Who said logistics is a stand-alone function of the supply chain? Over the past decade, consumer electronics has become one of the fastest growing but also most volatile markets. With its quickly evolving technology and short product lifespans the ability to adapt, particularly with logistics, is a key factor for a company’s long-term sustainability. Traditionally, the transportation of goods have primarily been driven by low-cost shipping options, however lead time has become more of a driving factor in transitioning to faster modes of transit. Air freight, a mode commonly considered to be the most expensive of the bunch, is the talk of the town in CE companies up and down the west coast. In reality though, air freight can actually be the most lucrative option for transporting consumer electronics. This raises an important question: Why is air freight more cost effective for consumer electronic logistics?
Nothing to Do With Shipment Size
Air freight is more cost effective because it ships in smaller volumes. For example, air freight containers (120 cu. ft. – 316 cu. ft.) hold significantly less cargo than sea freight containers (from 582 cu. ft. – 2376 cu. ft.). So, is the cost associated with the amount of products required to fill a sea freight container too high, and thus, the reason why one chooses air freight? Not exactly. The iPhone 6s sold 16 million units during its opening weekend, more than enough to fill a few sea containers.
The Fight Against Obsolescence
Two of the biggest losses in logistics that impact an organization’s earnings are damage and obsolescence. Obsolescence is a common factor in many logistics formulas, especially in accounting, and that is the reason why air freight is more practical.
For instance, a 2013 Forbes article uncovered that air freight is actually cheaper for consumer electronics due to product lifespan. When gas was $4 a gallon, Apple would pay 1.2 cents in sea freight costs per iPhone, and 54 cents by air. However, cost was not the most important variable in this situation. Instead, it was time.
The average consumer electronic product may have a lifespan of four to six months, making 30 days at sea a risky decision as the product floats closer to obsolescence. As a result, a business should try to sell as many of a given product in the shortest amount of time in order to balance elevated logistics costs with rapid product turnover.
Another critical question with regard to logistics for consumer electronics is: What happens to a product once it reaches the market? A sale is not always the end of responsibility for a company, which is why reverse logistics has become one of the biggest challenges for the consumer electronics industry to date.
After the product makes it to its destination and is sold, the logistics process is not always complete. The product return rate for consumer electronics is between 10 and 20 percent depending on its type. Recent data has shown that 5% of products returned are actually functioning to industry standards. Nonetheless, products returned must be retested, repackaged, and sent back to stores. This makes it no surprise to learn that companies currently spend 8 to 10 percent of their revenue on reverse logistics.
The reverse logistics process is under pressure to turn products around quickly, meaning companies that manage it well and sell more products inside their lifespan will maintain sustained profitability.
The production of consumer electronics is as complicated, if not more, than the operations they can perform. When a consumer electronic product is no longer deemed usable it is very complicated to recycle. The metal alloys are difficult to separate and some chemicals used in production of plastics and screens are near impossible to extract.
One notable company making a thorough effort to encourage consumers to recycle their old devices is Apple, who started buying back old products in exchange for Apple gift cards for those that participate in their recycling program.
As the recycling of consumer products has increased through the years, companies have had to adapt and develop systems to solve this problem creating a new arm of logistics to recycle one billion pounds of consumer electronics every year.
We hope this consumer electronics logistics overview provides insight into how a strategic approach to logistics can positively impact your bottom line.