Supply Chain Integration with Distribution - The Tektronix Case Study
Author(s):
Peggy Lewis
Peggy Lewis, Corporate Commodity Manager,Tektronix, Inc.
84th Annual International Conference Proceedings - 1999
Introduction. Reality of life from any customer's perspective:
- Inventory too high
- Wrong product mix
- Poor inventory turns
- Time to market too long
- Unacceptable on-time delivery
- Long lead times
- Pricing never low enough
Background. In 1995, Tektronix' source of supply was primarily from original equipment manufacturers (OEMs). The electronics industry was experiencing allocations, and Tektronix was receiving poor performance from its OEM partners. It was obvious that the OEMs could not resolve Tektronix' business issues, so Tektronix began evaluating new and innovative sources of supply. Distributors was evaluated and scored on the following criteria:
- Management Responsibility
- Quality System Principles
- Human Resources Utilization
- Statistical Techniques
- In-Process Control
- Supplier Relations
- Corrective Action
- Document Control
- Material Control
- Packaging & Warehousing
- Financial Stability
- Customer Service/Support
- Technology Capability
- Facilities & Equipment
These criteria were used to benchmark more than twenty distributors with component lines ranging from semiconductors to passives to electro-mechanical. Additional assessments were completed at customer sites where the Distributors had implemented major programs.
Three Distributors were selected to pilot a program with the following business expectations:
- Ninety (90) days of flexibility
- Lower order minimum
- Inventory reduction
- Lead time reduction
- Improved engineering support
- Universal pricing
With the difficult industry environment, Tektronix and the selected Distributors faced many challenges. After six months, the Tektronix program dropped from three Distributors to two. The elimination of one Distributor resulted from Tektronix not clearly communicating its business needs and from a lack of a strong management commitment from the Distributor. With the number of OEMs that Tektronix conducted business with and the objective to reduce the supplier base, it was apparent that Tektronix needed to add additional distributors. In 1996, Tektronix added three additional Distributors. With five distributors, the cost of the program increased slightly but now supported 4,000 part numbers, increased inventory turns from three to seven, and improved on time delivery from 59% to 95%. The program was not state of the art, but it enabled a demand fulfillment using standard EDI tools with the enhanced embedded purchase order process. In addition to this program, Tektronix implemented a Distribution Programming Center for Pals/EPROMs, etc. with one of the Distribution Partners. This programming center provided in-house programming for daily production requirements.
Business Expectation:
- No capital equipment investment
- No employee expense
- Totally automated with no purchase orders (forecast only, consumed by "To Do List")
- No inventory liability, 90 days stocking
- Consolidated billing
- Favorable payment terms
- No freight charges
Current Program: With the small successes of the Distribution program, Tektronix knew it needed to move further into a Distribution strategy that would bring a larger return to Tektronix and to the Distributor. In 1997, Tektronix increased the number of Distribution partners to seven. Tektronix currently awards franchised lines to all seven and also awards non-franchised lines to one of the seven partners. Additional commodities, such as peripherals, displays, and ASICs, were added to the program, which is now called the "Supplier Integration Program".
1999 Award Information for the Program:
- >195 OEMs Awarded to 7 Distributors
- >9,000 Part Numbers Awarded
- >$100 Million Awarded
Business Expectation:
- Consigned inventory that Tektronix is not liable for
- No adders for tape and reel
- Full advanced EDI (special programming)
- Zero days lead time utilizing Tektronix forecast
- Pay on consumption
- Consolidated billing
- Favorable payment terms
- No freight charges
- No Tektronix purchasing resource required
- Distributors work in cooperation rather than as competitors
Summary:
Innovative ways to manage Material: "Think outside the box"
Distribution does work and can provide your company with increased flexibility and improved performance on business metrics. To help gain additional market share, Tektronix asks that its distributor partners also work closely with the OEMs to help assist in engineering with Tektronix' preferred suppliers.
Any company establishing a Distribution program should remember the following:
- Create a team composed of cross-functional members from each of the three partners (customer, Distributor & OEM), in which each member understands his/her roles and responsibilities. (i.e. the Distributors are now the inventory & supply/logistic managers)
- Set specific business objectives (i.e. NO LINES DOWN)
- Communicate weekly with time lines and action items
- Celebrate successes
- Benchmark achievements against targets
These suggested guidelines will help you to establish a program that fosters a genuine commitment from multiple Distributors to work together to reduce or eliminate cost adders for the benefit of all.
Open communication is the key to success!
Magazine Articles:
Jorgensen, Barbara, "Conversion Case: An OEM Sees the Upside." Electronic Buyer's News, January 6, 1997, 1 & 88.
Elliott, Heidi, "Keeping Customers Content." Electronic Business Today, April 1997, 60-61.
Elliott, Heidi, "Three Amigos." Electronic Business Today, June 1997, 32
Jorgensen, Barbara, "Taking Cues from the Customer." Electronic Buyer's News, September 7, 1998 E3-E8.
Elliott, Heidi, "Tektronix Dream Team." Electronic Business Today, September 1997, 40.
Carbone, James, "Tektronix Taps Distribution." Electronic Purchasing, February 12, 1998, 67-68.
Conferences:
Lewis, Peggy, "Creative Supply Stream Methods."
Northcon 97, September 1997.
Wescon 97, October 1997.
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