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December 2014 • SMT Magazine 33 THE ESSEnTiAl pionEEr'S SurvivAl guiDE THe FUTUre OF SmT: WeLcOme TO THe 4 TH dImeNSION continues always offer an alternative, especially if a good deal is to be had, so sales opportunities for the intended product are lost. With so many products in the distribution chain, there is a high risk of depreciation in the value of the products. Toward the end of life, or whenever a major new product comes into the market from a competitor, the value of all of the products in the distribution chain can collapse. There are many cases where products such as mobile handset units, because of the short lifespan of each model, have depreciated to the level where no profit could be made, or worse. Pressure has been to reduce the size of the distribution chain in recent years, reduc- ing both the time that it takes to ship products to their final destinations and the stock levels at each stage. In the case of at least one key mobile handset manufacturer, a fac- tory in China was purpose- fully located near an airport. The finished goods come off the production line and are al- most immediately air-shipped to the end customers. The cost of air freight was more than justified by the avoidance of depreciation issues and other costs associated with the tra- ditional distribution chain. This is no longer a one-off ex- ample, and it is no longer even under the control of the manu- facturing company. Common consumer items, such as the lat- est designs of LED light bulbs, are now available through Internet shopping sites such as Ama- zon, eBay, or Alibaba, sourced directly from China at a fraction of the cost of those coming to the United Kingdom through a regular distri- bution chain. Entrepreneurs create small com- panies, each with some arrangement for sourc- ing local new and exciting technology, and more recently pretty much any other product that comes along. Even figuring in the cost of direct shipping by air for individual items will not raise the price close to the price otherwise sought in the United Kingdom. Shipping by land or sea makes direct purchase even cheaper, if the customer is prepared to wait. effects on the Factory The reduction of the distribution chain is limited by having factories based in locations remote to the market that they serve, which forces companies to either accept the cost of direct shipment, or, face the consequences of the regular distribution system, with perhaps a reduced number of stages and a lower quantity of stock maintained at each. Whether the company is manufacturing its own prod- ucts as an OEM, or as an EMS provider, the shorter the dis- tribution chain from factory to the customer, the fewer the quantity of products acting as a buffer for short-term chang- es in customer demand. This in turn brings a higher risk and incidence to the factory in receiving sudden changes of delivery schedules. The factory then has two choices. It can augment the dwindled distribution chain stock by holding greater quantities of products as fin- ished goods on site, allowing factory schedules and op- eration styles to remain un- changed, but increasing the cost of stock including the effects of de- preciation. The alternative is to create a factory operation that is more directly responsive to the changing delivery demand. This has to be implemented, however, without any reduction in capacity or productivity. It requires a whole new style of factory operation. bringing manufacturing Home— The Theory The enticement is that if the factory opera- tion can be changed in this way, then a mini- mal distribution chain is required. Elimination In the case of at least one key mobile handset manufacturer, a factory in China was purposefully located near an airport. The finished goods come off the production line and are almost immedi- ately air-shipped to the end customers. The cost of air freight was more than justified by the avoidance of depreciation issues and other costs associated with the tradi- tional distribution chain. " "