TomTom leverages logistics outsourcing partners to meet increasing demand
By David Hannon -- Purchasing, 12/11/2008 7:00:00 AM
Consumer electronics upstart TomTom is in a unique position. As one of the primary players in a market—the personal navigation device market—that saw 400% growth in 2007, TomTom reported a sales increase of 579% in 2007. While those are the kind of numbers that make sales and marketing executives downright giddy, they're also the kind of numbers that can give the vice president of operations nightmares.
But not so for Steve Schad, the man who holds that title at TomTom's U.S. division in Concord, Mass. and has overall responsibility for the company's supply chain processes in the U.S. Despite the head-spinning growth TomTom has seen, Schad has kept TomTom's supply chain humming along through a combination of flexible processes and strategic outsourcing.
Schad tells Purchasing that TomTom is heavily outsourced in its manufacturing and kitting operations and its "primary strategy is to build a flexible sourcing model with our partners. We need flexibility in our delivery model, which we get from our partner providers."
To that end, the "raw product" for TomTom's personal navigation devices is manufactured at one of several contract manufacturing firms in Asia based on TomTom's specifications. That outsourced manufacturing model has been one of the keys that has allowed the company to scale up more effectively to meet that massive growth in customer demand. Rather than build a new factory, TomTom only has to contract with a new provider that can manufacture to its specs.
For the product destined for sale in the U.S. TomTom's supply chain team manages the transportation of the products from overseas to a kitting operation in Texas, which is run by TomTom's third-party logistics provider, ATC Logistics and Electronics.
"ATC receives the product in Texas and puts it into their inventory," says Schad. "We schedule them to build the final product based on our orders and commitments. They do the fulfillment for us and schedule the domestic freight forwarders from our list." ATC is also responsible for the returns management, which includes running a refurbishment center for TomTom at its Texas site.
"Because we are heavily outsourced, our contract manufacturers and 3PL providers are much more than just vendors to us," says Schad. "They are true partners, particularly with ATC."
Having ATC package the product and handle final fulfillment not only allows customization of the devices closer to the end-user, but has also reduced overall logistics costs. In its previous model, TomTom would have the contract manufacturers in Asia package the product and put them on pallets for shipping. But because of ATC's logistic industry expertise, there are now five times more finished products put on each pallet, which dramatically reduces the freight expenses and allows for more products to get out the door at once.
With such important functions being handled by a 3PL, TomTom took extra care in selecting the right provider and continues to track the provider's performance to ensure its work measures up. Schad says in 2006, TomTom went through an extensive RFQ process evaluating a long list of 3PLs with electronics industry experience based on price, quality and delivery. And while ATC won the bid, it's never able to rest on its laurels.
"We constantly benchmark [the 3PL's performance] within the industry to make sure things are moving at the rate we think they should be," Schad says. TomTom receives key performance indicators daily on ATC's inbound, outbound and reverse logistics work. "I know on a daily basis, what they fulfilled, their delivery rate, their accuracy rate, what their quality standards are." TomTom also receives feedback directly from retailers on delivery performance.
But Schad says what he values most in a 3PL may not show up on a list of metrics. "I've managed multiple 3PLs in my career and I have to say the biggest asset is listening and confirming your expectations so they can be sure to meet them. So buyers should sure their 3PL understands their demands or they won't deliver on them."
While the future demand in consumer electronics is particularly foggy right now, Schad says TomTom's current model lends itself to expansion for long-term growth. "Once you reach a certain level you need to review the landscape," he says. "For example, right now we have one warehouse and depending on growth, we will likely review our network. It's a tradeoff between transportation costs and inventory costs to decide what kind of network is most efficient."
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