Lower total cost
Jim Carbone, Executive Editor - Electronics -- Purchasing, 12/9/2004 2:24:00 PM
It’s no secret that many major electronics manufacturing service (EMS) providers have shifted their manufacturing to China and other emerging low-cost locations. But what is not as widely known is that many of the top EMS providers use electronics distributors in those new emerging areas to reduce risk and total cost of ownership. A case in point: Celestica, which has manufacturing facilities around the world including China.
Celestica uses the top five North American based distributors to help reduce total cost at its facilities, says John Boucher, newly appointed chief supply chain and procurement officer.
“As we enter into emerging markets, I use the electronics distribution channel. Some of my suppliers want me to partner with distributors to reduce their order fulfillment cost. If it is saving cost in total supply chain I will use the distributor. I have no problem doing that,” he says.
Most EMS providers purchase large volumes of parts directly from component manufacturers because they can get a better price per piece. However, Celestica takes a close look at total cost of ownership especially in emerging manufacturing locations and it often makes sense to buy from distributors in those areas.
“I buy a significant amount of component part numbers that are franchised by distributors. If a distributor gives me a quote for a part in a particular geography and provides me with the lowest cost solution, the distributor becomes my partner,” he says.
Lowest cost includes price, freight cost into Celestica, suppliers’ delivery and quality performance and willingness and ability to engage in “strategic initiatives” with Celestica such as supplier managed inventory. Distributors will operate in-plant stores and auto replenishment programs or stock inventory close to Celestica’s facilities.
“They position inventory for us or they guarantee a turnaround time of 24 hours,” says Boucher. “They may have it on site or close to the site, but that 24-hour turnaround time is going to be fulfilled either way,” he says.
Use of distributors also helps Celestica control the proliferation of the number of suppliers in emerging areas. “In emerging markets you often have a lot of small spend with a lot of smaller suppliers,” says Boucher. “If my distributor partners are franchised with the suppliers and I can aggregate my purchase, I can reduce my costs internally and develop a better total cost solution.”
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