Chaos forces Electrocomponents to exceptional planning
Handling volatile demand U
The recent global economic crisis was the impetus for Electro- components, one of the world’s leading high service distributors of electronics and maintenance products, to transform its supply
chain planning and honour its remarkable service promise. By Sarah Lafferty
K-based Electrocomponents plc is no stranger to coping with and even reinventing itself during times of adver- sity and change. As one of the world’s leading high ser- vice distributors of electronics and maintenance products, the company has grown and evolved through a myriad of threats and setbacks since its humble beginnings in 1937.
global economic crisis dealt the industry a huge body blow and forced many players into crisis mode. Electrocomponents did not escape unscathed. In Europe alone, its component sales fell a staggering 29.2 per cent in the first half of 2009 compared to the first half of 2008. In the second quarter, sales plummeted even further by 32.6 per cent compared to H208. From its early days, Electrocomponents (which trades under the brands RS Components and Allied Electronics) swiftly built a reputation for its novel high level of service; providing spare radio parts to customers within 24 hours, much faster than they could buy direct from manufacturers. Today the company still promises to deliver components within 24 hours but now distrib- utes 550,000 products through operations in 32 countries. More than 46,000 parcels are shipped on the same day that the order is received. According to Anne Bruggink, General Manager Supply Chain at Electrocomponents, “Our massive, diverse product range makes for a very complicated supply chain, but we’re actually a service business. We’ve established our reputation and leadership posi- tion over nearly 75 years by being the industry’s most reliable 24-hour, or in some cases, same-day delivery service.”
Globally active 36
Although Electrocomponents is a distributor, not a manufacturer, its supply chain is very complex because it has to coordinate large volumes of supply and demand simultaneously. Its 2500 suppli- ers and 1.6 million customers are located throughout 80 coun- tries in the Americas, Europe, Australasia and Africa. It has 17 distribution centres around the world, with the largest ones being
in the US, France, Germany, China and two in the UK. Accord- ing to its 2011 Annual Report, the company operates in those countries which represent around 90 per cent of the world’s GDP. With such massive global penetration, Electrocomponents for- mally reviews its supply chain at least once a year. However, the scope of these reviews depends on the extent to which the busi- ness metrics have changed. Bruggink explains, “If the metrics haven’t changed significantly since last year then the review is more of a sense check. If economic factors or the executive team have driven big change then we undertake a more comprehen- sive review involving ‘what-if’ scenario modelling and engaging our strategy team. Before I joined in 2007, these reviews took place about every three years.” When you layer the company’s availability and delivery promise on top of the general challenges faced during a global economic crisis, demand planning becomes truly mind-boggling. “During the economic crisis we were in the process of introducing 50,000 new products. However, our orders declined by an average of 17 per cent across the board. Also the demand was very uneven with some product lines plummeting by up to 75 per cent while others grew by 25 per cent. This threatened to throw our entire global business into chaos. We needed to abandon conventional, safe thinking in order to find a way through,” says Bruggink. Compensating for order decline by slashing inventory to free up cash, tempting as that may be, was not the right strategy for a service business like Electrocomponents. The company needed to be fully stocked and ready to meet customer demand when the economy inevitably rebounded. Therefore, while most other companies were doing everything possible to free up cash, Elec- trocomponents was planning weeks and months in advance, in anticipation of a recovery. An intelligent approach to demand planning that took into account variability and human knowledge was vital.
The recession, combined with the need to introduce 50,000 new products, gave Electrocomponents licence to move ahead with some cutting-edge projects in logistics and forecasting that might have been killed by ‘analysis paralysis’ in safer times. One such project called ‘Site Specialisation’ involved transform- ing two large general-purpose UK warehouses. The aim was to