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Best practices to manage supply chain for LED luminaire manufacturing

Best practices to manage supply chain for LED luminaire manufacturing

By BizLED Bureau

October 21, 2015: The LED lighting industry is quite dynamic and evolving fast, with fast advancement in technology. The evolving industry also witnesses fast changing trends, and has a complex supply chain for manufacturing LED lighting products, which is quite difficult to manage.

In the LED lighting industry, management of the supply chain plays a crucial role. A supply chain that is managed effectively can increase the efficiency of the production process, which, in turn, will reduce lead time. The ever shortening product lifecycle combined with long lead time are really challenging for the manufacturer.

LED lighting manufacturers have, therefore, realised that it is essential to follow certain best practices to manage the supply chain effectively. It is a known fact that the shorter the lead time, it will be less difficult to manage the inventory.

Challenges of a complex supply chain

In the LED lighting industry that is primarily driven by fast changing technology, manufacturers need to understand that the shelf value of a product can be as short as a few months, which means, in less than a year a product may totally vanish from the market. There is always the risk of low service levels, high inventories and high obsolescence. According to industry experts, many important changes are required in the supply chain processes in order to manage it effectively. As a result, it is important to keep in mind the time line for developing new products; the time line for investments; and the volume of products.

In the conservative LED lighting era, traditional and non-integrated supply chain coordination between suppliers and manufacturers was sufficient to enable high quality services and effective management of inventories throughout the entire value chain. But with complex products, challenges of the supply chain have increased.

LEDs manufacturing is a capital-intensive semiconductor process and have long lead time, even as long as 12 weeks or more. The production yield is also uncertain due to the fast changing LED technology.

Manufacturers are combining long lead times with short product life cycles which make management of the supply chain more effective.

Industry experts believe that some best practices need to be followed for effective supply chain management in the LED industry.


The LED industry is now waking up to the necessity of standardization. Standard specifications are being developed for electrical, mechanical, optical and thermal interfaces of LED light. Standards will make life easier for all the stakeholders of the supply chain.

Reducing scrapping costs

Many companies like Philips are making efforts to reduce the scrapping costs of components of the products that have been phased out, and they have been successful to do so due to higher component commonality.

Supply of components

In LED lighting manufacturing, supply of components actually rule the game?a timely supply can really change the whole game. Hence, it is essential to have a good control over the component supply chain.

Regional production

By regional production, manufacturers can reduce lead time by almost 50%, increase supply flexibility; and reduce inventories significantly.

Stocking policy

Today, stocking is a major concern in supply chain management, as with technology evolving fast, components that are in stock today may be obsolete in a few months. Manufacturers, therefore, need to keep minimum stoking and identify local sources that can supply high quality components at competitive prices. A certain portion of the total stock is reserved for covering the demand during lead time. Therefore, decreasing lead time is the right lever to cut inventories. The second portion of the inventory is reserved for the safety stock; the safety stock is a function of the service level, the demand uncertainty, the replenishment lead-time and the lead time uncertainty.

Authorised dealers

Authorised dealers and distributors are highly recommended for supply of components and materials. Many cheap quality components are available in the market; hence, one needs to be careful about the authenticity of the components supplied. Components that play a major role in the quality of LED lighting products should be procured from reliable suppliers.

While concluding, we can say that component suppliers and manufacturers have to have effective control over the supply chain, and also have an increased level of cooperation between them as well as an intensive relationship.

The real challenge is to manage the uncertainties in the supply chain timely and strategically. Balancing the activities in the supply chain is the main goal to achieve the necessary balance between cost and high quality products.

Opinions expressed by BizLED contributors are their own. None of the facts and figures mentioned in the story have been created by BizLED.co.in. BizLED is not responsible for any factual errors.

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