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International logistics and compliance for the global OEM

Managing inventory in different countries and international logistics can complicate the supply chain. Globalization has changed the landscape for logistics and compliance, from access to a global market for their products to unlimited manufacturing opportunities. Additionally, growing tariffs, international regulations and customs, can jeopardize launching new products or getting the parts when and where needed.

Today, the market is truly global. No longer are vendors restricted to a handful of countries and regions; it is possible to manufacture products in dozens of countries and sell them in hundreds of other locations.

Managing the logistics, local regulations and different manufacturing protocols pose numerous challenges. As OEMs need to use different manufacturing facilities, other issues arise, from working in different languages and different assembly systems, to dealing with unfamiliar unit systems. It is important for suppliers and OEMs to make sure that shipments of parts come in the right format, especially volume units for automated assembly lines.

For many OEMs, especially ones that are not physically present in other markets, localization is one of the critical challenges, notably for consumer products. It is not unusual to see a user manual in Europe with basic instructions in a dozen languages—in fact, in many cases manufacturers provide different documents for different regions.

Other localization issues include different power sockets, eco-packaging and having to deal with waste management of packaging and used products.

International supply chain is full of barriers and regulations

Different regulations and tariffs are in place in many markets. Two-thirds of American companies in China say they have been hurt by the spiraling U.S.-Chinese tariff war[1]. The two sides have imposed 25 percent tariffs on $50 billion of each other’s goods in the dispute over American complaints that Beijing steals or pressures companies to hand over technology.

In a recent letter to investors, Apple’s CEO Tim Cook blamed the escalation trade war for the decline of sales both in China and the US:  “We believe the economic environment in China has been further impacted by rising trade tensions with the United States,” he argues.[2]

While it is easier to do business with partners in the European Union, as the EU member states share common legislation and import/export procedures, almost all other countries have their own. Moreover, recent events such as Brexit[3] and the increased trade tensions within the greater international community further complicate matters.

OEMs need to ensure compliance with materials regulations such as the European Restriction of Hazardous Substances Directive (RoHS)[4]. It makes it necessary that vendors not only verify that they don’t use the forbidden substances in their manufacturing processes but also that those substances are not present in the components they source for their products.

One of the most important effects of RoHS and similar regulations is the reduction of exposure to people throughout supply chain / consumers worldwide. Additionally, the global components’ supply chain is plagued with duplicated components, conflict minerals and second-grade inventory. Identifying those parts in international markets is much more difficult than doing it at home.

Relevant regulations are in place related to the minerals supply chain[5]. Both the US and the EU have import restrictions from conflict zones, such as the Democratic Republic of Congo (DRC) and other areas.

Additionally, several governments are imposing trade sanctions to other countries.

For example, the United States’ Office of Foreign Assets Control (OFAC)[6] can sanction any US individual or corporation that trades directly or indirectly with entities in specific geographic regions or with certain governments, such as Russia and North Korea. Understanding the prohibition to source materials or components from entire countries is easy, but making sure that US entities are not dealing with sanctioned suppliers is more complicated.

All of these difficulties make dealing with international suppliers and logistics a severe challenge for OEMs. Moreover, both tariffs and regulations are constantly changing; new duties and import/export procedures can jeopardize product availability and timely deliveries, putting production and time to market at risk.

Arrow can help manage your entire international logistics needs

As a global organization, working with suppliers and OEMs all over the world, Arrow has unmatched experience and footprint in international logistics, procurement, and compliance.

For example, using its landed-cost optimization tools, Arrow can manage logistics and orders to optimize the cost of transport, delivery and volume savings. Working together with suppliers and certifying authorities, Arrow can make sure the supply chain is free of conflict minerals, banned substances, and complying with regional and international regulations. What’s more, the company is continuously checking with OFAC and other government agencies to qualify suppliers which, in turn, helps to avoid potential fines.

When moving products in international markets, bonded, duty-free warehousing (to avoid paying unnecessary tariffs and taxes for products in transit) can be provided to reduce the cost of inventory until it is necessary to release it. Additionally, Arrow can provide record keeping of all international transactions, including bills-of-lading, customs declarations and freight tracking.

Furthermore, Arrow’s international logistics can help provide transportation of product and components from origin to destination in most parts of the world. The company can also help secure your supply chain, ensuring that components and products come from reliable, legal sources, and their quality thoroughly inspected to protect the final product and users.

In sum, Arrow’s global presence and supply chain can help to handle all aspects of international trade.

Interested in learning more?

For more information on this topic, or to get in touch with engineering specialist who can help answer any questions you might have, head to arrow.com

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Resources

[1] US companies in China hurt by tariff war – The Economic Times https://economictimes.indiatimes.com/news/international/business/survey-us-companies-in-china-hurt-by-tariff-war/articleshow/65801193.cms

[2] “Apple’s Glum News About China Sales Sends Global Stocks Lower ….” 3 Jan. 2019, https://www.nytimes.com/2019/01/03/business/world-stock-market.html. Accessed 3 Jan. 2019.

[3] “Brexit Continues & Puts Additional Pressure on UK Industry” 27 Jun. 2017, https://www.ebnonline.com/author.asp?section_id=3560&doc_id=282804&

[4] “Restriction of Hazardous Substances Directive – Wikipedia.” https://en.wikipedia.org/wiki/Restriction_of_Hazardous_Substances_Directive

[5] “Conflict minerals – Wikipedia.” https://en.wikipedia.org/wiki/Conflict_resource.

[6] “Office of Foreign Assets Control (OFAC) – Treasury.gov.” 6 Feb. 2018, https://www.treasury.gov/about/organizational-structure/offices/Pages/Office-of-Foreign-Assets-Control.aspx.

Inventory management and securing supply in a competing market

Optimizing inventory, managing forecasts and securing supply is critical for developing and launching new consumer products.

We can call it the “Amazon effect.” The way that the company operates is moving the whole market. Recent reports estimate that as many as three-quarters of American households have Amazon Prime membership,[1] and that means that those consumers are used to having any product they want to be delivered to their home within the next day or two. In the United States, Amazon even offers Sunday delivery.[2]

Globalization, where customers can buy the same product in different markets, and digitalization of retail, are two trends which are elevating the consumer experience. Customers have moved from wanting good service to demand a great experience.

That puts all of the pressure on vendors and OEMs to have sufficient inventory ready to ship. Selling on marketplaces such as Amazon or Alibaba requires that they have enough stock for same-day shipping. There is nothing worse than hanging the “out of stock” sign on a website.

Additionally, during high-turnover sales periods and special campaigns, retailers require minimum inventory levels to advertise or promote products, putting more pressure on vendors to have higher inventory levels ready to deliver.

Forecasting is the most critical business practice

Manufacturers and suppliers can benefit from a strong relationship with retailers. For example, while 40 percent of smartwatch sales occur between Thanksgiving and Christmas, that still means that 60 percent of sales occur before that period. Those early sales can be used as a first indicator of where demand may be for the holiday season.

Working with channel partners is part of the equation to produce a reliable forecast and avoid having inventory problems. What’s more, manufacturing needs to prepare sound forecasts of components required and the capacity of production lines to meet demand in peak periods.

Manufacturers and suppliers selling in international markets also need to be aware that the same product can have different SKUs, depending on location, and that the same model can be made with different features for different markets, making it difficult to rotate inventory between international locations.

Securing the supply of components and quality control

Securing component supply is critical to meeting demand. As mentioned above, working on having a realistic forecast is the most effective business strategy.

Deviations from the forecast, however, continuously occur, especially in heavily competitive markets like consumer electronics. Even some of the world’s largest smartphone manufacturers still have problems in accurately predicting sales of a new product.[3]

An essential tool is BOM optimization [link to the other “manufacturing” article]. Having the flexibility to switch components and optimize the supply chain quickly can ensure production when the availability of certain parts is scarce.

Special care is needed when procuring end-of-life components. If the need for those components is not carefully estimated, manufacturers can be in a situation of there being no more supply to meet demand or ordering more units than necessary and having difficulties returning or selling them.

Also, components need to be certified that they come from reliable, legal sources and that their quality is thoroughly inspected to protect the final product and users.

Keeping a large inventory increases financial costs

Every manufacturer or integrator knows about the substantial financial cost of maintaining a large stock of unsold goods or components.

Balancing between sufficient inventory and liquidity is a very complicated exercise. OEMs need their stock to manufacture products and convert it to sales quickly. Inaccurate forecasts, parts on allocation, and slow logistics slow down the chain.

Furthermore, accounting regulations in many countries require that unsold inventory on hand at retail partners is still counted as the vendor’s own inventory because it can be returned at any point by the retailer. That affects quarterly reports and stock performance

Most retailers and local distributors require the vendor to provide inventory insurance policies such as stock rotation—wherein they can exchange unsold SKUs for others—and price protection in case there is a new, lower price for existing inventory.

Some manufacturers consider the rotation of stock to be essential to maintaining a positive public image, especially when launching a new model.

Obviously, if a large inventory of an existing model is still unsold on-premises or in the channel, the cost of rotation of those units to replace them with the new model could be enormous.

Arrow can help manage your inventory and supply chain

As a global organization maintaining an inventory of millions of components and final products, Arrow has unmatched experience in supply chain and inventory management.

Arrow can help in planning your inventory needs from components for production to supply chain and logistics for your final products. Using order automation, Arrow can optimize the forecast of your production needs and place orders for the needed components in advance to ensure on-time production.

Arrow’s landed-cost optimization services help manage logistics and orders to optimize the cost of transport and delivery and to secure economies of scale.

Additionally, when moving products in international markets, bonded, duty-free warehousing can be provided to reduce the cost of inventory until it is necessary to release it.

Arrow has primary distribution centers and warehouses strategically located to service all major continents.  With a strategic network of transportation and trade compliance partners, we can manage inventory in very close proximity to your end-customers, including last-mile logistics.

Interested in learning more?

For more information on this topic, or to get in touch with engineering specialist who can help answer any questions you might have, head to arrow.com

Resources:

[1] “The Amazon stat long kept under wraps is revealed” 18 Apr. 2018, https://www.washingtonpost.com/news/business/wp/2018/04/18/the-amazon-stat-long-kept-under-wraps-is-revealed-prime-has-over-100-million-subscribers/. Accessed 6 Dec. 2018.

[2] “Does USPS really deliver packages on Sundays? – General Selling ….” https://sellercentral.amazon.com/forums/t/does-usps-really-deliver-packages-on-sundays/88203.

[3] “Samsung Electronics Q2 misses forecast as smartphone worries deepen.” http://www.ft.lk/article/161649/Samsung-Electronics-Q2-misses-forecast-as-smartphone-worries-deepen

How blockchain technology will revolutionize the next decade’s supply chain

There has been a lot of talk about blockchain disrupting banking, investment, insurance and government. But if there is one industry in which the distributed ledger technology can make its most significant impact, it is logistics and supply chain.

Utilizing blockchain to record the provenance of products and components would remove any opportunity to tamper with records, thereby providing reassurance to the OEM and end user, and reducing the risk of using the wrong parts.

Furthermore, using blockchain can simplify supply chain finance, removing the dependence on time-consuming, paper-based processing and reducing the settlement period between a manufacturer delivering parts to distributors or OEMs and receiving payment for those parts.

In the future, blockchain technology could also be an enabler of fully automated logistics such as robotic warehouses and autonomous trucks.

Blockchain can replace the traditional mechanisms for cross-border settlement, which are slow and expensive. According to McKinsey: “The average cost for a bank to execute a cross-border payment via legacy correspondent banking agreements remains in the range of $25 to $35, more than 10 times more than for an average domestic ACH payment.”[1] Around a third of these costs are typically made up from managing liquidity costs, with treasury costs comprising a further 25 percent, while other significant elements include reconciliation, counterparty fees and compliance.

Manufacturers and OEMs can trust the provenance of components and materials

When used across the entire supply chain, blockchain provides a complete distributed ledger from the component manufacturer to the factory and, ultimately, to the final consumer of any product or component. Knowing precisely the entire provenance and being able to check it across several independent copies ensures compliance and safety.

Additionally, a solid distributed record of provenance makes it much more difficult to introduce counterfeited products into the supply chain. Both suppliers and clients are able to check product quantities, track its location and ensure that the entire shipment is delivered to the right destination.

When paired with technologies such as IoT location sensors, smart pallets,[2] and LTE-M or NB-IoT cellular connectivity, documenting a product’s journey across the supply chain reveals its true origin and touchpoints. Manufacturers and distributors can also reduce recalls by sharing logs with OEMs and regulators.

Cloud, edge and machine-learning adoption improves with blockchain

By 2020, it’s projected that over 50 billion supply-chain devices will be IoT-enabled.[3] As manufacturers and distributors adopt IoT and machine learning to optimize their systems, those planning for blockchain adoption can leverage substantial savings when the technology is widespread.

Edge computing is a natural partner to blockchain. On supply chain and logistics, most of the processing and tracking occurs locally, sometimes without a reliable connection to the cloud. To keep an accurate record of the sensor-collected data, blockchain-enabled gateways can be deployed, regularly sending the aggregate collected data to the blockchain network to keep the ledger accurate.

Blockchain is a technology that is starting to gain traction

These potential efficiency improvements, paired with the vast amount of information collected, makes blockchain a desirable technology that many companies are beginning to explore.

Like every new technology, however, there are formidable obstacles to overcome first. While blockchain solutions address plenty of potential hurdles in the supply chain, some issues could prevent its widespread integration. These challenges involve blockchain’s complexity, governance and hardware requirements.

One crucial issue is the computer power required to run a vast blockchain network, one that everybody can access. Cryptocurrency mining, the first global example of blockchain, has demonstrated that keeping the servers running is quite expensive, and many bitcoin farms have been closing recently due to running costs and reduced profits.

Another important challenge will be the governance of the technology. According to Michael J. Casey, author of The Age of Cryptocurrency: How Bitcoin and the Blockchain Are Challenging the Global Economic Order: “Ideally, to encourage free access, competition and open innovation, global supply chains would have the option to anchor to a public blockchain that no entity controls. In other words, data extracted from commercial and production activity would be cryptographically recorded in open ledgers.” However, he adds, “inevitably, private, closed ledgers run by a consortium of companies will also arise as their members seek to protect market share and profits.”

Additionally, as other technologies enter manufacturing and the supply chain, implementing blockchain will require cross-technology expertise, especially for vendors, distributors and logistics companies.

Similarly to IoT networks and edge computing, governance and standardization in blockchains is going to be important. Some standards organizations and regulators such as the European Commission are already looking into issuing implementation guidelines and drafting regulations,[4] which will become the framework for large adoption.

Nevertheless, at some point, the huge potential of the technology will make blockchain the blueprint of commerce, much like DNA is the blueprint of life.

Interested in learning more?

For more information on this topic, or to get in touch with engineering specialist who can help answer any questions you might have, head to arrow.com

[1] “Global Payments 2016: Strong Fundamentals Despite Uncertain Times.” https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/A%20mixed%202015%20for%20the%20global%20payments%20industry/Global-Payments-2016.ashx.

[2] “EBN – Pablo Valerio – The Humble Pallet Gets Smart.” 5 Jun. 2017, https://www.ebnonline.com/author.asp?section_id=3560&doc_id=282751

[3] “Internet Of Things Will Deliver $1.9 Trillion Boost To Supply Chain And ….” https://newsroom.cisco.com/press-release-content?articleId=1621819.

[4] “EU Blockchain Roundtable paves the way for Europe to lead in ….” 20 Nov. 2018, https://ec.europa.eu/digital-single-market/en/news/eu-blockchain-roundtable-paves-way-europe-lead-blockchain-technologies.

When designing a new product, BOM optimization can save money and production time

Creating the right kit for a new product is a difficult task. In some instances, it’s harder than making the original prototype. Performing bill-of-materials (BOM) optimization can provide significant savings in component costs, manufacturing and for the designer, time spent figuring out what went wrong.

As product design moves from ideation to prototype, and then to build and analyze, BOM optimization can help on every phase to automate, reduce cost, improve form factor and functionality, and make a better, marketable product.

Every engineer has his/her design system, and every team its own pace. In many cases, especially on cutting-edge product prototyping, engineers work in a vacuum. Engineering needs to work with other departments to make sure product launches hit set goals on quality and functionality, especially with sales, planning, procurement, and shopfloor teams as early as possible and throughout the product launch.

From lab to production, not all things are equal. When designing a new product or system, the most important thing is to come out with a solution within the allocated time and have it ready for the assembly line.

Once the product has been tested in the lab and considered ready, time to production is critical. A working prototype, however, might not have the most suitable components for large production runs.

At the same time, last-minute changes can delay production for weeks, if not months. That is why, during the final phases of prototyping, engineers need to be aware of component availability, pricing, and production requirements.

Ensuring the supply of critical components needs to be secured even if design changes are not required

There is nothing more frustrating or disastrous than engineering the perfect product or subsystem and then not being able to manufacture it in quantity for lack of components, expensive BOM or inability to sell in some markets.

The supply chain should be an integral part of the product design. Preventing end-of-life parts being built into the product, ensuring parts from qualified suppliers are being used, securing that lead times are known up front, as well as the same form, fit, function alternative/substitute parts/suppliers have been identified for full-scale production.

Engineers working on product design or making lab adjustments to existing products need to understand basic supply chain concepts and issues such as end-of-life (EOL) and alternative parts.

Additionally, small changes in design while keeping the same features can affect pricing and deliveries. That happens quite often in the final stages just before the product is ready for the first production run. That is why many OEMs schedule the production of a small batch of the final product in simulated manufacturing scenarios to find out any problems and possible changes before sending the final design to their main assembly lines.

Product packaging and design also need to be considered when making product changes. Some components, even if they have the same electronic specifications, might not be suitable to place on the PCB for cosmetic or packaging reasons. In some cases, materials used are not compatible with the placement of certain components, i.e., wireless modems or antennas.

Another critical factor to consider when specifying components during product design is the total cost of ownership (TCO) of the product. Saving a few cents using a component with a shorter operating lifespan or higher failure rate can cost much more if the product fails in the field.

International trade also needs to be factored in. Sourcing some components internationally or using some that are restricted or banned in specific regions can increase the cost of the product or require different versions for different markets.

The European Union, for example, bans the import of any product that uses substances such as lead, cadmium and other pollutants[1] in addition to components with minerals from certain war regions, i.e., the Democratic Republic of the Congo (DRC).

The United States also bans components from certain countries either because of conflict minerals or economic sanctions and has recently increased tariffs on products and materials from several regions, including Europe and Asia.

In addition to the problems mentioned above, managing the supply chain is challenging during all stages of production, testing and delivering.

When securing the right components, it is necessary to make sure that they are original—as the market is plagued with counterfeit units—and of good quality, especially if purchased secondhand.

Also, new standards and regulations are pushing electronic vendors to consider sustainability when making decisions on materials and manufacturing. This is no longer a world where companies’ profits are above the concerns of the environment.[2]

Design for the Circular Economy

It is essential to consider the Circular Economy principles (reuse, refurbish, recycle, maintain, and collect) when designing a new product or optimizing the supply chain.[3]

Pollution caused by electrical and electronic devices is a growing problem that needs to be addressed right from the design stage. The European Union estimates that by 2020, 12 million metric tons of electrical and electronic equipment (WEEE) will be generated every year by discarded products in the member states.[4]

Most products and components can be designed for end-of-life recycling. Batteries used on electric vehicles, for example, can have a second life as power storage for renewable energy, and many metals can be extracted from used devices and PCBs for reuse in new products.

Arrow can help design the right kit and manage the supply chain

As the largest distributor of electronic components, Arrow has many years of experience working with OEMs during all phases of product design and manufacture from conception to market.

Arrow can help to define the right kit for your product or PCB. Its BOM optimization service can identify the most suitable components for your design, taking into account product availability, end-of-life of components, logistics, international regulations, and other requirements.

Additionally, when an engineering change order (ECO) is issued for an existing design, Arrow can recalculate the entire BOM and optimize logistics to minimize the impact on production.

Arrow’s procurement services can verify suppliers and components to ensure quality, origin, and compliance even when it is necessary to use secondary market units due to availability. OEMs can rest assured that purchases made with Arrow are shipped with full certificates of compliance, which remove the risk of counterfeit parts entering the supply chain.

Arrow can also help with process analysis, helping to optimize assembly lines and procedures. Its inventory of billions of parts ensures that, in most cases, the piece or component that the OEM needs is available and ready to ship, and Arrow’s supply chain intelligence[5] helps to ensure timely deliveries.

Having expertise closer to its customers is one of Arrow’s primary goals. That’s why it has engineering teams all over the world that can support customers on any technology right there in their time zone.

Interested in learning more?

For more information on this topic, or to get in touch with engineering specialist who can help answer any questions you might have, head to arrow.com

References

[1] “Restriction of Hazardous Substances Directive – Wikipedia.” https://en.wikipedia.org/wiki/Restriction_of_Hazardous_Substances_Directive.

[2] “Sustainable Electronics Initiative – Wikipedia.” https://en.wikipedia.org/wiki/Sustainable_Electronics_Initiative.

[3] https://www.ellenmacarthurfoundation.org/circular-economy/infographic

[4] http://ec.europa.eu/environment/waste/weee/index_en.htm

[5] “Arrow Intelligent Systems – Services: Supply Chain Management.” https://www.arrow.com/intelligentsystems/na/en/services/business-solutions/supply-chain-management/.

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