Being able to cut costs while improving a product offering can seem contradictory, but those are exactly the results that can be achieved with innovative kitting & packaging processes. Adopting this approach is especially crucial as the economy tightens, retailers seek to minimize their inventory levels and consumers become increasingly selective in their purchases.
While most electronics OEMs kit and package products overseas, this is not always the most prudent strategy when trying to keep expenses low while maximizing the consumer appeal of the most current product available. Conducting the kitting & packaging function stateside can offer greater flexibility in shipping and preparation of the products for sale.
This can also be classified as “last mile” customization, which translates to waiting until the last possible moment to finalize products for sale. However, this customized approach requires sophisticated capabilities and expertise that can be cost prohibitive for an organization to execute internally.
Conducting these services in-house requires significant investment in facilities, software, materials and workforce. This capital expenditure (CAPEX) may not be advisable in a fluctuating or down-turning economic climate, where cash can be better spent on R&D, sales and customer retention. In that case, using an outside partner may be your best option. Leveraging the expertise and resources of a specialized third-party logistics (3PL) partner can permit the benefits of an innovative kitting & packaging operation to be realized without extensive fixed overhead.
Reduced Shipping Costs
Shipping products from overseas to the U.S. is expensive; therefore, companies should seek to streamline this function as much as possible. Working with an experienced 3PL for kitting & packaging provides the capability for devices to be transported in bulk, thereby allowing for substantially more units per pallet to be shipped at the same time while reducing space usage. This can reduce the number of overall shipments, while still meeting demand, which significantly impacts shipment frequency and airfreight costs.
For instance, a well-known manufacturer of a popular consumer GPS device saved approximately 75 percent per unit on transportation costs with this strategy. This was achieved by increasing the per pallet unit level on overseas shipments to more than 900 unpacked devices, which was in sharp contrast to the previous amount of only 200 packaged devices per pallet when they were packaged in their clamshell form factor. Ultimately, more product was shipped simultaneously to ensure adequate inventory levels during peak consumer buying periods, while at the same time dramatically decreasing the per unit transportation spend.
Once devices arrive at the distribution facilities, the 3PL can meet the unique needs of retailers and resellers by packaging products on a specialized basis for holiday promotions, exclusive offers, or other customized purposes, to better appeal to the end-user.
This is significant because different retailers will have varying needs and requests that can’t necessarily be anticipated when products are still overseas. Products can have customized packaging for each major retailer and also be bundled with other devices, or accessories as requested for added marketability. By performing these services at the last mile, just prior to distribution, these requests can be executed to help improve sales, as well as relationships with retailers.
The 3PL can take customized packaging a step further with a concept known as “postponement.” A postponement strategy allows devices, such as cell phones, to be shipped from OEMs abroad in “vanilla” condition, and subsequently tailored at the last minute for service providers.
A cell phone maker can order a shipment of 100,000 phones, without knowing the exact quantities that will be requested by wireless carrier customers. Postponement circumvents the need for device level forecasting, which is never an exact science. Now, phones can be packaged as orders are received, eliminating shortages or surpluses, preventing the laborious and costly task of dekitting and repackaging phones for alternate uses.
Product Upgrades and Software Reflashes
Particularly for newly released electronics, last minute upgrades and software revisions are almost inevitable. Without the capacity to conduct these changes on the fly, they must be returned to the OEM abroad, which results in significant delays in product availability, leading to disappointed customers and diminished sales.
A 3PL partner will have the resources to conduct these upgrades according to OEM specifications to ensure that the release is not impeded. This can include software reflashes for version updates, functionality improvements, or remedy of technology glitches.
If changes are needed, this can often necessitate edits to instructions manuals and other collateral. The 3PL is able to alter this material on a localized basis on behalf of the OEM prior to shipment by working with nearby suppliers and vendors.
Upgrades can also coincide with fluctuations in consumer taste. For instance, some electronic devices now are issued in fashion colors, as opposed to the traditional gray and black. In the event the current color is no longer popular, they can be easily switched. This level of flexibility can’t usually be expeditiously matched with in-house operations.
Accelerated Testing Procedures
As electronics are manufactured, there are a variety of testing measures that must be executed before deeming a product to be market worthy. This is especially true for product introductions. Testing is an area where a sophisticated 3PL provider with advanced technology capabilities can help reduce the amount of time it takes to make a device available to consumers.
This initially includes acceptance testing of the first load of devices off of the production line. Acceptance testing typically occurs at overseas facilities; however, through collaboration with a 3PL, the manufacturer can supervise this testing domestically. In the event that changes are necessary, the OEM can work with the 3PL to make immediate adjustments, in as little as one week, to ensure the devices are made available as quickly as possible to begin generating revenues.
Without this capability the devices would have to be adjusted at overseas facilities, which are geared towards initial production, as opposed to reconfiguration. This process can take up to a month, and is both time consuming and expensive.
Another efficiency a 3PL can create is the procurement and management of kitting & packaging materials, including printing of collateral and other manufacturing elements on a localized basis. The 3PL can alleviate the burden of securing vendors and materials, in addition to managing quality and cost control.
They can offer materials requirements planning technology systems (MRP) to help manage and procure supplies. MRP automates the entire process to accelerate data processing and prevent human errors. The system can manage multiple vendors and be utilized by an expert buyer/planner to forecast material usage that helps anticipate demand and develop production schedules. This information can then be used to buy supplies in bulk to further reduce costs.
The 3PL will also potentially have more buying power to obtain the lowest costs for materials. An MRP offering is especially significant for smaller manufacturers that might not have their own in-house systems.
Procuring materials locally also has benefits to the environment. By employing local vendors, fuel costs and the corresponding pollution generated from transporting the material is dramatically reduced. When coupled with other green-focused efforts, the overall environmental footprint of the company can be reduced.
Kitting & packaging is the most consumer-facing element of the manufacturing process beyond the product itself. It helps to engage and entice the end-user, so it is critical that it not be an afterthought. Performed strategically, kitting & packaging can reduce expenses and improve the marketability of products, which is crucial for expanding brand equity.
Working with a 3PL that offers these capabilities in a last mile environment allows an OEM to benefit from these innovative services without major CAPEX, while providing maximum flexibility. This is in turn can help an OEM broaden its appeal to consumers and gain market share to increase shareholder value.
ATC Logistics & Electronics (ATCLE) provides third party logistics (3PL) and supply chain services. For more information, please visit: www.atcle.com