Arvato SCM Solutions #TechOnTrack #no3

What’s Next for Value-Added Services in Consumer Electronics?

Customers buying consumer electronics (CE) have high expectations. When they are ready to buy, they expect the product to be readily available, at the right price and with specifications that are very close to the individual perceives as optimal. If your company can’t satisfy the customer, your competition will. To succeed in this difficult and competitive market, CE brands must develop highly responsive supply chains.

Value-Added Services Drive Competitive Advantage

“Value-added services” (VAS) sounds rather bland. To people not familiar with VAS, the term sounds like corporate jargon. However, VAS may very well be the competitive advantage your company is looking for. Value-added services enable CE brands to be more responsive to their customers.

For many CE brands, their manufacturing facilities are far away from their end customer [i.e. China or Southeast Asia]. This creates a big problem, because ideally, the manufacturing team would like to produce standardized and large-scale products at a minimal cost per unit. The challenge is that the time and distance between the manufacturing facility and the customer just doesn’t work, plus there are usually too many SKUs and too many product derivatives needed to satisfy the demand. Of course, the customer still wants their gear when they want it and it may require customization.

This is where smart CE brands gain a competitive advantage: by partnering with a 3PL that can provide value-added services like postponement, customization, product kitting and bundling close to the customer. Since the 3PL is located regionally or locally, they can bridge the time and distance gap between the manufacturing facility and the customer.

Value-added services are any kind of alteration to a product, its packaging, its presentation or of the shipment itself. The right 3PL will provide the VAS closer to your customer and become an extension of your supply chain team – enabling the OEM to better react to real-time changes in demand.

The Trade-off Between Product Availability and the Cost of Capital

A company’s strategy and the market where it operates determine the level and extent of value-added services required. If quick and ready product availability is valuable to the customer, then a consumer electronics brand may choose to carry additional inventory close to the customer for example with regional warehouses. The additional inventory will increase the cost of capital, however, if the customer’s buying choices are emotional and impulsive; then the cost of extra inventory may be justified. Obviously, wise consumer electronics brands will only invest in products and initiatives that provide returns that exceed the cost of capital.

When considering their VAS strategy, CE brand managers must first determine the importance of product derivatives to reaching sales targets. If product derivatives are a key to reaching sales targets, substantial VAS capabilities of the 3PL or fulfillment partner become mandatory.

Unfortunately, it is not so easy as there are numerous other aspects CE brands need to consider when deciding on their VAS strategy:

  • The market power and the standard operating procedures (SOPs) of the retailers
  • The fight for customers’ attention in brick-and-mortar retail
  • Market-specific regulations, especially in Europe
  • Changes and reduction in time to market for complex products
  • Product diversification and the need for different variants across its lifecycle
  • Potential challenges with the supply base, i.e. quality issues with the product or the need for software updates
  • Diversification of the direct channel and any special variants that may exist, like gift wrapping, thank you cards, etc.

The Future of Value-Added Services in Consumer Electronics (checking my crystal ball)

In recent years, there has been a clear trend in customer expectations toward quick product availability, which means consumer electronics brands have pursued VAS outsourcing strategies to meet the need. The quick and convenient product availability trend along with faster new product introduction cycles, a decrease in customer loyalty, and increased competition means that the trend toward VAS outsourcing will continue. 

That said the VAS and postponement capabilities of your processes and your warehousing partners/3PLs will become even more important. That trend will grow stronger as waste prevention and sustainability becomes more important for CE branding.

Lastly, there are two big questions that remain: Firstly, to what extent the product itself will be personalized in the future or whether the trend for personalization will remain on the accessory level (I believe the latter is more likely). Secondly, the impacts of big data and artificial intelligence on forecasting accuracy (promising, but at least a few years away from implementation).

Let me know your thoughts in the comments below.

#ValueAddedServices #ConsumerElectronics