It’s not something Molly Zito ever wants to see repeated. Shipping memory modules in air couriers’ carry-on luggage may have been the only way to keep Avnet’s customers sweet, but it was hardly the right way to run a distribution business—and Zito and her colleagues knew it.

Just a few years ago, hand-delivered shipments were a rather costly but not-uncommon tactic—a desperate response by Avnet Electronics Marketing to its deteriorating delivery performance for shipments to Canada. As sales of electronics components to Canadian original equipment manufacturers (OEMs) grew steadily, it became increasingly difficult for Avnet’s logistics operations to ensure that orders trucked or flown across the border would get to customers on time.

In 1999, on-time delivery from the electronics distributor’s U.S. distribution centers to its Canadian customers’ docks averaged a sorry 89 percent. For orders traveling over the road, congestion at U.S.-Canada crossing points was a perpetual problem made worse when drivers lost their paperwork; such blunders could easily knock another two percent off the on-time average. Air freight was even shakier: Some months, less than 85 percent of those orders would arrive as scheduled.

The costs associated with Avnet’s reliance on stopgap measures mounted quickly. “We were probably adding another $20,000 to $25,000 a month to do that,” recalls Zito. On at least one occasion, the distributor added 30 percent more inventory on consignment—that is, on Avnet’s dime—to guard against inventory shortfalls for a major customer.

As competition has intensified up and down the electronics supply chain, “middlemen” such as Avnet have been under constant pressure to prove their value. That made solving the service problems and getting costs under control imperative.

It was clear that a new and innovative approach would be needed. Fortunately, Avnet was no stranger to new ideas and innovative practices. For decades, the electronics distribution giant has been in the forefront of emerging industry practices. The company got its start in 1921 when Russian immigrant Charles Avnet began selling radio parts in New York City. Today, Avnet Inc. boasts some $13 billion in annual revenue and ships more than 28,000 line items around the world each day. Avnet Electronics Marketing, the larger of the company’s two operating groups, distributes more than 300,000 unique semiconductors, and interconnect, passive, and electromechanical parts to more than 100,000 customers.

Zito is the customs/transportation manager at Avnet International Canada, a unit of Avnet Electronics Marketing. (Avnet has had a presence north of the U.S. border for about 40 years.) She reports directly to the president of Avnet Logistics, a companywide organization whose specialized services are designed to boost customer satisfaction and reduce costs. Zito also works closely with the sales teams in five Canadian metro areas and with her U.S. colleagues at Avnet’s two major distribution centers (DCs), located in Chandler, Ariz., and in Grapevine, Texas.

The company had already made great strides in streamlining deliveries to customers. In the mid-1990s, Avnet Electronics Marketing was typical of the industry in using local DCs—in its case one in Mississauga, near Toronto, and one in Vancouver. By the time parts had been unpacked and stocked in those facilities, though, it was time to ship them out. So Zito and her team developed a “hub bypass” program that allowed Avnet to ship directly from its primary U.S. distribution center to Canadian customers’ docks. The first phase of that system worked well for the few thousand orders a month being handled at that time.

But as monthly volumes climbed toward five figures, fault lines began to appear. For one thing, Avnet had no visibility of an order after it left its U.S. DC. “We had to wait until the hand-written proof-of-delivery document was faxed to us,” Zito says. The lack of systems integration between Avnet and its supply chain partners, as well as the partners’ limitations when it came to capturing and tracking order data, collided with customers’ increasing demands for more visibility of what they had ordered.

Meanwhile, the OEMs were demanding faster deliveries. But the two air carriers and half-dozen trucking firms serving Avnet’s Canadian business couldn’t keep pace. Their less disciplined operating practices and mediocre information systems dented the distributor’s on-time deliveries to the point where Zito had no choice but to call in the couriers, she says.

That situation provided the impetus for the second phase of Avnet’s direct-to-customer initiative. It began with a decisive meeting of a cross-functional team that included representatives from Avnet’s warehouse operations and IT group; its airfreight carriers and customs brokers; and Canada’s customs authority, the Canada Border Services Agency (CBSA).

Their discussion was firmly anchored by performance data and objectives, and by a clear understanding of customers’ needs, which was based on the logistics group’s participation in quarterly customer reviews.

The overall goal was to get deliveries to customers by noon the day after they had placed their orders, and the specific objective was 98 percent on-time delivery. The team wanted to meet that standard while allowing customers to place orders as late as 7 p.m. and having carriers pick up as late as midnight, both Arizona time (Avnet’s primary DC is outside of Phoenix). Every order had to be in a consolidation and ready to go, and it also had to be fully trackable with a single tracking number, from the pickup point to the customer’s dock. And arguably most important of all: The order had to be cleared electronically through Canadian Customs before the truck pulled out of the distribution center.

The initiative, with Avnet’s vice president of operations as its executive sponsor, would be enabled by information technology. “We needed to be able to assign tracking numbers to individual orders as they went through the warehouses. Then we had to take all of that information at the end of the day, aggregate it, and distribute it to the transportation provider, to customs, and to internal customers for analysis,” Zito recalls. “Everybody told us we were absolutely crazy—that there was no system out there that would do everything we wanted.”

“Everybody” was right: In mid-2000, there was no off-the-shelf software that would aggregate and integrate shipment data in the way that Avnet envisioned. “Most distribution programs that we researched didn’t have the connectivity we were looking for or the delivery times we wanted, at the price our customers could afford,” says Zito. The company therefore decided to launch an in-house development project, spearheaded by the vice president of logistics IT; the resulting system would run on Avnet’s legacy mainframes.

That wasn’t the only challenge. Through Avnet’s quarterly supplier reviews, it became clear that new supply chain relationships were needed. Avnet’s logistics IT staff would have to collaborate with their counterparts at the company’s transportation providers and customs brokers, yet few of Avnet’s partners had the necessary IT capabilities. Others were unable to offer the additional capacity Avnet would need to handle anticipated growth, while still others could not guarantee that they would be able to comply with tight delivery windows.

Zito and her team now had the opportunity to jettison the existing service structure and develop a completely new arrangement. They considered many different transportation combinations—trucks and airplanes, Canadian carriers and U.S. carriers, commercial airlines and integrated carriers, to name just a few. They finally settled on three air carriers and a customs broker that had the required capacity, pricing, and scheduling, as well as the willingness and wherewithal to rewrite some of their own legacy systems to get themselves in sync with Avnet’s new system.

The initiative also called for hand-in-glove work with CBSA. Avnet participates in CBSA’s Customs Self Assessment (CSA) program, an option that provides approved importers with such benefits as streamlined accounting and payment processes and the authority to monitor their own compliance with customs regulations. So, Avnet’s new system would have to accommodate data formats required for CSA, as well as all necessary compliance-data inputs and analysis for both exports and imports.

The new technology’s development unfolded in weekly collaborative meetings and conference calls, and tasks were prioritized using “red light, green light” project management alerts. Central to its success were Avnet’s deep “data dives.” Over the years, the company had been collecting a great deal of detailed information, from the number of rush deliveries to customer-satisfaction ratings to how many phone calls it took to support one order. Now the data monitoring would go much further, measuring, for example, how long it would take CBSA to release an order, what the examination rates were at each customs port of entry, and how long an exam would typically take. “Customs were amazed to see how much detail we had,” says Zito.

The “Canadian Consolidation Program,” as Avnet calls the shipping management initiative, was implemented gradually. It ran through user-acceptance testing at the end of 2000, with trial orders keyed in for many different customers. By February 2001, Avnet moved the simulated order-entry and order-tracking activities to one of its facilities, testing for about a month before going live, and then limiting the effort to one division and one facility for three months. After three-and-a-half years, the new system was in place across the board.

The collaboration between Avnet’s IT engineers and their supply chain counterparts has produced striking results. The system does everything the cross-functional team had asked for—and then some. The company has hit its 98 percent on-time, dock-to-dock objective. It’s done so well in that regard, in fact, that it now guarantees next-day delivery of consolidated airfreight shipments by 10:30 a.m. in all five Canadian metro markets.

Visibility has improved enormously. OEM customers can log onto Avnet’s extranet, key in one tracking number per order, and see exactly where their orders are in real time; Avnet’s sales staff can do the same on their intranet.

The system now handles nearly 40,000 packages each month, which are flown in by three air carriers, and it has the potential to handle many times that volume. The Vancouver distribution center has been shuttered. The Mississauga facility, meanwhile, continues to handle both value-added and logistics services, but the DC holds minimal inventory for only the most critical circumstances.

Total quantifiable savings from the shipping management program to date are about $1 million, with immeasurable benefits in terms of customer satisfaction. Most telling of all: When the U.S. shut down all cross-border traffic after the September 11, 2001, tragedy, Avnet’s shipment volumes were up to full speed just hours after the U.S.-Canada border reopened.

So what are the new priorities for Zito and her group? Aware of Avnet’s information-systems edge over competitors, she won’t be drawn out. Suffice it to say that her group is engaged in an effort to extend order-tracking visibility both upstream and downstream. (Avnet already gathers data on how long it takes one of its customers to move components into assembly.)

A particular point of pride for the Canadian team is the fact that the benefits of its self-designed program won’t be limited to a single market. The project has been so successful that it’s now being studied to see if it could be applied elsewhere within Avnet’s worldwide network.