The consumer electronics market is worth more than $300 billion in the United States. While electronics are seemingly everywhere, getting that smartphone into your hand or that laptop onto your desk takes a lot more work than meets the eye.
The industry isn’t known for vertical integration. Rather, electronics companies have globally dispersed supply chains, and they rely heavily on the strength of these supply chains.
On one hand, this strategy saves electronics companies money and allows them to pass those savings on to customers.
On the other hand, a global supply chain presents distribution risks, inventory management challenges, and vulnerabilities to disruptive events like extreme weather, political conflict, or pandemics, as witnessed by the impact of COVID-19.
As a result, it’s important for electronics companies to think about their electronics inventory management under a number of different circumstances.
In this article, we cover:
- Electronics inventory management under typical circumstances
- Tying electronics inventory management to your product life cycle
- Electronics inventory management under unusual circumstances
- Brick-and-mortar versus online consumer electronics retailers
- Managing your returns process
- System integration, data and contingency planning
Electronics Inventory Management Under Business-As-Usual Circumstances
Business-as-usual conditions offer the best opportunity to get your house in order. This is when business leaders should check whether they have full visibility over their supply chain and take action if they don’t. When a catastrophic event occurs, you don’t want to spend valuable hours or days simply finding out what your supply chain looks like.
Every company has its own supply chain strategy with most sharing a few main steps:
- Component parts suppliers
- Assembly plant
- Distribution centers
- Retail locations
In normal circumstances, your focus should be on the electronics inventory management stage of your supply chain. Specifically, this means you should be analyzing real-time data about your reorder inventory levels and sales to avoid stockouts or excess inventory.To do this well, full visibility into your supply chain is important.
Visibility into the other upstream stages likely requires integrated systems and real-time data. It’s important to put these systems in place now since knowing who supplies key component parts and where they’re located is an essential, but often overlooked, part of electronics inventory management.
Tying Electronics Inventory Management to the Product Life Cycle
The market conditions for a specific product change over time. As those conditions change, the product moves through a series of phases: introduction, growth, maturity, and decline.
Since the electronics product life cycle can be short-lived, companies should understand the life cycle and may want to be cautious when carrying electronics inventory.
Generally, a new electronics product won’t generate significant sales at introduction unless it’s coming from a mature company with major buzz, like the latest iPhone from Apple.In this case, one option is to enter into a consignment inventory arrangement where your business doesn’t pay for the inventory upfront and only pays for what it sells.
As a product moves into the growth phase, demand for it keeps growing so retailers will want to keep their inventories stocked to earn more from eager customers. During the maturity stage, retailers have more flexible numbers for stable electronics inventory management since demand will plateau.
Finally, retailers must anticipate the point at which orders start declining. Once a product enters the decline stage, retailers should stop ordering more of it. In addition, they should step up their marketing efforts as soon as they notice a shift. That way, they can move their remaining inventories before turning to more drastic efforts like extreme discounts or entire stock write-offs.
How To Get Visibility Over Your Supply Chain With Enterprise Resource Planning Tools
Enterprise resource planning (ERP) tools enable electronics retailers to gain visibility over their operations. Companies can either choose a standalone solution or an ERP that incorporates a variety of functions including:
- Warehouse management
- Inventory management
- Transportation management
- Financial management
- Human resources management
An electronics inventory management system supports your dual goals of avoiding stock outs/excess inventory and enhancing the customer experience. Its electronics stock control allows companies to use data-driven formulas to determine their safety stock levels and set smart reorder points.
The Leading Supply Chain Management Software for “New Age” B2C/B2B Fulfillment Businesses
In addition, companies can use these tools to help them embrace sophisticated electronics inventory management strategies. Electronics companies carry expensive inventory, which means it’s especially important to keep tabs on goods to avoid loss, damage, or theft.
Cycle counting provides a way to ensure inventory accuracy without shutting down the warehouse more than once a year for a physical count.
A sophisticated electronics warehouse management system helps companies identify the most valuable items or the most-sold items in their warehouses. The system prioritizes items into categories A, B, and C, and creates schedules for counts. Without an inventory management system, cycle counts can be very difficult to organize and schedule manually .
A warehouse management system (WMS) makes it quick and easy to incorporate sophisticated pick techniques like zone picking, wave picking. With a WMS, you can schedule waves based on delivery deadlines, transportation schedules, worker schedules, and more.
Moreover, a WMS lets you practice advanced electronics inventory control with a multi-warehouse management system that can route orders to specific warehouses based on:
- Inventory levels
- Distance from the warehouse to the delivery address
These key systems – the electronics inventory management system and the warehouse management system – can be integrated with your transportation, finance, and human resources systems to enable greater synergy across your supply chain.
How Arrow Electronics Projects $130 Million in Cost Savings Through New Enterprise System
In 2019, Arrow Electronics, a U.S. electronics company, purchased a new enterprise resource planning system. Why? They plan on cutting $130 million in costs to make up for a demand shortage. The new system ties together several previously siloed systems based on region and department. It’s empowering the company to eliminate redundancies and identify opportunities for efficiency.
Electronics Inventory Management Under Unusual Circumstances
Electronics companies are in the hardware business. Unlike software companies, their work involves the physical movement of goods. That means a bottleneck or stoppage in the supply chain can have a catastrophic impact on the entire business.
Over the last several decades, companies have turned to foreign suppliers for component parts or assembly. While this practice brings cost savings, it also brings serious vulnerabilities like a supply shortage or stoppage.
While most companies know who their direct suppliers are, many are in the dark about their second-tier or third-tier suppliers. Consequently, when an unexpected event happens, they wind up on the tail end of a domino effect when they didn’t think there were any dominos to begin with.
Consider the impact of the COVID-19 outbreak in early 2020. Lockdowns in China affected countless international companies who had suppliers located in the country. As Harvard Business Review reported, hundreds of U.S. and European companies had suppliers in China’s quarantined areas. Notably, at least 590 companies relied on suppliers in quarantined areas for resistors, 199 for capacitors, and 44 for integrated circuits.
The recommended cure is supply chain mapping, which means understanding exactly how your goods get to market. You should know the partners of your supply chain partners and where they operate. This way, if a regional event occurs, you can take mitigating steps sooner rather than later.
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How Electronics Companies Developed COVID-19 Reponses Ahead of The Rest
Consider another example from the global coronavirus pandemic: Companies that had mapped their supply chains knew by early January which products would be affected. Their supply chain map told them which component parts and raw materials came from Wuhan and Hubei in China. Consequently, they were able to quickly develop response strategies such as:
- Offering discounts on or heavily promoting similar products to lessen demand on the affected products
- Purchasing extra inventory in anticipation of the shortage/stoppage
- Booking up space at alternative warehouses or manufacturing facilities
Competing with Electronics Inventory Offered by Online Retailers
With a growing online marketplace, brick-and-mortar electronics retailers have to compete with online retailers. In the past, physical stores had the advantage of immediacy. Today, online retailers like Amazon can deliver within a day while brick-and-mortar stores turn customers away due to stockouts.
Electronic retailers are in a bind. On one hand, they want to carry extra electronics inventory to ensure they can always make a high-value sale (and that customers return to their stores). On the other hand, they want to embrace just-in-time inventory to keep their carrying costs low.
To keep costs low while maintaining customer loyalty, electronics retailers should embrace an omnichannel fulfillment strategy. That means offering delivery directly from the warehouse to a customer’s home in addition to in-store pick ups of online orders and in-store purchases. Major retailers have already adopted omnichannel strategies and other retailers are setting up urban fulfillment centers to reduce the last mile and get products to customers faster.
How Best Buy’s Electronics Inventory Strategy Prioritizes the Customer Experience
In recent years, Best Buy has shifted its electronics inventory management strategy from a lean approach to a fully stocked approach. Investors are typically wary of high inventory numbers on a retailer’s books, but Best Buy moved forward because it believed the customer experience benefits outweighed the short-term supply chain costs.
This focus on the customer has paid off. By prioritizing customer loyalty and embracing an omnichannel strategy, Best Buy successfully transformed its business model to compete with the likes of Amazon and has reaped the rewards for its efforts.
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Managing the Consumer Electronics Returns Process
Returns cost the consumer electronics industry an estimated $10 billion every year. While returns are an unavoidable part of doing business, incurring outrageous reverse logistics costs is not. In the consumer electronics industry, customers return goods for countless reasons including damages, warranties, or loss of interest.
The returned products strain the electronics inventory management process in a number of ways:
- Damaged or broken goods can’t be re-sold
- Intact goods increase stock levels, creating an excess inventory situation
- Introduces waste to supply chains attempting to implement sustainable processes
Electronics companies can’t completely eliminate returns, but they can limit them by addressing the root causes, rather than just the symptoms. To do this, they need to think of their returns as belonging to one of two categories: controllable returns and uncontrollable returns.
Controllable returns are avoidable. They’re due to seller errors, customer errors, or poor programs and policies. For instance, if a customer orders the silver version of a smartphone and receives the black version instead, they’ll ship the product back. This is a return that could’ve been easily avoided through a better order fulfillment system and warehouse management system.
Suppose the customer did receive the correct color, but the online photo wasn’t an accurate reflection of the color shade in real life. The customer may still send the product back. This is another avoidable return, since the vendor can use better image quality in its online catalog to accurately reflect its products.
In some cases, excessive returns are due to a poorly defined return policy. Granted, you don’t want to write a restrictive return policy since customers will feel more comfortable making a purchase when they perceive the risk to be low. If they know the seller will be fair about returns, they’re more likely to give the brand a shot.
That said, you want to clearly articulate how long a customer has to make a return, which issues should be referred to the manufacturer instead of the retailer, whether they’ll get a full cash refund or store credit, and more. With the right policy, you can limit the number of frivolous returns without ostracizing or penalizing your loyal customers.
The bottom line for controllable returns is that you must address the root cause, not the symptom. If you create a flawless reverse logistics process, but the root issue is a high volume of defective products, you won’t limit the number of returns. You’ll just get the defective products back to your warehouse faster. To reduce returns altogether, you’d have to focus on improving quality control.
Uncontrollable returns can’t be controlled in the short term. All your company can do is create a clear reverse logistics process to manage them as efficiently as possible. A major part of a good reverse logistics process is integrated enterprise systems. Particularly between your warehouse, inventory, and transportation management systems, so your inventory data can update in real time.
If products are re-introduced into your electronics inventory, but it isn’t updated in the system, your warehouse manager may wind up ordering more stock than needed.
How Philips Electronics Reduced Its Volume of Controllable Returns
When Philips Electronics, the multinational electronics company, wanted to reduce its volume of controllable returns, it focused on identifying and addressing core issues within the business. For starters, it identified usability issues with its products and redesigned them to increase customer satisfaction.
The goal was to reduce the number of people returning products for reasons other than damage or defects. They also shifted from a laissez-faire attitude about returns to more strictly enforcing their return policies. In addition, Philips improved its service network and created a department specifically dedicated to managing returns.
Systems Integration, Real-Time Data, and Contingency Planning Are Essential For Effective Electronics Inventory Management
Electronics inventory management relies on strong processes both inside and outside of the warehouse. Internally, electronics brands need systems that share data with each other to help the business make profitable decisions about inventory. Externally, business leaders need 100 percent visibility over their global supply chains, including their second- and third-tier suppliers, so they can keep their operations up and running during unexpected events.
Written by Ruthie Bowles
Ruthie is a content marketing consultant for Logiwa. Her specialties include small business development and inventory management.