The Future Electronics Inc. building in Leipzig, Germany, looks modern but fairly conventional from the outside. Inside, though, the future of electronics component distribution is being redefined. While the distribution warehouses that brought electronics manufacturing to the 21st Century were good and capable the industry’s needs have radically changed. Future Electronics’ highly-automated distribution centers in Leipzig and another one in Mississippi were constructed in response to those changes, according to company executives.
Inside the Leipzig facility and at the Memphis Area Distribution Center that predates it by five years in Mississippi, automated equipment, robots and complex data/warehouse management software applications are being used to help the high-tech industry service a global economy accelerating to deploy electronics in manufacturing and other sectors.
Researcher IDC Corp., projects the Internet of Things, (IoT), market will top $7 trillion within the next five to six years, rising sharply from $1.9 trillion in 2013. Components suppliers, OEMs, EMS providers and their support services providers are eager to participate in this growth but they are also in a race to build the robust infrastructure, systems and processes required for the attainment of that dream.
Welcome to the future of distribution as envisaged by Future Electronics. Owner and CEO Robert Miller believes a new generation of mega distribution hubs are needed if the electronics industry supply chain is to play its traditional role of facilitating the next growth spurt for the entire economy. Executives at Future Electronics said Miller charged them more than 10 years ago with putting in place a modern, uniform and global system that could help the company effectively and cost-efficiently serve its suppliers and customers well into the future. That led to the construction of the Mississippi facility. Since then the company has parlayed what it learned from that process into building an even more impressive and highly automated facility in Leipzig, they said.
Future is not done, however. Electronics Purchasing Strategies has learned the company is reviewing options for modernizing its Singapore warehouse and leaning towards building a new distribution center in the country from scratch to service customers in the Asia-Pacific region. It’s a capital intensive goal and one only a handful of distributors can finance. Future Electronics’ two newest warehouses cost the company more than $50 million apiece, with the automation systems taking a chunk of the expenses.
It’s money well spent, however. The company said it is positioning itself to better respond to customer need for faster response and better inventory management. Both facilities are located near the airport hubs of its logistics services providers and in regions where infrastructure support is excellent. They also benefit from having a steady pool of educated workers and the support of the regional governments.
The location of Future’s Leipzig distribution center across from automaker BMW may have been coincidental but it’s clear both companies are pushing the frontiers of technology in their businesses. BMW produces its “green” or electric vehicle in a massive factory on that stretch of the road where it also has several wind turbines that generate the power used at the facilities by the automaker.
Future Electronics’ plant is as equally impressive, if not more so. At its core is a massive “dark warehouse” where 8 meters high robots zip up and down, performing the delicate tasks of storing, picking and tagging components for shipment to customers in Europe, the Middle East, Africa and other global locations. Loaded with sensors and programmed to near-perfect accuracy, the robots whirr and purr in total darkness – punctuated only by the occasional blinking light – in what can only be best described as a mesh of synchronized races to pick up crates of components that are swiftly sent on conveyor lines to stations manned by employees.
The distribution center employees work with the same quiet efficiency as their robotic colleagues, scanning, packing, and conducting quality checks on components being readied for pick up by transportation services providers later in the day. Most components shipped from Leipzig reach customers in the Europe, Middle East and Africa (EMEA) region within 24 to 48 hours.
Lindsley Ruth, Executive VP, Future Electronics Inc.
The decision to spend more than $100 million on two new warehouses and other capital intensive plans, including the hiring of additional employees that could result in a doubling of investments in Europe and other global regions, is a demonstration of Miller’s commitment to assuring customers are well served, according to Lindsley Ruth, executive VP, at Future Electronics. Other executives interviewed during visits to both the Mississippi and Leipzig distribution centers stress the company is a services and customer support enterprise that just happens to be in the electronics components business. Excellence in service is Future’s hallmark, they say, noting all executives and team members are measured on their ability to ensure customers and suppliers are well served.
That ideal and a firm commitment to its “realization, 100 percent of the time”, as Ruth puts it, is obvious at the company’s distribution centers. The three locations are the central hubs for shipment to Future Electronics’ customers in North and South America, EMEA and Asia. But while each may have responsibility for separate regions customers can be serviced from any of these centers depending upon the availability of products and how quickly these can be shipped to buyers, said Bernard Betts, vice president of worldwide distribution operations.
In the last two months Future Electronics provided EPS unprecedented access to the two facilities in Memphis – built about 10 years ago – and the five years old facility on BMW Allee, opposite the automotive manufacturer’s extensive industrial zone, in Leipzig, the bustling city of the equally fast-growing province of Saxony. The two locations were selected following huge concessions from state or provincial government authorities, which supported the plan because of the additional jobs the components distributor expected to create in the areas.
Other factors were also significant to Future’s decision on where to site the facilities. The company said it wanted locations where the services and efficiencies promised customers could more easily be provided. Achieving these goals meant each location considered must have the necessary road and other transportation infrastructure as well as a competitive and well-trained labor pool it can draw upon.
The U.S. facility, for example, is located minutes away from Memphis airport, a major hub for UPS, one of Future’s strategic logistics partner. Leipzig, one of several European locations considered by Future, clinched the deal due to the support of the Saxony government, its highly-trained labor pool and a decision by DHL to expand its hub in the area at just about the same time the components distributor was weighing its options, according to Betts.
Bernard Betts, Vice President, Worldwide Distribution Operations, Future Electronics
“Being located close to our logistics partners’ hubs is important because our goal is to make our products available to sell as quickly as possible when they get to the warehouse and get them to the customers as and when they need it,” Betts said. “That’s why the transportation management system is central to our operation because it helps us meet the goal of getting components to customers quickly rather than the warehouse management system, which focuses on inventory stocking rather than optimal delivery.”
The Future Beckons
Unlike in the early days of the electronics industry a distribution center today must offer more than just the right location, however. The distribution industry is highly cost-sensitive and providing the value-added services OEM and EMS customers expect today – quality assurance, counterfeit protection, compliance with environmental, export and other regulatory requirements, for example – is forcing companies like Future Electronics to introduce innovative systems that can help them remain competitive while meeting high service commitments to customers, executives said.
Automation is one such avenue for assuring efficiency, they noted, hence Future’s focus on increasing the level of innovation at its plants. Rather than layer on new methods into its old plants, CEO Miller decided years ago to instead build new facilities from scratch. The first to be constructed was the Memphis plant, which today services the Americas region. The company applied the lessons learned from its Memphis experience when constructing the Leipzig facility, said Lothar Hüther, maintenance/IT manager, at the unit.
Lothar Hüther, Maintenance/IT Manager, Future Electronics Leipzig Distribution Center
Hüther, one of the first employees recruited by Future Electronics for the Leipzig distribution center, said the company ensured it built redundancy into virtually all operations and equipment at the site as part of its commitment to assure continuation of service. There are even back-ups for back-up equipment, Hüther said. Furthermore, each of the three Future distribution centers can serve as back-up support centers for the others in the event of any major regional disruptions, according to Betts.
Getting a distribution hub up and running takes time, however. Betts estimates it took between 18 months and two years for each facility to become operational once construction began, he said. That’s because Future Electronics spends a considerable amount of time and resources to ensure each facility is prepared to hit the ground running. The preparations can be costly for the company, however, since they include retraining for existing employees and new hires.
In the case of the Memphis facility, the company offered generous relocation terms to employees at its old Massachusetts plant, which it closed once the new warehouse became operational. Meanwhile, all the employees initially hired for the Leipzig facility were first sent to Memphis for extended training before the location became operational, Betts said.
That tradition continued when Sean Duncan, director of distribution operations, EMEA, took over as head of the Leipzig facility. Duncan, an operations expert who crossed over to Future Electronics after more than 15 years with one of the world’s biggest logistics companies, initially spent one month at the U.S. facility, working at every station and shadowing the center’s manager. This wasn’t just to ensure the employees can perform their tasks efficiently, though. Executives said Future wanted to establish worldwide operating standards for service and efficiency at all its distribution centers and believed it was essential for managers to embrace the same rules, principles and practices.
That inter-unit communication was evident during a recent visit to the Leipzig facility. Duncan started by meeting section managers and team leaders who each gave an assessment of current operating status for their units as well as plans for the day. Each manager was also encouraged to raise questions and highlight areas where the unit might need help perhaps due to variations in order patterns or any other issues. Other teams would be immediately assigned to pitch in where necessary to relieve bottlenecks, Duncan said.
“We don’t want problems to fester,” Duncan said. “We don’t have departmental silos. Our goal is to make sure the customer gets serviced no matter what. Problems are quickly evaluated and resources shifted to address them. We are a team here and everywhere. That’s what our customers expect.”
The drive for all units of the company to operate as one is coming from the very top at Future Electronics, insists executive VP Ruth. Since Future is a private company it can afford to take a longer-term view with its decisions and Miller, the owner, expects employees to put customer service at the heart of their actions, he said. “This means we can do things public companies can’t do,” Ruth said. “We can invest millions in new distribution centers, for example, and build redundancies into everything we do because we know these will benefit the customers.”
In a coming report Electronics Purchasing Strategies will publish excerpts of an interview with Lindsley Ruth about Future Electronics global initiatives, including the company’s growth plans for North America, Europe and Asia.
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