Logitech's Global Distribution and Logistics Analysis

Chapter 1. Company Introduction Logitech is a world leader in personal peripherals, driving innovation in PC navigation, Internet communications, digital music, home-entertainment control, gaming and wireless devices (PriceGrabber. com 2007). The company’s products combine essential core technologies, continuing innovation, award-winning industrial design and excellent price performance. Logitech International is a Swiss public company traded on the SWX Swiss Exchange under the symbol LOGN and on the Nasdaq Global Select Market under the symbol LOGI. In January 2007, Logitech was added to the NASDAQ-100 Index® (Logitech 2008).

Logitech’s origins lie in the OEM sector, which remains an important part of its business, and represented 11. 6 percent of the company’s total sales in Fiscal 2006 (PriceGrabber. com 2007). To meet the demands of its OEM customer base, which includes most of the world’s largest PC manufacturers, Logitech offers high-volume manufacturing with focused quality control, worldwide distribution and logistics, and the ability to leverage its infrastructure under changing demand conditions. Logitech continues to broaden its product offering and its presence in the retail sector.

This is fueled by a trend among consumers to enhance their basic PC systems with more fully featured personal peripherals that add functionality and cordless freedom to their desktops. They are also purchasing supplementary devices designed for new applications and specific purposes such as gaming, multimedia, or audio and visual communication over the Internet. Further, Logitech’s retail business includes personal peripherals for platforms beyond the PC, such as gaming consoles, portable music players, mobile phones and home-entertainment systems.

Today, Logitech’s retail business accounts for 88.

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4 percent of its revenue (Logitech 2008). To provide the market with a broadening array of best-of-category products, Logitech’s business model calls for supplementing its internal engineering and manufacturing strength with additional products and technologies through a combination of strategic acquisitions and industry partnerships (PriceGrabber. com 2007). Chapter 2. Supply Chain Logitech is sensitive to the trend in IT industry. Customers are always long for updating their PCs accessories and purchasing stylish and personalized IT products.

By this reason, Logitech has put a lots effort in fastening the launch of new products to the market to satisfy the needs and trends. Nevertheless, a well-operating supply chain is the conjunction to the successful achievement. The success of Logitech is to convert a simple and single-product supply chain into a complex and multi-product supply chain under harmlessness to its sales and to fasten the product delivery. However, behind this steady the deployment of its sources efficiently is the key, and Logitech has still insisted this merit. The development of Logitech starts from a simple and inelastic supply chain.

In the beginning of ‘80s, Logitech started running the mouse-manufacturing business. The operation was running excellently with a simple supply chain. The single-product supply chain was supported by its manufactory in Suzhou, China and served the worldwide market. Although it was not efficient, it was enough for Logitech to cope with orders. Nowadays a simple supply chain can’t meet the requirements of Logitech anymore which has developed more and more product lines and has become a multi-product company. In 2005 Logitech have 135 kinds of PCs peripheral products in the market.

Except for manufacturing over 6 million mice in a year, Logitech has also produced numerous peripheral products. In this case, the management of the simple supply chain has been no longer realistic. A more elastic supply chain which is able to deal with the changes of demand and compete against the pressure from competitors is what Logitech needs. Therefore, Logitech addressed itself to build the high visibility of its supplier-web, production and transportation transaction. However, the change resulted in a plentiful harvest. In the 2005 annual report, it shows a +13% growth in net income which reached 1. 93 billion USD. In spite of the markup of fuel and raw materials, the gross profit margin improved from 32% to 34%. The sales volume and net income of 1st quarter in 2005 raised 26% and 19%. This record was the fastest growth among previous 3 years. An elastic supply chain The supply chain of Logitech In the past, Logitech completed all the manufacturing process internally. However, in order to deal with the expansion of the transaction, Logitech started to outsource its manufacturing business, for instance, the acquisition of Labtec in 2001(Logitech 2008) whose products are mostly produced by ODM is one of them.

Presently Logitech has maintained its 50% manufacturing business by it own and has outsourced other 50% to ODM. The emergence of ODM seems to prolong the supply chain. However, it didn’t reduce the performance of the supply chain. Conversely, it helped Logitech expanding its business to many new markets. In order to build a more elastic supply chain, the first step for Logitech is to fasten the reaction of the Suzhou manufactory to the orders. Logitech has founded 6 technology centers in worldwide which locate in Switzerland, U. S. , Canada, Taiwan, and Suzhou, China.

By absorbing the technology forte of each country, the worldwide technology synergy worked very well. However, operating the connection between worldwide technology and the Suzhou basement harmoniously and delivering the products to the points of sale in the world efficiently is a complicated work. Consequently Logitech decided to adopt a diversified supply chain strategy. There are 3 different kinds of consignment patterns: For some heavier products (Ex. amplifiers) they have their own consignment patterns through sea and land transportation. Normal products (Ex. ice) are mainly delivered through sea and land transportation. As to some high-quality products, delivering through air freight is mainly used. Also, all the bulk parts delivered to distribution centers through air/sea freight are assembled locally. Further, to achieve the goal fastening the reaction of the Suzhou manufactory to the orders, Logitech invested a new plant in the Suzhou New District. Compare to the old one, it is bigger, and the arrangement of the product lines is more reasonable. The construction of the new plant is double-decked. Goods are produced in the upper side and stored in the under side.

With this construction, raw materials can be delivered to the right place in a shortest distance. Furthermore, Logitech has used a hybrid manufacturing model to increase flexibility, with high-volume products manufactured using a traditional production line, and lower-volume products manufactured in a cell-line by a core team of specialized staff. Logitech also uses a just-in-time system for components, so approximately 60 percent of all components are delivered on a daily basis. To cooperate with this new system, Logitech applied for a Free Trade Zone in the Suzhou New District.

The purpose is obviously to enable the suppliers to be closer their product lines. Logitech continues to add whole new categories to their product portfolio and to expand their sales channels, increasing their product demand. Their entire supply chain, from manufacturing in China to distribution in more than 100 countries worldwide, has provided Logitech with a significant competitive advantage. Chapter 3. Suppliers In the cooperation with suppliers, speed –up delivering lowers the pressure of storage. In Suzhou, the superior environmental factor increases the competitive advantage of Logitech largely.

With the rapid expansion in the market, Logitech realized that managing the plans of each area centralizedly is getting important. In the past, the data of information and volume-delivery forecasting took long time to collect and couldn’t be updated immediately. Also, due to the seasonal fluctuation of market price, suppliers are hard to progress the forecasting works. However, under the new mechanism, managers of each area and sales teams monitored the actual sales situation together and progressed the forecasting work according to the feedback.

The up-to-date forecast would be reported to global supply chain department and shared the data with suppliers. After receiving the forecast, central procurement department would place orders for all areas. By doing so, Logitech not only shared the latest data with suppliers but also benefit by the bulk purchasing. Furthermore, the on-line sharing movement with suppliers and ODM enabled Logitech’s partners to react from changes immediately. Nevertheless, sharing data by internet isn’t an innovation anymore.

The key of success is building a “Sales and Operation Planning Procedure” and providing the visibility of data by cooperating with suppliers. There are many requirements asked within the contracts from Logitech to suppliers. For example, in most contracts it claims that “Sharing the obligation together”. When supply and demand changes, it is important to clear the obligation up. After improving this weakness, the formulation of supply and demand becomes 75% faster than before. The reflection to customers is also enhanced. In 2006, selling mice in supermarket is one of the developed trends.

This movement was decided by consumer behavior. From the consumer behavior aspect, convenience and easy to reach become main reasons for consumers to purchase the IT products. Selling channels is diversified. Besides hypermarkets, Logitech set up direct stores to display and sell products. Chapter 4. Logistics strategy The OEM, Logitech mice and web cameras are produced in Suzhou, China and sold in U. S. Joy sticks are produced by ODM and sold in Europe. In NorthAmerica and Europe, Logitech set up regional logistics centers in Memphis and Amsterdam.

Doing most of its manufacturing in China, Logitech uses a variety of solutions to handle its logistics needs. They serve customers worldwide in U. S. , Latin America, Europe, Asia, the Middle East and Oceania. Vision into its network comes from an Oracle system under which Logitech runs. For improving customers’ satisfaction further, Logitech has adopted Just-in-time system. The requirement of this ability is to rebuild the information system between Logitech and logistics companies in order to clear off the obstacles of the speed-up. However, adopting Just-in-time system didn’t sacrifice the profit.

Presently, the turnover rate of the stocks yearly reaches 5-6 times, more than previous record 3 times. This achievement was reached from the optimization of the logistics link. First, Logitech evaluated its transportation system. Consider saving the cost, Logitech delivered its products from China across globe through sea transportation which ships merely start from Hong Kong. In the past, the shipping contracts between Logitech and shipping companies were signed as long-term corporations. From 2003 Logitech signed and negotiated its shipping contracts with regional shipping companies annually.

Through the regularly negotiations, Logitech can assure its encasement cost in advance. When facing the fluctuation of global oil price, Logitech can still hold a stable transportation cost. Also, because that Logitech has huge amount of products need to be delivered across globe every year, they always can bargain and get most favorable price from logistics companies. Besides, Logitech delivered some parts to the sales areas in advance and put the last assembling work of some particular products, for example, web camera at the sales areas. These doings have enhanced the flexibility of the supply chain.

Due to the improved efficiency of the transportation system, it is not necessary for Logitech to set up manufactories in some high-cost areas, like North America and Europe. Although having considered setting up manufactories in Mexico and Hungary because of the lower transportation cost, Logitech found considering from the aspect of total cost, the manufacturing cost in China is still half of those countries. From the chart below, a Logitech mouse is sold at $40 in U. S. 8% (20%) was taken by Logitech as corporate costs and profit. Global distributors and retailers take $15 (37. %), and, suppliers take $14 (35%). The rest $3 (7. 5%) is belong to China. This $3 includes salary, power, transportation, and management costs (JRJ. com 2008) A – ELEMENTS OF THE VALUE CHAIN B – COSTS IN VALUE CHAIN AB Assembly in China$3 Parts from suppliers for China$14 Corporate costs + profit$8 Global distributors and retailers$15 Total costs$40 Percentage of retail 100% In Tennnesse, America, Hungary, and the Netherlands, Logitech has also owned warehousing business. In Hungary, Flextronics and DHL have been employed and taken charge of final assembling and managing warehouses.

The agreements that Logitech and these logistics companies made have been re-signed through inviting tenders quarterly. Therefore, these logistics partners would provide the best service to keep this business relationship. However, the managers of warehousing business are assigned by Logitech. This method bases on two considerations: First, it costs too much to outsource logistics suppliers, like UPS or DHL to progress everything. Second, with its own professional experiences Logitech can also reduce the cost of total warehousing management.

Further, Logitech sell products on-line by E-Commerce & Catalogers and have an OEM channel as well (Logitech 2008). The underlying platform supporting Logitech’s channel and supply chain work is a forecasting solution from Click Commerce Inc. Their sales people do a bottom-up forecast, so Logitech can command the detail and holistic information. Among other benefits, channel forecasting allows Logitech to tie its sales demand to supply chain activities in order to shrink inventory (Technology 2003). In order to occupy Chinese market, Logitech has created more and more hannels gradually. In 2007, Zarva and Logitech built a cooperative relationship. Zarva became the whole authorized distributor in China. The content of the cooperation is simple. Logitech expects to spread, market and sell Logitech’s products through national distribution coverage. In the same time, Logitech’s original authorized distributors, like China Digi have superior channel coverages. Therefore, other mouse manufacturers are hard to compete with Logitech in China (ciw. com 2007). Chapter 5. SWOT Analysis Logitech has just seen its 30th consecutive quarter of double digit growth.

This growth, however, could be stunted by increasing competition from Microsoft, its biggest competitor in the mice and keyboards market. StrengthsWeaknesses Strong financial performance High returns Manufacturing capabilities Strong research and developmentDeclining operating margins Dependence on retail segment OpportunitiesThreats Non-PC platforms Growth of computer industry Emerging markets Growing Indian console marketsCompetition from Microsoft Low barrier for entry into core market Counterfeit goods Short product life cycles (More detail information is put in appendix. Chapter 6. Conclusion and recommendations Logitech manages a complicated supply chain with a expanding product lines. For them, here are some recommendations. 1. Make the supply chain more flexible; in order to assure it can expand with the increase of the product lines. In some cases, this would involve the balance between internal manufacturing and outsourcing. 2. Draw the base of the stock turnover period by comparing other companies who have same mode of operating business – manufacture products at some particular areas and sell to the whole world. 3.

Centralize the management of information forecasting and procurement to harvest from batch discount and simplify the purchasing procedure. By doing this better demand formulation and storage reinforcement plan could be formed. Also, it can diminish storage and reduce the ambiguous issue of responsibilities. 4. Go shares the responsibility with the suppliers; do NOT absorb all the logistics costs alone, as well as do NOT fall into the trap of long-term contracts. Long-term contract would hold you back on choosing lower-cost substitute projects. Shipping agreements should be negotiated every one year. 5.

Although costs can be saved by product design and product package, product design should follow the collocation of the supply chain to enable them easier to be packaged and transported. This issue always ignored by most of the companies. 6. Keep updating the information system and evaluate it frequently. It would assure the IT system will not become the obstacle to grow. Chapter 7. References PriceGrabber. com 2007 LOGITECH NOISE CANCELING HEADPHONES [online], http://www. tweaknews. net/reviews/logitech_noise_canceling_headphones/ [Assessed in Apr. 09 2008] Logitech International SA 2008 [online] http://ir. ogitech. com/releasedetail. cfm? ReleaseID=174502 [Assessed in Apr. 09 2008] Datamonitor 2007 [online] http://web. ebscohost. com/ehost/pdf? vid=1=109=3a191d7a-7e0d-4d0b-ba85-2483ea127fc1%40sessionmgr104 [Assessed in APR. 09 2008] JRJ. com 2006 [online] http://finance. jrj. com/news/2006-12-05/000001829203. html [Assessed in Apr. 09 2008] Ciw. com 2007 [online] http://www. ciw. com. cn/ciwepaper/qudao/20071105101319. shtml [Assessed in Apr. 09 2008] Technology 2003 [online] http://web. ebscohost. com/ehost/pdf? vid=1=108=6644df7a-bfd5-4115-858f-8582b47fc1e7%40sessionmgr109 [Assessed in Apr. 09 2008]