK, and called it ‘in-plant’,” says Gary Vibert, business manager at Avnet IMM. SAP R/3
SAPR/3 is a software system developed by German-based company SAP (Systems Applications and Products for Data Processing).
It supports multilingual and multicurrency trading, making information available to every user regardless of language or location. For Avnet, a company with divisions across Europe, this is a great advantage.
For example, information which is entered in the UKcan now be viewed by Avnet personnel in Germany using German-language screen commands or by Avnet users in Italy with Italian screen commands.
The multilingual capability means that more staff have real time access to the data held in all the European divisions which improves traceability and response times and gives Avnet a better return on its information.
The software is linked to Keltek’s MRP (materials requirements plan), allowing Avnet to have some idea as to what demand will be over a period of a few weeks. “We drive stock into the in-plant warehouse against forecast,” explains Jarman. “We pull it out against demand.” For safety, the warehouse contains a month’s supply of any component that Keltek may need to use.
“But the important thing is the level of integration,” says Whitehead. “The inventory is visible to both Keltek and Avnet.” For instance, Keltek may want to see if Avnet is able to supply it with enough components to satisfy a new order with a short leadtime. “We can generate a ‘What if?’ scenario against Avnet’s business system within two to three hours to see if we can meet a customer’s demand,” he says.
Benefits like these, however, can only be gained after a successful implementation which can only come about through co-operation between distributor and customer. “You cannot do things these days in the historical buyer-seller adversarial approach,” says Jarman.
But Jarman believes this is the way that distribution is going within the UK electronics industry, as companies become increasingly inclined to concentrate ever more on their core competenc ies. “We anticipate that other distributors will adopt a similar approach,” he says.

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