The electronics supply chain is a complex network of electronic part suppliers, manufacturers, and buyers all trying to stay ahead of the latest trends. The supply chain has been strained by increasing demand and aging equipment, but there are steps you can take now to ensure you've maximized your sourcing power to stay in control when you need to find that part.
What is electronic component sourcing power?
Electronic component sourcing power refers to a company's ability to effectively and efficiently acquire electronic components, such as integrated circuits (ICs), resistors, capacitors, and other essential parts that are used in the manufacturing of electronic products. This includes the company's ability to identify, evaluate, and purchase components from reliable and reputable sources, while negotiating favorable prices and terms.
The electronic component market can be complex and dynamic, with factors such as supply and demand fluctuations, lead times, obsolescence, and counterfeit components posing challenges to companies that rely on a steady supply of electronic components for their production processes. Companies with strong electronic component sourcing power have a competitive advantage in managing these challenges, as they are able to secure reliable sources of components, optimize their supply chain, and mitigate risks associated with disruptions or delays in the procurement process.
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- Negotiation skills: Companies with strong electronic component sourcing power have skilled negotiators who are able to secure favorable prices, terms, and conditions from suppliers. This may involve negotiating volume discounts, favorable payment terms, or securing long-term agreements with suppliers to ensure a stable supply of components.
- Supply chain visibility and risk management: Companies with strong electronic component sourcing power have effective supply chain visibility and risk management systems in place. This includes monitoring and tracking the status of orders, lead times, inventory levels, and identifying potential risks such as supply disruptions, counterfeit components, or obsolescence. Having robust risk management processes helps companies proactively address and mitigate potential supply chain disruptions that could impact their production schedules.
- Market intelligence: Companies with strong electronic component sourcing power stay informed about the market dynamics, including trends, availability, and pricing of electronic components. This may involve regularly monitoring industry news, market reports, and engaging in industry forums and networks to gain insights on the latest developments in the electronic component market.
Electronics supplier relationships have dramatically changed
The electric parts industry has changed drastically in recent years. The rise of internet-of-things (IoT) products, increased use of analytics and cloud computing, and more automation are just a few examples. As a result, suppliers need to be much more flexible than ever before if they want to remain competitive.
Supply chain management is an important aspect of managing any business—especially those in the electrical parts field—but it's even more critical now than it used to be. When you have multiple suppliers providing you with different parts for an end product it is essential that your supply chain works well so that your end product doesn't experience delays or failures.
A company with strong electronic component sourcing power has a well-established and diversified network of suppliers, including original equipment manufacturers (OEMs), authorized distributors, and reliable independent distributors. This allows them to have multiple options for sourcing components, reducing dependency on a single source, and mitigating risks associated with supply chain disruptions.
Establish preferred supplier relationships
The first step in establishing preferred supplier relationships is to have a thorough understanding of what it takes to make that happen. A good relationship is about more than just finding the right products for your needs; it's also about building trust and a long-term commitment. You need a reliable process to assess a supplier's reliability, reputation, quality control measures, and compliance with industry standards and regulations. Supplier evaluation and qualification processes help ensure that the components procured are genuine, reliable, and meet the required specification
A good supplier should be able to meet your needs, both now and in the future, so that you're not constantly looking for new ways to find parts. You want them to be reliable when it comes down to the wire—meaning they can deliver on time or early if necessary—and provide any sort of additional support needed.
Skilled negotiators who are able to secure favorable prices, terms, and conditions from suppliers come in handy when establishing preferred relationships. Their negotiations may involve volume discounts, favorable payment terms, or securing long-term agreements with suppliers to ensure a stable supply of components.
Diversify suppliers
Diversifying suppliers is an important part of risk mitigation when building your find part strategy. The more sources you have, the less likely you are to be hit by a sudden spike in price or supply disruption. It also helps if a supplier fails to meet your expectations if they're not your only source. There are other benefits too: by diversifying your suppliers, you can get better prices, better products and better delivery times.
It's difficult to manage many different supplier relationships at once - that's why most companies establish preferred relationships with one or two suppliers. Despite that, you need to keep an eye on the broader market both to ensure that you're getting the best possible price for your components as well as being ready to swap suppliers if your original ones face disruptions and shortages. That's where software like Amplio's BOM tool can come in handy: it continually monitors your MPNs and production needs against the entire market for electronic components, so you can see if your Approved Vendors are giving you a good price. If they aren't, your negotiators can use our data to improve your terms - or you can switch suppliers in just a few clicks. And should your vendors run out of stock, we connect you to available inventory instantly.
Build international supply chain networks
As a sourcing manager, you should have broad knowledge of the global supply chain and how it works. It's important to understand the nuances that exist in different regions, such as which countries produce more than others or where labor is cheaper. Building international supply chain networks means having access to this information when making decisions about where to source from.
Larger companies in particular can benefit from building direct relationships with manufacturers that create critical components for their BOMs. As you grow in size, your purchasing power grows, and you can potentially skip over distributors and go straight to the source. You have to be extremely careful when doing this, though, as you may lose privileges you've earned with your preferred distributors. Large companies have sophisticated supply chain teams that understand the tradeoffs between working with middlemen and going straight to international manufacturers of their components.
You can build international connections through trade shows, industry conferences, and networking events like LinkedIn groups created specifically for sourcing managers (you'll find an example below). These connections will help bring new suppliers into your network and allow you to share insights with other sourcing managers who may be able to help you improve your sourcing processes over time.
Be comprehensive in the supplier vetting process
To ensure the best possible results, you'll want to be comprehensive in your supplier vetting process. Here are best practices you should be sure to cover while vetting different suppliers:
- Supplier evaluation criteria: Develop clear and comprehensive criteria for evaluating suppliers. This may include factors such as their reputation, financial stability, quality control processes, certifications, compliance with industry standards, track record of on-time deliveries, and customer references. Establishing well-defined evaluation criteria helps in objectively assessing potential suppliers and making informed decisions.
- Supplier audits and site visits: Conduct audits or site visits to the facilities of potential suppliers to assess their manufacturing capabilities, quality control processes, and overall operations. This provides firsthand insight into their production processes, facilities, and quality management systems. It also helps in verifying their claims and ensures that they meet the required standards.
- Quality control processes: Evaluate the supplier's quality control processes, including their testing and inspection procedures, documentation practices, and traceability of components. A reliable supplier should have robust quality control measures in place to ensure the components they provide are genuine, meet specifications, and are free from defects.
- Compliance and certifications: Check if the supplier has the necessary certifications, such as ISO 9001 for quality management systems, ISO 14001 for environmental management systems, or specific industry certifications relevant to electronic components. Compliance with regulations such as RoHS (Restriction of Hazardous Substances) and REACH (Registration, Evaluation, Authorization, and Restriction of Chemicals) may also be important depending on the type of components being sourced.
- Supply chain transparency: Evaluate the supplier's supply chain transparency, including their sources of components and their practices to prevent counterfeit or unauthorized components from entering their supply chain. A reliable supplier should have robust supply chain practices in place to ensure the authenticity and traceability of components.
- Financial stability: Assess the financial stability and reliability of the supplier. A financially stable supplier is more likely to be reliable in terms of their ability to fulfill orders, maintain inventory levels, and provide consistent support. Request financial statements or credit references to evaluate the financial health of the supplier.
- Communication and responsiveness: Evaluate the supplier's communication and responsiveness. A reliable supplier should have clear and prompt communication channels, be responsive to inquiries and issues, and provide regular updates on orders, lead times, and any changes in their operations or capabilities.
- Track record and references: Check the supplier's track record and ask for references from other customers they have worked with. This can provide valuable insights into their performance, reliability, and customer satisfaction levels.
- Contract and legal considerations: Review and negotiate contracts carefully, including terms and conditions related to pricing, payment terms, delivery schedules, warranties, intellectual property, and dispute resolution mechanisms. Seek legal advice if needed to ensure that the contract adequately protects your interests.
Regardless of power, be ready for shortages
It's not uncommon for the demand for a particular electronic component to increase sharply and then drop off precipitously, especially if it's been in high demand for an extended period of time. Companies big and small get hit by shortages routinely - no matter your level of sophistication, there's too much outside of your control to be able to completely avoid disruptions.
Don't just plan to avoid shortages - you also should plan for how you'll react to them. That's what Amplio's BOM tool does for you. It constantly monitors inventory levels and restocking dates across the entire marketplace and compares them to your MPNs and production needs, and thus is an early warning device for shortages. When inventory levels start dropping, we'll alert you of "Near Shortages" that can be headed off by smart supplier adjustments. No one can completely avoid shortages though; when they hit, our supply chain experts from our PartSecure solution will leap into action and find inventory on the secondary market for you.
Conclusion
If you’re a manufacturer who relies on electronic components, it’s time to make sourcing power a priority. With supply chain management becoming increasingly complex and global, it’s important to have the right tools in place to find a part and to manage your electronic component inventory for optimal efficiency.
