LG’s Consumer Driven supply chain

LG Electronics this year celebrates 10 years in Australia with a staggering growth in sales.

As a leader in home electronics technology and innovation, keeping pace has required strategies to maintain control in the midst of expansion.

According to general manager, Logistics Tony Harris this balance is fundamental to the challenge of supply chain efficiency.

“Five years ago LG distributed its products through a number of third party logistics arrangements, involving 25 different t storage facilities, and multiple transport providers,” Harris explains.

“Our growth may have been possible with this network, but LG needed more direct control to provide the excellence in customer service required to increase sales at the projected rate, and give LG the competitive edge in distribution.”

LG believes reliability is the key to a successful supply chain.

“As customer demands become greater, accuracy is paramount,” Harris says.

“When you must deliver a product on time to where it’s required, misdirected or lost freight is just no good.”

To solve the problem, LG changed its philosophy on supply chain structure.

“We consolidated our operations into state based Distribution Centers, custom designed for the range of products being handled,” Harris says.

“Constructed with contingencies for predicted growth, the DCs combine the latest innovations in space utilisation, materials handling equipment, racking for improved storage density, computer controlled order picking and shipping, with the right staffing to bring these elements together.”

By investing in state based DCs, LG’s proportion of locally delivered, cost effective freight handling reflects the overall pattern of consumer demand.

“Australia’s population is mostly coastal, focused in the major capital cities,” Harris observes.

“The best way to service this market is locally. LG delivers directly from overseas into these capitals, minimising import costs and avoiding long haul freight distribution where possible.”

In addition, LG decided on a strategy involving just two transport partners, Allied Express and TNT.

“Our new providers were able to demonstrate the ability to handle business growth, a national presence and a willingness to work with LG for mutual success,” Harris says.

“One company now handles our local metropolitan deliveries and the other, our regional and interstate requirements.”

According to Tony Harris, one of LG’s strengths is its ability to pick suppliers with shared and common goals.

“This is particularly true of the suppliers of goods and services to the LG Supply Chain department in Australia,” he says.

“From the LG factories overseas using global partners to handle inbound shipments, through to the final delivery of product into a consumer’s house by our local Home Delivery team, each link in the supply chain is equally important.”

“It has been critically important to make the selection process as rigorous as possible, ensuring only the suppliers with the highest standards are considered partners.”

“Once an agreement is reached, working with our partners towards delivering exceptional service becomes a commitment from both parties.”

“Only by having an on-going dialogue of an open and frank nature, can both parties benefit. It’s essential that both parties agree on the direction of continued improvement as the only way to stay ahead of the competition,” Harris says.

As a company with market leadership across various segments, LG sees forecasting as one of the building blocks for success.

“The key to this is to start with the consumer,” Harris says.

“LG always asks, ‘What is the consumer demanding?’ Is it more innovation? More variety? More energy conservation or more of the same?

“By researching these needs we aim to help retailers provide customers with what they want when they want it.”

As with partnering in the supply chain, working with our dealers through the sales channel is the way to supply the right product to market at the right time.

“Simple things like supplying televisions and DVD recorders before major sporting events and air-conditioning units in summer form part of the demand forecast picture, but so does the pattern of consumer spending leading up to events like Christmas,” Harris explains.

“LG converts the views of our dealers on consumer demand into hard product requirements to be manufactured and delivered.”

“LG has a commitment to continue improving the area of Demand Management, an essential tool in ensuring that LG leads the way in distribution service levels,” Harris adds.

According to Harris, supply chain distribution has embraced many changes over the past 10 years.

“The use of barcodes for identification, computers and software capable of taking scanned information and updating in real time, equipment capable of measuring, sorting and distributing freight without human intervention are all examples of technology that’s available and commonplace today,” he says

“The future will see further refinements and increased automation of materials handling processes.”

In its infancy, Tony Harris says Radio Frequency Identification may be the future of identification for Logistics once the investment required for the technology is reduced and it becomes more widely adopted.

“RFID may provide the reliability required to overcome mis-labeled, mis-directed freight,” he predicts.

Together with the University of Wollongong, its freight partners, and leading logistics consultancy, Logiworx, LG will shortly embark on an RFID Research Project.

“The project will consider all aspects of the supply chain, to identify areas where the application of RFID technology would create efficiencies in both reduced cost and improved service levels — another initiative LG is taking in order to stay ahead in distribution,” Harris says.

“Computers that can handle enormous amounts of data are also going to increase a company’s ability to react to change,” Harris says.

“By having a single source of information and controlling data input, responding to a change in the demand forecast in one part of the world and rolling it up as a global sales forecast outlook will become the norm.”

“Decisions about how a demand forecast will be met and ultimately delivered will be made more quickly,” he says.

With competitors always on the lookout for more market share, Tony Harris says LG aims to stay one step ahead of industry trends that keep customers and consumers coming back.

Such trends as moves towards saving space and conservation have led to the emergence of plasma and LCD televisions replacing the larger “tube” TVs and products across LG’s range that perform well in energy and water consumption.

“Consumers’ needs drive LG to continuously come up with new products, keeping pace with technology and innovation, and this places demand on other parts of the business,” Harris says.

“We can no longer store large quantities of basic models in the warehouse; the supply chain must be adaptable to change.”

In order to control the introduction of new models and phase out the old, LG has built-in adaptability in storage and materials handling equipment able to meet such changing demand.”

From a distribution perspective, LG has developed a Home Delivery service for a range of products, including refrigerators and washing machines.

“Additionally, we are currently reviewing LG’s distribution model, together with its freight partners, with the aim of delivering over 90 per cent of its products direct to customers from LG Distribution Centres.”

Tony Harris says LG has steadily built its reputation as the number one supplier through its strategy of taking direct control of the warehousing and distribution of its products.

“We have partnered with two of the biggest and best names in the transport industry in Australia to deliver on our promise of on time delivery, in full and in perfect condition to our customers.”

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