The Flex programming language has yet to fully catch on in the B2B world. It should. People shopping on B2B websites increasingly expect the performance and experience they get from the B2C sites they use at home (or when the boss isn’t looking). Websites that incorporate Flex perform like a desktop-resident application. The effect is addictive to users, in the same way that the iPhone is. Exponential improvement in ease of use locks in business users who prize speed and convenience in their online purchasing. As I discuss below from a general business perspective, Flex delivers B2B performance muscle.

Flex enables common, best of industry development practices and methodologies for delivering rich internet applications. A classic problem with the HTML/Ajax applications is they don’t grow very well, due to the lack of an object-oriented, component model designed to support large application development. The projects aren’t very well organized, and it’s difficult for teams to work on them. Flex lets you take a programmatic, object-oriented approach to writing applications that are ultimately delivered via Flash. Delivery over Flash allows for browser-embedded applications with nearly the power of an Applet, without Java’s poor install base or common installation complexity.

We chose Flex because 1) it offers a more professional programming approach and 2) it lets you build a website that is much more cinematic and interactive than the typical website built in Ajax or HTML. Visit verical.com and you’ll see things transition very smoothly. There are no page refreshes. We can perform advanced operations like in-place sort, resize and rearrange table columns, dynamic filtering, auto complete, etc. All of those operations would be time consuming and non-componentized in Ajax, but they’re relatively simple using Flex.

Verical was originally written in OpenLaszlo, another rich Internet application technology that preceded and competes with Flex. Verical migrated to Flex over the past year or so because, among other reasons, Flex is better supported for newer versions of Flash. As a result, we can take advantage of the features in newer versions of Flash, which means that our website runs much, much faster.

Other benefits of Flex? It enforces the separation between the client and server. We’re not creating HTML views that the user then sees. Instead, we have a server application that communicates with the Flex application via open standards. That separation lets us easily create additional applications— e.g., our browser extension—that consume the same information. Likewise, the separation of resource bundles under Flex makes it much easier to do things like internationalize and update site assets compared to HTML. And Flex Builder, Adobe’s IDE, is much nicer to work with than a standard HTML editor.

Finally, but of no small import, as any web developer can attest, delivering an application via Flash/Flex prevents browser differences from interfering with the users’ experience of the web site. Flex eliminates the web development headaches of sites looking different in different browsers, or things working in one browser and not working in another. This translates to significantly reduced development and QA time, and also to a much more stable, consistent experience for our users.

Despite the advantages, a small percentage of businesses still resist Flex. Here are two roots to the argument against.  First, building a website in Flex means your users need to run Flash, and business adoption of Flash lags behind the general user community. Second, Flex imposes an initial performance hit to deliver its overall performance gains: Our initial download time may be 1.5x that of a typical HTML page.

It’s also true, however, that businesses lag in Flash adoption by only a few percentage points, maybe 97 or 98 percent (business) vs. 99+ percent (consumers). And the few extra seconds it takes to initially load our site? That time is easily recovered in the first few sorting steps our customers take in search of their parts. Once on the Verical site, our customers blaze through the entire purchase process, doing things immediately that take minutes of page refreshing and waiting on other sites.

Bottom line: The development and user experience benefits of Flex are absolutely a key differentiator for Verical. Our relatively small development team is able to remain agile and responsive to the needs of our customers. And, at the end of the day, the web experience that we offer our customers is unparalleled in the electronic components industry and is among the best of what e-commerce on the web has to offer in general.

If we look back on the origins of lean manufacturing, we can trace the principles to improving design, service, quality, testing and sales through various methods, including the application of statistical methods. In inventory management, statistical methods are applied to accurately size the amount of inventory needed in the supply chain based on time, variability and service levels. If applied correctly, the use of statistics in lean manufacturing will optimize the end-to-end supply chain. If applied incorrectly, with a “lean focus” (meaning reducing inventory as much as possible), it’s going to mean missed opportunities as upturns in the economy occur.

At Verical, we recognize the need for highly agile supply chain processes to compete in today’s market and the problems associated with the chronic excesses and shortages that result in large costs and risks to the supply networks. We work directly with the OEMs and contract manufacturers to reduce the risk by allowing them to source time critical components fast and easily, and with component manufacturers and distributors to allow them to monetize slow moving and end of life inventory. Our innovative online electronic components outlet provides an easy, reliable and fast way to buy and sell electronic components—which ultimately results in more agile, responsive supply chains with the associated lower costs and risks.

We can all learn a lesson from Toyota. As The Economist article states, take time to “stop, think and make improvements” in your supply chain and lean manufacturing strategy.

Do you ever wonder if the electronic components that you buy from brokers and independent distributors are legit? Where are they REALLY coming from? The U.S. Department of Commerce (DoC) just issued its assessment report on counterfeit electronics, which provides some interesting, albeit alarming, statistics on the degree to which counterfeit components have become integrated into the U.S. supply chain. Thankfully, the DoC also recommends best practices for protecting against counterfeit electronics. While obvious, the foremost recommendation is buying from trusted suppliers.

To help answer those nagging questions about counterfeit components that keep buyers up at night, we created the Verical marketplace: a factory outlet for electronic components that provides buyers traceable, branded goods at discount prices. Top manufacturers and franchised distributors publish slow-moving inventory to Verical to optimize prices and yields anonymously. Today, the online Verical factory outlet has more than 27,000 parts available; check it out at www.verical.com.

Check out this excellent EE Times interview with Barclays Capital analyst Tim Luke. Luke anticipates “a tight supply of memory parts in 2010 and perhaps beyond.” This article reinforces our belief that memory will soon be joining the list of hard-to-find parts turning up on buyers’ shortage lists across the world, and at the same time, prices will begin to rise. Quickly finding trusted sources of constrained parts at bargain prices will become one of the priorities in 2010 and into 2011 for buyers and procurement managers alike.

At Verical, we recognize the need for highly agile supply chain processes to compete in today’s market and manage the challenges associated with the chronic excesses and shortages that result in large costs and risks to the supply networks. Our factory outlet provides an easy, reliable and fast way to buy and sell electronic components – which ultimately results in more agile, responsive supply chains with the associated lower costs and risks.

It turns out that purchasing agents and other corporate buyers are no more forgiving than their consumer-oriented counterparts when it comes to slow, bulky ecommerce sites. And that frustration is playing a large role in the trend to make the online shopping experience faster, more efficient, and more convenient for B2B buyers.

In the electronic components market, major players are revamping their B2B sites with B2C perspectives. Avnet has gone public with its adoption of best practices from consumer sites like Amazon.com. In doing so, company officials admitted that on its previous ecommerce site, “many of our customers had to either be really patient or simply stubborn to make a successful purchase.”

Avnet’s investments in website upgrades have favorably influenced its bottom line. Since refreshing its B2B site, Avnet has seen a 75 percent annual increase in ecommerce revenue and a 50 percent annual increase in site visitors. Similarly, distributors like Premier Farnell, TTI, RS, and Digi-Key have seen their web sales soar. In fact, Digi-Key reports that 66 percent of its sales were received over the web.

Companies that lead the advances in online commerce do so by optimizing their websites to serve a specific buying audience. In electronic components, that audience is the array of buyers with time-critical requirements that use the web heavily to make purchases. For example, production buyers turn to the web when demand rises in the short term and exceeds planned supply. When this happens, volume buyers immediately become shortage buyers with time critical needs.

Historically, manufacturers and distributors have focused their efforts on forecasted distribution which has meant they have not advanced their online capabilities to optimally meet the demands of buyers with time critical requirements. But that’s starting to change. With the increased emphasis on lean manufacturing and persistent volatility in demand, buyers are facing an ever greater need for “on demand” access to supply.

Now more than ever, buyers want their online shopping experiences at work to be like the B2C experiences they have after hours, at sites like Amazon.com, Priceline.com, and the like. They expect it, and companies like Verical are working to bridge the gap between the online shopping experiences in B2B and B2C ecommerce.

For instance, Verical’s recently-announced Bid Button gives shoppers a way to save extra money by submitting fixed bids on clearance items at prices lower than those published on Verical’s catalog listings. The one-click icon automates price negotiations between buyers and sellers, providing fast, hassle-free negotiations and immediate, definitive results. Buyers get instant confirmation of a bid’s acceptance or rejection.

As end-user demand continues to grow, companies will continue refining their B2B sites to reduce the number of screens, screen refreshes, and steps needed to complete a transaction. By making their sites flatter and faster, these companies reduce abandonment and increase conversion rates. Going forward, buyers can expect more B2C-influenced features like the Bid Button and a better overall B2B online shopping experience.

Black Friday 2009 results ranged from disappointing to slightly higher than last year for traditional retailers, depending to whom you listen. In contrast, on-line sales soared on both Black Friday and Cyber Monday. Over the holiday, weekend consumers spent $5.2 billion on-line (Source: Retail Decisions), and there were a whopping 4.3 million shoppers per minute throughout the day in North America (Source: Akamai). Cyber Monday beat all forecasts with a 13.7 percent increase in total sales, and buyers bought 30 percent more items per transaction than in 2008 (Source: Coremetrics). On-line buyers also spent on average $50 more at $180 per transaction, compared to a decrease of $30 to $343 for retail store sales (Source: The National Retail Federation).

The perceived on-line winners were Amazon.com, Wal-Mart and Target. The Kindle e-reader was “the best selling item across all of Amazon.com’s product categories on Monday,” according to spokesman Craig Bermen. Consumer electronics were far and away the biggest winners across product categories; the most popular items being flat screen TVs, cameras and GPS navigation devices.

So who are the “real” winners and losers? Well, the bottom line is that we won’t really know until these companies report their earnings.

Despite the hype associated with the number of people lining up outside of Best Buy stores, weekend revenue estimates, website traffic and transactions, average order sizes, etc., we just are not seeing the whole picture. Now don’t get me wrong; all of the data we have at our fingertips is fantastic, but it doesn’t mean that much on its own. In fact, I’d propose that retail results, while being a terrific indicator of the economy, are far too narrow a segment to look at in determining success for the consumer electronics industry. To determine real success, we need to look right across the electronics supply chain — from the component manufacturers to the EMS companies, OEMS, distributors and retailers to determine how well each party worked together and, in total, how the end-to-end supply chain performed.

According to Goldman Sachs Analyst Adrianne Shapira, Wal-Mart’s average prices were 3.5 percent below Amazon.com, 4.2 percent below Target and even lower (in the double digits) compared to Kmart and Toys “R” Us. Could it be that the efficiencies that Wal-Mart and Amazon.com are able to generate through their purchasing leverage and supply chain are so significant that they can afford to discount prices so deeply? Or, are these deep discounts used to drive traffic, or is it a combination of both? Given the narrow margins retailers operate, these price differentials are pretty significant and warrant a closer look.

I would argue though that the winners and losers in the consumer electronics industry will be defined by how efficiently they operate their supply chains. A key component is how accurately they are able to predict demand.

Forecasting demand in consumer electronics is notoriously difficult to do. The consequences of poor forecasting are serious. Forecast too much and end up with too much product, and suffer write-downs and price-erosion. Forecast too little and run the risk of lost sales!

The Risk of Underestimating Demand

The implications of getting demand wrong on the downside is significant, as any lost sale is perishable, and the opportunity cost is felt at the gross margin level and right at the bottom line. For retailers, lost sales go to the competition and have a big impact. Best Buy, for example, has a profit margin of 1.97 percent and a gross margin of 23 percent (Source: Yahoo Finance). So, for every $100 product sold, they make $1.97, but for every one lost to a competitor, they miss out on an opportunity to make $23. It doesn’t cost Best Buy any more to sell one more product than its Cost of Goods Sold for that particular product. It doesn’t require more stores, marketing or staff. For the manufacturers of the product (the OEM), the impact of a lost sale is significant as their gross margins are higher, so by default, any lost sale has a bigger opportunity cost to the OEM, such as Apple at 36 percent (Source Yahoo Finance).

What I’ve seen so far, despite a better-than-forecasted Cyber Monday, is that there haven’t been too many high profile examples of lost sales. Amazon.com’s deal of the day on Cyber Monday did sell out (8GB iPod Touch for $158), which like many other heavily promoted items over the holiday weekend is undoubtedly a loss-leader to get customers into the real or virtual store. Kaufman Bros. issued a new advisory on Monday that reported low inventory and out-of-stock Macs at many resellers. Neither of these specifically means Apple or their resellers have lost sales, but risk increases if out-of-stock conditions continue.

The Risk of Overestimating Demand

When demand is forecast incorrectly on the upside, the resulting slow-moving and excess inventory gets stuck in the supply chain. For some retailers, having slow-moving inventory will create price erosion. In some cases, the retailer is protected by the manufacturer through returns and price protection programs. In all cases, the remaining supply chain partners are left sharing the price erosion and write-downs in some form depending on contractual agreements.

Manufacturing companies typically write down 0.5 to 1.5 percent of their product revenue, predominantly due to demand and supply imbalances. For retailers, it’s harder to determine the amount of waste associated with price erosion; however, there’s no reason to assume it’s any different.

So what should we do? Rather than looking at individual performers, let’s take a look at end-to-end supply chains for different product categories and identify the best overall performers in each sector: manufacturing, retail, etc. Once we’ve identified the best overall performers we can begin to dig into what it is that makes them special. What are they doing differently? How do the parts work together, up and down the supply chain? What are the best practices, and what can we learn from them? In particular, how can we optimize supply and demand? What mechanisms exist to enable us to smooth out the inevitable imbalances that will remain? We can take this knowledge and apply it to supply chains in other categories and industries.

So who are the “real” winners and losers? Let’s wait to see and look beyond the retailers at how the product manufacturers and their supply chain partners fare as part of the overall ecosystem. After all, it is the best supply chain that wins!

Tip 5: Seek out transparent catalog pricing

This is a problem that affects buyers at manufacturers and independent distributors alike. When they first have a shortage or requirement, buyers will reach out to several brokers or independent distributors to seek their help in finding the part. Most will respond with claims that they have the part in-stock or available from another supplier; so, with great effort and time, the buyer has to filter out the less convincing claims until only one or two credible options remain. Under significant time pressure, they have to make a decision with imperfect information, so buyers must take the best price they can get. Therein lies the rub — after all the time and effort to identify credible options, shortage buyers have sacrificed any negotiating leverage because they are simply out of time.

The secondary market makes its money by exploiting information asymmetry. Like any good trader, a broker or independent will soak up as much information as possible before revealing any to their counterparties. For independents, brokers and buyers alike, every detail given to a secondary market supplier is a loss of negotiating leverage. The more specific the need, the less leverage one has. The most variable detail, the one that affects price the most in a shortage buy, is time. A buyer with an assembly line about to go down or a requirement that is about to expire is totally vulnerable to price gouging.

Because the financial incentives of a transactional relationship are zero-sum, the buyer and seller are locked into an adversarial relationship. The basic misalignment of interests prevents companies from developing genuine partnerships and, at the end of the day, everyone loses.

The breakdown is a major driver behind the rise of online part catalogs. Beyond faster connections and great comfort when purchasing via the web, online part sales are booming because transparency gives buyers better information faster. The level of transparency demanded by selling parts through a catalog shows a level of respect for the buyer, because the seller forfeits the short term opportunity to exploit the buyer’s desperation for the longer term benefit of a relationship.

Some firms will publish catalogs with obviously inflated prices only to drop prices substantially when the buyer calls to haggle. While this is an improvement over the information void that is the secondary market, it still puts a burden on the buyer. Real transparency provides buyers with everything they need to know about a part: its history, the real pricing, date code, actual quantity available, etc.

Many catalog distributors do not have the parts needed in a shortage, but buyers are demanding that the shortage market be as transparent as the franchised market. A distributor who is genuinely interested in partnering with a buyer will be as transparent as possible, and that means catalog pricing.

Last year, Black Friday was dominated on-line by electronics products, with nine out of the top ten most popular products (Source: PriceGrabber.com). Cameras and game consoles lead the way (the Ugg Australia “classic short” boot was #2). Cyber Monday online sales increased 15 percent last year with record visitors to eBay, Amazon, Wal-Mart and Target. (Source: comScore) According to PMA Magazine, about 40 percent of digital camera units are sold in November and December, so the concentrated periods of demand make or break it for some product sales for the year.

How could it possibly be easy to forecast the combination of on-line and traditional retail sales accurately in advance? What is the impact of forecasting incorrectly? If we underestimate demand we get shortages and lost sales, and a huge opportunity cost arises. On the other hand, if we overestimate demand we get excess material and write-offs throughout the supply chain.

Consumer electronics is a category with dramatic levels of demand variation. One great example is mobile handsets. Demand can vary widely in a short amount of time—for example; the Palm Pre initially sold out and was in short supply with waiting lists when it was released in June. In just three months, there are reports of excess in some indirect channels.

For OEMs typically working off 30 to 60 percent gross margins, each lost sale evaporates into huge opportunity costs. As on-line sales become stronger and stronger, the portion of demand that is perishable is increasing. This applies more broadly beyond consumer electronics. For example, if Cisco loses a sale of a router to Tellabs or an IP phone to Avaya, the loss is felt immediately at the bottom line and by definition through to EPS. Risk management across the supply chain is a hot topic, and this may be the biggest risk of all.

While Cisco’s 2001 3rd quarter write down of over $2 billion is not by any means typical, OEMs do typically write down 0.5 to 1.5 percent of their revenue each year in excess and obsolete material. Apply that across the global high tech supply chain and you’re soon in the tens of billions of dollars written off annually.

Now that’s a waste.

So what can be done? Clearly OEMs need to put as much effort into forecasting demand as accurately as they can. However, all the forecasting in the world can’t eliminate the inevitable supply chain imbalances—excess on one hand, shortages and lost sales on the other. Where more energy needs to be applied is in the rapid response to both up and down demand signals as well as using more innovative ways to target both excess and shortage situations.

Let’s see what happens this holiday season.

The Rise of Counterfeiting