Executive Briefings

SPECIAL ISSUE: GLOBAL SUPPLY CHAIN PARTNERSHIPS

Netgear Inc.: Unhappy Customers Spur Change In Global Distribution Network

When you're getting daily customer complaints about shipments not showing up on time, it's a sure sign of the need for change.

That was the situation for Santa Clara, Calif.-based Netgear Inc. The seller of adapters, switches, routers and other types of networking equipment to homes and small offices was facing a quality problem in its supply chain. It needed to reduce transit times, boost the reliability of deliveries and gain better control over inventories. The answer, says Brian McGinnis, director of supply-chain management, lay in a change of logistics provider.

Formed in 1996, Netgear today sells to a global marketplace. Most subassemblies and finished goods are made in southern China and Taiwan with the aid of outside design manufacturers (ODMs). From there, they are shipped to one of three Netgear distribution centers around the world - in Southern California for the North American market, the Netherlands for Europe and the Middle East, and Hong Kong for Southeast Asia. Netgear's revenues in 2000 were $187.7m.

Netgear had two separate needs: a reliable ocean-shipping partner, and a distribution center manager. It found both in Singapore-based APL Ltd.

McGinnis had used APL's trans-Pacific liner service during the 20 years he was with Digital Equipment Corp. and Logitech, both of which made sensitive high-tech items. "It was a very reliable product," he says of the ocean carrier. At the same time, Netgear was talking to Jacksonville, Fla.-based GATX Logistics about taking over distribution and warehousing duties.

Coincidentally, APL was then in the process of acquiring GATX. The move pleased McGinnis, who preferred dealing with one provider, as long as it could handle both tasks.

As an ocean carrier, APL works with Netgear's Asian suppliers on bookings and local drayage arrangements. It then provides liner services to the U.S., Europe and elsewhere in Asia. The shipments move under a single global contract, giving Netgear a better deal on rates through the combining of volumes. The company spends about $50,000 a month on global transportation, according to Jeanette Lingle, global logistics manager for Netgear.

For shipments to U.S. customers, APL carries Netgear's product into the Southern California port of Long Beach. The containers then move to an APL-run distribution center in the nearby city of Walnut.

There, APL receives purchase orders directly from Netgear, transferring the data into its own order-management system. APL picks and packs the appropriate items from stock and ships them out to customers, usually via truck.

Netgear can monitor the progress of shipments through APL's Net Track software, even when the items have passed out of the vendor's hands. Netgear, which also has use of APL's Homeport web site for tracking, receives weekly reports on the availability of product by region, vessel and SKU, says Lingle. A newer and more sophisticated APL product, dubbed See Change, links Netgear to all of its vendors, following the progress of inbound goods by SKU, purchase order or container number.

About $12m of Netgear product moves out of the Walnut DC each month, says McGinnis. Inventory turns approximately 12 times a year, with most items sitting for less than a week. "It's such a competitive marketplace," McGinnis says. "If you keep additional inventory, you risk not being able to take advantage of cost reductions by your suppliers as fast."

Of course, too little inventory raises the risk of stockouts. To avoid that, Netgear needs reliable delivery. McGinnis says APL was the only carrier willing to provide delivery commitments. As Netgear came to trust that shipments would arrive on time, it was able to reduce the purchase of costly expedited services. In the past, such practices might cause product to arrive before it was requested, McGinnis says.

Netgear got even more personal attention from APL when the vendor combined all of its services on the customer's behalf under its new Global Logistics Solutions (GLS) group. That meant Netgear was dealing with a single APL point of contact, says GLS vice president Chris Liberty. And it bolstered APL's ability to trim costs anywhere in Netgear's global supply chain.

McGinnis says Netgear has seen a "significant improvement" in customer satisfaction since hiring APL. "We've gone from daily complaints to virtually no complaints." APL's data systems give the company total visibility of product on hand. Inventory accuracy stands at 99.99 percent, he says.

APL is now lobbying Netgear for permission to take on the fulfillment of product ordered over the internet. Liberty argues that the process could be handled from the same centralized warehouse that feeds Netgear's other distribution channels.

McGinnis is willing to listen, but he's noncommittal for now. "We don't intend to lower the bar, if they choose to perform an integrated solution," he says. "We insist they perform both parts equally well. Otherwise it could threaten the whole relationship."

When you're getting daily customer complaints about shipments not showing up on time, it's a sure sign of the need for change.

That was the situation for Santa Clara, Calif.-based Netgear Inc. The seller of adapters, switches, routers and other types of networking equipment to homes and small offices was facing a quality problem in its supply chain. It needed to reduce transit times, boost the reliability of deliveries and gain better control over inventories. The answer, says Brian McGinnis, director of supply-chain management, lay in a change of logistics provider.

Formed in 1996, Netgear today sells to a global marketplace. Most subassemblies and finished goods are made in southern China and Taiwan with the aid of outside design manufacturers (ODMs). From there, they are shipped to one of three Netgear distribution centers around the world - in Southern California for the North American market, the Netherlands for Europe and the Middle East, and Hong Kong for Southeast Asia. Netgear's revenues in 2000 were $187.7m.

Netgear had two separate needs: a reliable ocean-shipping partner, and a distribution center manager. It found both in Singapore-based APL Ltd.

McGinnis had used APL's trans-Pacific liner service during the 20 years he was with Digital Equipment Corp. and Logitech, both of which made sensitive high-tech items. "It was a very reliable product," he says of the ocean carrier. At the same time, Netgear was talking to Jacksonville, Fla.-based GATX Logistics about taking over distribution and warehousing duties.

Coincidentally, APL was then in the process of acquiring GATX. The move pleased McGinnis, who preferred dealing with one provider, as long as it could handle both tasks.

As an ocean carrier, APL works with Netgear's Asian suppliers on bookings and local drayage arrangements. It then provides liner services to the U.S., Europe and elsewhere in Asia. The shipments move under a single global contract, giving Netgear a better deal on rates through the combining of volumes. The company spends about $50,000 a month on global transportation, according to Jeanette Lingle, global logistics manager for Netgear.

For shipments to U.S. customers, APL carries Netgear's product into the Southern California port of Long Beach. The containers then move to an APL-run distribution center in the nearby city of Walnut.

There, APL receives purchase orders directly from Netgear, transferring the data into its own order-management system. APL picks and packs the appropriate items from stock and ships them out to customers, usually via truck.

Netgear can monitor the progress of shipments through APL's Net Track software, even when the items have passed out of the vendor's hands. Netgear, which also has use of APL's Homeport web site for tracking, receives weekly reports on the availability of product by region, vessel and SKU, says Lingle. A newer and more sophisticated APL product, dubbed See Change, links Netgear to all of its vendors, following the progress of inbound goods by SKU, purchase order or container number.

About $12m of Netgear product moves out of the Walnut DC each month, says McGinnis. Inventory turns approximately 12 times a year, with most items sitting for less than a week. "It's such a competitive marketplace," McGinnis says. "If you keep additional inventory, you risk not being able to take advantage of cost reductions by your suppliers as fast."

Of course, too little inventory raises the risk of stockouts. To avoid that, Netgear needs reliable delivery. McGinnis says APL was the only carrier willing to provide delivery commitments. As Netgear came to trust that shipments would arrive on time, it was able to reduce the purchase of costly expedited services. In the past, such practices might cause product to arrive before it was requested, McGinnis says.

Netgear got even more personal attention from APL when the vendor combined all of its services on the customer's behalf under its new Global Logistics Solutions (GLS) group. That meant Netgear was dealing with a single APL point of contact, says GLS vice president Chris Liberty. And it bolstered APL's ability to trim costs anywhere in Netgear's global supply chain.

McGinnis says Netgear has seen a "significant improvement" in customer satisfaction since hiring APL. "We've gone from daily complaints to virtually no complaints." APL's data systems give the company total visibility of product on hand. Inventory accuracy stands at 99.99 percent, he says.

APL is now lobbying Netgear for permission to take on the fulfillment of product ordered over the internet. Liberty argues that the process could be handled from the same centralized warehouse that feeds Netgear's other distribution channels.

McGinnis is willing to listen, but he's noncommittal for now. "We don't intend to lower the bar, if they choose to perform an integrated solution," he says. "We insist they perform both parts equally well. Otherwise it could threaten the whole relationship."