An efficient supply chain for the high-tech industry involves proper management of the network of facilities and distribution options that procures materials and distributes the finished products to customers. When designing and implementing the distribution models for high-tech corporations, the following questions usually arise:

• How do we economically manage the order-to-delivery process when manufacturing and sourcing is distributed across geographies?
  
  
• How do we economically distribute the orders for a multiple-sourced component?

• Customer type: An institutional buyer, individual buyer, or reseller
  
  
• Sales order quantities: You can place order quantities either in single units or in bulk quantities
  
  
• Transportation costs: How do you determine which place to use to ship products to customers? Do you choose the nearest warehouse for outbound as well as return shipments?
  
  
• Geographic spread: Where the customers, vendors, and manufacturing sites are located
  
  
• Sourcing of products: Whether from a single source or multiple sources
  
  
• Delivery preference: Whether the customer wants all the products delivered on the same day or in multiple shipments
  
  
• Inventory costs: Whether it is better to stock the item in the warehouse or have it ship directly from the original equipment manufacturer (OEM). Does it make sense to carry inventory of third-party products in the company-owned warehouse?
  
  
• Type of product: Whether you manufacture the product in-house or procure it from an external supplier. If you procure the product from an external supplier, determine whether or not the product features your brand or a different one. For example, if you are a computer manufacturer and procure printers from an outside supplier, are the printers labeled with your brand or the external company’s brand?
  
  
• Legal and tax implications: Would the company want to make use of tax-free havens by having manufacturing units or warehouses in specific countries to take advantage of the (low or zero in some cases) taxation norms?

Direct Ship

Figure 1

How a sales order cycle works in a direct ship scenario

• Reduced inventory
  
  
• Reduced transit time, which leads to improved customer satisfaction
  
  
• Reduced order cancellations between the order and delivery due to last-minute changes by the customer
  
  
• Decreased order-to-cash cycle time

The direct ship method is economical if the customer places an order for products procured from a single source. However, if the ordered products are from different sources, this may lead to variable delivery times and costs. The direct ship model fails for situations in which the customer places an order for products that have different sources of supply, but insists on a single delivery for the order. In such cases, consider the hub ship or MIT models, which are described in later sections of this article.Typical Steps in the Process

Step 4. Receivables and payables. The stocks are delivered directly to the customer, so there won’t be any further goods movements within the organization. On the basis of receipt confirmation, the organization can proceed to invoice the customer for the agreed upon selling price. Furthermore, it can proceed to pay the vendor for the product cost and the services rendered.Hub Ship

Hub Ship Model

Organizations that have their own manufacturing facilities typically use the hub ship model. The main business objective is to carry out the demand fulfillment from the organization’s own premises (referred to as a hub), usually a warehouse or a manufacturing site. You can read more about the configuration involved in the hub ship method in Bruce Rishel’s article “Case Study: How One Company Manages Its Hub and Satellite Supply Chain” available in the SCM hub of SAPexperts. 

Figures 2 and 3 show the difference between first-party and second-party models.

Figure 2

First-party peripherals

Figure 3

Second-party peripherals

This hub ship model also works well in scenarios in which an organization procures finished goods from multiple sources, stocks them at a location, and then distributes them on demand. For example, an online seller would procure articles such as cameras from manufacturers and peripherals from other vendors and stock them at a given location. Customer orders for cameras and peripherals are then fulfilled from this location.

This method is also ideal when, due to business needs, an organization is required to carry some inventory on its premises. The main advantages this model offers over the direct ship model are:

• The ability to fulfill a customer’s entire order in a single delivery, even for products sourced from multiple vendors
• The flexibility to the sales team to re-prioritize orders. Since all the stocks are available in a company-owned location, the sales team, if required, can reassign the stock on hand to higher priority orders. Though this is possible in the direct ship model, it involves a higher degree of coordination with the vendor and depends on the flexibility of the vendor’s systems to accommodate such changes.

Typical Steps in the Process

MIT

Figure 4

How the MIT process works

• If the customer requires that the entire order be sent in a single delivery
  
  
• If you need a single settlement transaction on the customer’s credit card. In certain countries the customer is required to be present when the credit card authorization process is carried out. Hence it makes sense to get the full order authorized at one go. When you have a complete ship scenario (all the parts are shipped to the same shipping address together) then you can capture the settlement transaction in a single step.
  
  
• If all the products are externally procured from a vendor, and none of them are manufactured in- house
  
  
• If there is no strategic or business need to carry some holding stock

Typical Steps in the Process

Third-Party Procurement and Distribution

Figure 5

Third-party procurement model

Typical Steps in the Process

Distributed Network Model

Figure 6

Distributed network model