Know your suppliers other customers
By Purchasing Staff -- Purchasing, 6/5/2009 9:40:00 AM
Executive Editor Jim Carbone interviews Ganeesh Moorthy, chief operating officer at Microchip Technologies. Microchip makes microcontrollers, digital signal controllers, analog chips and serial EEPROMs. Moorthy is also the former vice president of Microchip automotive division.
Q. Have you seen much pain in your business as a result of the automotive bankruptcies?
A. We have seen pain in our automotive business, but not to the same extent as others that have a much larger percent of their business with GM or Chrysler.
When a large company like GM or Chrysler files for bankruptcy, there is a ripple effect along the supply chain. As the auto industry is challenged financially there are repercussions. First-tier suppliers feel it the most, especially if they have with 20%, 30% or 40% of their business with GM or Chrysler. Some first-tier suppliers go into receivership. Microchip does not have an automotive customer that accounts for more than 2-3% of Microchip’s total sales.
Q. What is the main lesson for buyers?
A. A lesson for buyers is that they should take a look at who their suppliers’ other customers are and determine if the suppliers derive a large percentage of their business from one or two customers. Obviously such a supplier could be at financial risk if one of its large customers files chapter 11. So a buyer would want to limit the amount of business he places with the supplier to reduce his company’s risk.
Q. Will the bankruptcies affect prices?
A.Bankruptcies can impact prices for standard electronics products such as resistors or connectors as suppliers to tier-one suppliers of automakers feel pressure to lower cost. However, suppliers of more proprietary products such as Microchip aren’t affected by that because the price is usually set at design it.
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