What is the difficulty of inventory forecasting? Target the pain points of distributors' digital transformation

In practice, the accuracy of inventory forecasting is difficult to grasp, and can digital supply chains help companies avoid or mitigate the impact of out-of-stock waves?

For nearly a decade, digitalization has been the focus of component distributors, but because of the need to invest a lot of money in digital transformation, and the whole process is still very difficult, many distributors had a wait-and-see attitude to it, the outbreak of the new coronavirus outbreak has changed everyone's concept, and the urgency of digital upgrading has been significantly strengthened.

Today, countries have entered the post-epidemic era, local regions continue to war, Sino-US relations are still in the frost period, the economic downturn and recovery prospects are unclear, but the "digital" heat of the distribution industry remains high. In the second half of 2023, under the premise of enterprises actively promoting digitalization, the semiconductor distribution link faces some difficulties.

The urgency of digital transformation in the industry has increased

As early as 2018, distribution companies in the industry are focusing on digitalization and exploring various digital models. At the time, many distributors believed that "digital transformation is indeed a trend, but it is not something that must be done in the short term." The turning point appeared in 2020, with the global outbreak of the novel coronavirus epidemic, under the strict epidemic prevention policy, manufacturing factories around the country often stopped production, production cuts, cross-border logistics customs clearance closed, transport routes suspended, logistics transit blocked, and distributors' delivery capacity was limited everywhere.

At this time, we found that enterprises that have made digital upgrades have faster resilience and stronger pressure resistance in the face of market fluctuations, and previously determined distribution enterprises began to "throw" money to do digital upgrades. What is the digitalization progress of the distribution industry by the second half of 2023?

Shen Weizhong, President of the United Nations Business and Trade China Region

"Transformation means change, and the purpose of change is to improve the effectiveness and benefits of the organization and thus the sustainability of the business." Shen Weizhong, president of China Business, stressed that digital transformation cannot be separated from enterprise employees and leaders, "employees have to change their work habits to adjust and establish digital thinking, so the support of employees is the ticket for digital transformation." In the process of transformation, enterprises will encounter many variables and blind spots, and the persistence and determination of leaders and fault tolerance are the most important factors in the success or failure of digital upgrading."

In order to deepen the Chinese mainland market and meet the cross-regional supply chain needs of customers, the company began to launch a digital transformation plan in 2015, launched the online service digital platform "Dawei Network" in 2018, and launched the Shenzhen-Dongguan fully automated warehousing system in 2021.

Tu Kejia, CEO of Vide International

Tu Kejia, CEO of Wei De International, analyzed that the biggest difficulties faced by companies in the semiconductor field to do digital upgrades include four points: first, the replacement of old and new systems, many semiconductor companies may use old systems and technologies, and digital upgrades need to be integrated with existing systems, which may bring complex and time-consuming processes; Second, data management and security, the semiconductor industry generates a large amount of data, and managing and protecting this data can be a significant challenge during the digital transformation process; Third, the talent and skills gap. The adoption of digital technology usually requires employees with relevant skills and professional knowledge, and enterprises may face difficulties in recruiting and retaining talents in the field of digital technology. Fourth, cost and investment, implementing digital transformation can require considerable capital investment, especially for small and medium-sized enterprises, funding and resource allocation can be a challenge.

The semiconductor industry has a higher proportion of digital transformation. In the context of "dual carbon", the continuous expansion of the scale of the production end, the full link process of chip production and manufacturing, improve energy utilization efficiency, build a reliable and intelligent supply and demand system, and achieve energy saving and consumption reduction has become particularly important. Only through continuous innovation at the three levels of application, analysis and service can users unlock the value of data using digital technologies more safely and sustainably, and effectively control carbon emissions and cost efficiency. Only by fully meeting the four bright spots of enterprise energy visibility, energy efficiency improvement, cost reduction, decision evaluation and other diversified needs, enabling the full value chain digital transformation of the whole life cycle, can we ensure efficient production operation and stable and high-quality production.

The establishment of an e-commerce platform by Vide International in 2016 is one of the manifestations of digital upgrading. On the basis of digital technologies such as mobile Internet, big data analysis and artificial intelligence, the company has optimized its own supplier system, created a healthy and orderly distribution order, and developed value-added services that are different from peers.

Ming core city founder and CEO Xia Lei

"At present, the biggest difficulty facing the semiconductor industry is that the industry competition continues to intensify and the uncertainty of downstream terminal demand," Moore's Law has led to the continuous innovation of semiconductor products. Xia Lei, founder and CEO of PMING Core City, pointed out that the proportion of digital transformation of component e-commerce enterprises is high, but small and micro enterprises often encounter the problem that general software or tools can not effectively improve the quality and efficiency in the process of digital transformation, and the digital upgrade to "invest" money deployment and implementation will become a burden to enterprises. Therefore, small microelectronics enterprises urgently need products that are closer to the core business needs. Pating core City is focused on small and micro customer groups, SaaS software with modular, customizable characteristics, so customers in the company platform can be selected according to demand.

Today, the rapid development of the Internet of Things, 5G, artificial intelligence technology, component distributors are in a critical period of transformation, only the first to complete the transformation in order to seize the market opportunity. After a company has completed the basic digital upgrade, its supply chain will gradually mature in several stages - from improving departmental collaboration and visualization, achieving end-to-end data visualization within the enterprise, complete and real-time integration of customer needs, to being able to sense and predict supply chain disruptions and demands - as the degree of digitization deepens, these processes will be realized. On the basis of the increasingly mature digital supply chain, the global semiconductor supply chain is more transparent, and the accuracy of inventory forecasting will be improved.

Inventory forecasting accuracy still needs to be further improved

Everybody wants to be able to predict inventory. In theory, a digitally upgraded supply chain can eventually help companies make inventory forecasts. However, in practice, the accuracy of inventory forecasting is difficult to grasp. Most of the companies surveyed have their own forecasting models, but respondents did not tout the accuracy of current inventory forecasting.

Tu Kejia admitted that the accuracy of forecasting tools in the market is not high. The uncertainty of data sources, the complexity of prediction models, and the existence of design errors or biases may all lead to prediction errors. More advance data preprocessing, refinement of prediction levels, establishment of joint prediction models, and regular optimization of model algorithms and parameter selection are needed to improve the accuracy of supply chain prediction. It may be too early to avoid or reduce the tide of stock shortages. But it can provide a general direction.

The problem of supply and demand imbalance such as "out of stock or too much inventory" continues to plague most enterprises in the industry, and the root of the problem is that the upper, middle and lower reaches of the information transmission are not transparent and lack of trust, so that the gap between the predicted numbers and the actual results is too large, and the speed of forecasting model correction is too slow, multiple factors lead to such results. According to Shen Weizhong, the United Nations Congress to "how to improve the accuracy of forecast numbers" as the core to continue to build a perfect demand forecasting mechanism, semiconductor distributors only improve the accuracy of the forecast model, in the case of abnormal supply and demand can as soon as possible with downstream customers or upstream original factory communication and correction data, data get real-time and reasonable correction, in order to promote the sound development of the industry. Supply chain management can exert the maximum efficiency.

Zhenmin Wang, Executive General Manager, Asia Pacific, Sourceability

Zhenmin Wang, Executive general manager of Sourceability Asia Pacific, said that the launch of tools such as Datalynq? has improved the availability of data in the market, making inventory forecasting more and more realistic. "The last wave of chip shortages was an unprecedented event, the result of a domino effect triggered by the spread of the global pandemic, and dramatically changed consumer behavior and manufacturing output. Sourceability believes that the global chip shortage will remind the industry that "future demand may be more unpredictable" and that supply chains need to take more contingency measures to mitigate risks, such as using the event to upgrade predictive analytics tools."

Weidi Zhu, President of e-Alliance Asia Pacific

Traditional methods such as just-in-time production and bulk delivery are outdated, and suppliers, distributors and customers need to have a deeper understanding of each other's production processes to achieve more accurate forecasts, says Victor Chu, president of the company's Asia Pacific operations. "As recently as the last two quarters, there were still some significant supply chain disruptions. Many supplier roles have shifted to manufacturers. At present, about 5% of the company's SKUs still have long lead times, some of which are even 40 to 60 weeks. This requires distributors and customers to reserve a 12-18 month production cycle."

We manage forecasts and reduce supply chain risk by providing inventory forecasting and supply chain solutions to help customers get products quickly during out-of-stock periods. The company uses Logility supply planning software to improve supply planning and shorten lead times.

Xia Lei said that semiconductor upstream and downstream through the digital supply chain to achieve connectivity and ecological collaboration, inventory forecasting accuracy depends on the data model, data volume and algorithms, the higher the transparency of the supply chain, the more mature the big data model, inventory management is more accurate and effective.

The industry is waiting for accurate inventory forecasting tools, but the existing forecasting tools in the market still have limitations. A recent typical example is the chip "chop" event of the vehicle factory in 2020. In the early days of the new coronavirus outbreak, automakers were not optimistic about the demand for cars and cut orders from chip factories. They did not expect the demand for cars to surge against the trend, and eventually, because chips could not meet the demand, the automotive industry experienced a global shortage. Oems have strong financial strength and voice, they do not lack the support of forecasting tools, but they still have not been able to avoid the impact of the lack of core tide.

At present, digitalization has been an irreversible trend, and over-reliance on digitalization also has risks. Once the system that has been digitally upgraded is hacked, it may have a great negative impact on the enterprise. How to ensure the security of digital systems is crucial.

Everyone has their own way of dealing with this. Based on the risk assessment of information security management system (ISMS), UNGA establishes a multi-location backup system, and uses SASE(Secure Access Service Edge) network to establish a global information security system. From the three aspects of data encryption, backup and recovery, and security audit, we improve key strength, do a good job of data preservation/backup, and regularly review and update security policies. We implement a comprehensive cybersecurity strategy to strengthen our digital infrastructure, constantly monitor and evaluate systems for vulnerabilities, and regularly conduct security audits and risk assessments; In order to ensure the security and stability of digital services, PSMC has taken a series of measures to protect information systems and data, including deploying SaaS systems in the cloud and real-time backup of data locally and in the cloud, providing strict encryption and decryption mechanisms and access control for sensitive data, using more secure software technology frameworks, and so on.

With the support of digitalization, the original factory "direct sales" increased

The original semiconductor factory has also built its own online direct sales system through digital upgrading. It may be that the internal logic of some original factories to do direct marketing platforms is to further enhance their industry influence, rather than necessarily to completely remove the distribution link. But for component distributors, this new attempt also serves as a wake-up call, and everyone may worry that as the direct sales of the original factory become bigger and bigger, the future will pose a threat to the business of distributors. This also forces distributors to explore in all aspects, hoping to maintain their advantages as much as possible. How to view the relationship between "digital transformation" and "direct sales" and "distribution"?

Digital transformation is not only the digitization of the internal value chain of the enterprise, but also the digitization of the entire ecology in which the enterprise is embedded. Tu Kejia said that in the standardized management of the distribution market, digital transformation can help distributors reduce business operating costs, improve operational efficiency, and achieve transformation. Make the channel system flat and promote the collaborative transformation of the industry. From the digitalization of transactions, the digitalization of empowerment, the digitalization of services, and then the digitalization of organizations, so as to establish a perfect system to achieve complementary advantages and interoperability, it can be said that digital transformation is a sustainable road for the "direct selling" and "distribution" industry.

Wang Zhenmin also mentioned the ecological content: "Semiconductor buyers, distributors and manufacturers constitute a relatively complex ecosystem. The relationship between the original factory and the distributor can be a competitor or a partner. For example, Sourcengine?, an e-commerce marketplace platform from Sourceability?, enables professional buyers and engineers to achieve one-stop sourcing, negotiation and trading, as well as helping original manufacturers expand their distribution channels for components. Some people think that the digital transformation of original factories will cannibalize the business of distributors, but Sourceability? disagrees."

When players in the industry are investing in technology and actively upgrading platforms and data tools, it is a good thing for the entire industry. In this way, customers will be given more options and options, and distributors will be able to obtain more data and analysis results. For distributors, value enhancement is not just about providing components and purchasing options; the truly unique value enhancement opportunity is in providing digital services and data analysis tools to help customers improve the procurement process and digitize the supply chain.

"Semiconductor manufacturers do direct sales in order to collect more accurate market demand data, help to grasp more timely and real user information, but also to provide some help for the next research and development trend." Component distributors have their own advantages in capital, product promotion, technical support, customer service, warehousing and logistics, and the relationship with the original factory is win-win cooperation. Specializing in the field and focusing on the core business is the foundation of every company. The core business of semiconductor original factories is products, and the core business of component distributors is supporting services such as technology, capital, warehousing and logistics and customer service in the circulation process, "Xia said.

Suppliers hope to expand their influence through various channels of distributors. Increasingly complex product categories, fast product cycles, cost-saving considerations and access to expert support are all reasons why suppliers rely more on distributors. "Having a high-quality service distributor model allows us to fill most orders through inventory, and investing in the breadth and depth of inventory ensures we can continue to support our customers," says Mr Zhu.

In the process of exploring digitalization in the original factory, there is not only the B-end mode of building a one-stop procurement platform, but also the mode of opening a store on C-end e-commerce platforms such as Taobao and Jingdong. Around 2018, there were a number of semiconductor original factories clustered into the Tmall store, and this time we also discussed the topic.

The procurement of electronic components not only requires flexible business capabilities, but also needs to master the professional basic knowledge of electronic components, such as classification, model identification, use, commonly used brands and their regions. Zhu Weidi firmly believes that the advantage of the B-end model is that distributors can provide customers with technical support, online advice and customer service, and on this basis, e-Meng also provides customers with value-added services such as supply chain management, supporting solutions, dedicated inventory plans, packaging solutions and customized components.

Xia Lei believes that semiconductor original factories crowded into Tmall stores, more consideration is to pay for brand promotion and publicity. The user volume of the B side and the C side is not an order of magnitude, the users of the component e-commerce are more than 3 million electronic enterprises, and the number of users of the C side e-commerce can reach hundreds of millions of levels. He stressed: "PMING core city is a B to B platform for the field of electronic parts, platform users are also accurate demand side of the industry, welcome the original factory to enter Pming core city, we can let users directly contact the original factory, but also for the original factory to provide accurate demand and higher conversion rate of users."

Tukejia summarized three differences between the B end and the C end:

First, the audience is different. The main target audience of B-end digitalization is other enterprises or institutions, aiming to optimize the supply chain, improve production efficiency, reduce costs, etc. The C-end digitalization mainly serves the end consumer, with the purpose of providing a better shopping experience and enhancing user participation.

Second, the decision-making process is different. In B-end digitalization, purchase decisions usually need to be involved through multiple decision levels, and more business interests and long-term cooperation need to be considered. The decision-making process of C-end digitalization is relatively simple, usually a personal purchase decision, and pays more attention to the user's experience and needs.

Finally, because of the different groups and decision-making costs, the marketing strategy focus of the B end and the C end is also different. B-end digital marketing strategies are typically more professional, pragmatic, and emphasize the value of the solution. C-end digital is more focused on marketing in terms of emotion, brand and user experience.

He also added: "The original factory entered the e-commerce platform, it is more or less influential for us." First of all, the price competition, the original factory may need to reduce the price to attract consumers, price inline will affect our profits. Not only that, the brand positioning of the original factory on the e-commerce platform is somewhat overlapping with ours, which may lead to a blurred brand image and affect the perception of our brand by B-side customers."

Brief summary

Of course, the digitalization process of the entire industry is still in its infancy, and some enterprises with financial strength have accessed the new system, but it is still too early to make accurate predictions, and there are still many difficulties to break through one by one in this regard. However, it is believed that as digital penetration increases, the predictive tools in the market will become more rigorous.