There is a hierarchy in product development for original equipment manufacturers. It starts with a concept, then a design, followed by prototypes, and culminating in volume production.
Each stage adds complexity and customization that restricts the supply chain options during the final stage. The electronics industry often focuses on design and production, but what about the ability to procure the required raw materials and mitigate inventory risk for long term, volume manufacturing? Hidden value awaits those Original Equipment Manufacturers (OEMs) that put a heightened value on design for procurability.
Let’s look back at the evolution of electronic components. In the 1980s and 1990s, there were around 50 million active electronic components, with over 65% of the channel made up of commodity products. Parts had multiple manufacturers and all were pin for pin, compatible solutions. Supply chain managers had many options to shop for the best price and availability. As we transitioned into the 2000s, degradation of profits and loss of market share drove the high-end semiconductor manufacturers to adopt a strategy of designing custom chips, specializing in specific functionalities, performances, and technologies. This discouraged competition from offering compatible solutions because of prohibitive design costs and specifications that were too finite. Manufacturers chose instead to focus on areas of strength with custom technologies to gain print position so they could not be removed without the investment of a total redesign by the OEM. Engineers are now faced with a world of over 300 million active components, with over 65% of the channel made up of sole source, single source, and limited customer parts. This results in higher liabilities, production minimums, lead times, and manufacturing inflexibility.
So what is the design response? It is not enough to just look at the price and leadtime of components during the prototype stage. Engineers and supply chain manufacturers have to gauge and advise the long term risk of a solution’s component selection during the design phase. They must research and consider the following key areas.
Sourcing decisions can no longer be just about price and availability. Supply chain professionals have to become insurance underwriters, gauging the future risk of supply against extraneous, unplanned disruptions and delays. Even if you have to select a component option that has a slightly higher price, the delta paid in purchase price variance is your insurance premium for ensuring the continual supply of materials throughout production. Don’t wait to provide supply chain input in sequence to the design. Execute design for procurability concurrent to the initial engineering effort. Long term production risk mitigation can save OEMs a substantial amount of money over the life of their product.
Cliff Purslow – Arrow Electronics
Cliff Purslow is a Strategic Supply Chain Solutions Manager for the Americas Component division of Arrow Electronics Inc. Cliff joined Arrow in 1999 in San Jose, CA and is now based at Arrow’s corporate headquarters in Centennial, Colorado. Prior to joining Arrow, Cliff worked in Purchasing and Operations for 12+ years with two Silicon Valley original equipment manufacturers. He has a Bachelor’s degree from the University of San Francisco in Management Information Systems.