Custom built with speed

Micron Electronics ships custom-built personal computers, often the same day. Here's how it balances low inventories with high velocity.

By James A Cooke -- Logistics Management, 1/1/1998

Give me what I want and, oh by the way, do it quickly. That's the mantra for today's personal-computer market, where companies build products to order and then ship them overnight. Micron Electronics has emerged as a major competitor in this market by offering personalized product and then guaranteeing fast delivery. The company touts its same-day shipping service for orders placed as late as three p.m.

The velocity with which components and finished product move through Micron's pipeline comes close to warp speed. "We utilize just-in-time techniques to ensure our material inventory on site is as low as possible so we can maximize velocity of materials through our facilities and into our customers' hands," says Micron's president and chief operating officer, Gregory D. Stevenson.

Logistics plays a critical part in Micron's success in making its supply chain work. It coordinates the inbound movement of supplies, often from Asia, to facilities in the United States where product is assembled. It then fills each order with a computer configured to the customer's specifications, often for same-day shipment. In all cases, the execution must be flawless. "The margins in the electronics industry are relatively thin, so there's no room for error," Stevenson reports. "There's a lot of concentration on traffic and logistics [as a result] and the bar is continually being [raised] in terms of what's the best practice in the industry."

Bringing It Stateside

Based in Nampa, Idaho, Micron Electronics Inc. was formed in April 1995 from three entities: Zeos International Ltd., Micron Computer Inc., and Micron Custom Manufacturing Services. Today, the personal-computer maker employs 4,500 people worldwide. Its sales totaled $1.9 billion for fiscal 1997.

In the past year, Micron has become one of a handful of computer makers that specializes in custom sales. A customer places an order over the phone or via the Internet and selects the features he or she wants. One customer, for instance, may choose a more powerful microprocessor, while another may want speakers with subwoofers. The company caters to individual tastes and offers an array of component features to select from.

Like most electronics companies, Micron builds its custom products while keeping as little inventory on hand as possible. It airlifts higher-value components such as motherboards and hard drives from the Asian countries where it sources these parts, like Malaysia, China, and Japan. "We bring in a significant amount of Asian airfreight because we can't afford the timing of ocean [transport]," notes John Janson, Micron's global transportation and logistics manager. "They would have invented a new product by the time the ocean container could get to us!"

The company does use ocean carriers to transport such components as monitors, speakers, and cases. Janson says that his company brings in about 200 40-foot containers a month, primarily through the Port of Seattle. Products such as monitors are moved either to Memphis, where Federal Express operates a depot for Micron, or to the Nampa facilities. The company's broker, Fritz Co. Inc. of San Francisco, handles customs clearance, whether product is brought in by air or ocean.

The mode of transportation from the port is dictated by how urgently a product is needed. "We transload and truck it to Memphis if we need it within 72 hours," says Janson. "If we have more freedom, then we try to utilize the rails. We put the containers on a stacktrain and bring them to Memphis."

For parts headed to Idaho, Micron uses a drayage company to haul goods from Seattle. Janson notes that his company has worked out arrangements with other Boise-area shippers to reuse the ocean containers and return them to the port, often filled with agricultural products.

Computers Now!

Micron's stringent delivery commitments and custom manufacturing program place enormous demands on its outbound logistics department. Customers taking advantage of its "Computers Now!" program, which offers the company's most popular prebuilt computers for extra-fast delivery, often expect to receive their order that day or the very next day.

Once an order comes in over the Internet or via a toll-free number, order takers (located in Nampa or Minneapolis) direct it either to Nampa or to the company's subcontractor, CMC of Corinth, Miss., for fulfillment. Nampa handles one-of-a-kind specialty orders and corporate sales. CMC takes care of requests for the most popular computer configurations.

CMC maintains six or seven SKUs of the most popular preconfigured computer models, but it only keeps a few days' worth of inventory on hand. Once it receives an order, CMC ships the product for delivery in one to three days, based on the customer's request. Most of the freight is shipped on a two-day basis.

Whether the shipment is same-day or deferred delivery, FedEx transports the product. The Memphis-based integrated carrier also provides merge-in-transit service to Micron. Under that program, FedEx stores peripherals such as monitors and printers in its Memphis air hub and then matches those products up with the computer en route to a customer.

If a customer in Boston, for example, ordered a popular PC model, FedEx would transport the computer from Mississippi to its Boston station. There it would match that computer up with a monitor shipped separately from Memphis prior to customer delivery. The FedEx driver would deliver both monitor and printer together. "We send an electronic file [to FedEx] that contains our tracking numbers," says Janson, "and they marry [the products] at the destination station."

The Nampa manufacturing facility handles the other customer requests. Once workers have assembled the PC in the configuration requested and it has undergone a quality check, the machine is turned over to Micron's distribution network for carrier selection.

Large corporate orders bound for destinations within the United States are moved by LTL carriers. Micron employs two transcontinental and one western regional carrier to handle its LTL business. "Almost all of our committed deliveries on LTL are less than four days," says Janson. "And we try to get two- or three-day commitments from the LTL guys." International orders typically move by air out of Seattle.

The highest percentage of shipments out of Nampa are individual orders, which are handled by FedEx. "A customer pays a premium for same-day order unless it's an area where we had a problem or we were behind," says Janson. "Normally if you want same-day delivery, there's an extra charge. Shipping and handling represents a separate line item that we pass on to the customer. These charges are quoted at the time of the sales order."

As is the case with CMC shipments, computers sent from Nampa often are married up with peripherals stocked in FedEx's Memphis warehouse. The merge-in-transit program plays a critical role in Micron's ability to provide prompt customer delivery. "It's a real successful program," says Janson. "It allows us to postpone some inventory that we don't have to manage. The monitors are some of the heaviest items that we ship. By keeping them closer to the customer, we're able to keep our transportation costs down. We've been into the program for over two years and it's been a growing part of our business."

In fact, the merge-in-transit program has been so successful that Micron would like to expand it next year to include its LTL shipments. "Next year, we hope to be able to merge LTL orders by putting our inventory closer to our installed bases," says Janson. "The LTL carrier would pick up from the stocking location in Memphis and Nampa and marry it at its facility in Boston, as an example, and deliver it to the customer in Boston."

The company also works closely with FedEx to ensure fast delivery. "We send EDI transmissions to FedEx several times a day as the orders are released from Nampa and that [information] goes into FedEx's Memphis warehouse," Janson reports. "[There] a pick ticket is printed that has all the FedEx tracking information and delivery information. FedEx has a crew working around the clock--they pull monitors, put the labels on them, and deliver to the FedEx hub."

Janson says Micron views FedEx's value-added service as a cost benefit because it reduces the overall transportation charges. "Eighty percent of the installed base is east of the Mississippi," he explains.

He adds that FedEx doesn't fly a lot of that freight so the integrated carrier can offer Micron lower-priced truck transportation. Micron, however, doesn't choose the transportation mode. "We don't manage how FedEx does it," Janson notes. "If they've got time to truck, they do. We're not going to micromanage their transportation as long as they meet our delivery commitments."

High-Velocity Distribution

Micron has managed to ensure fast flow of product to consumers, upping its inventory turns and its profits at the same time. That's especially important for a company whose products rapidly become outdated thanks to technological advances. "Efficient trafficking and logistics is extremely important for our turns and cash flows," says Stevenson. "In this industry, the obsolescence of materials is quick. What was state of the art six months ago is not now. So the velocity with which you move materials has a significant impact on your financial well-being."