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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

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