Rx for innovation: Purchasing specialists
While the electronics industry downturn has resulted in leaner purchasing staffs, many large companies still have buying specialists, who focus on one or two commodities.
By James Carbone -- Purchasing, 11/19/2009 2:00:00 AM
In one way, supplier management in the electronics industry is similar to the medical profession. In medicine, there are specialists with an in-depth knowledge of an illness or a part of the body. In supplier management there are also specialists with in-depth expertise in a specific electronics commodity.
Most large OEMs and electronics manufacturing services (EMS) providers have specialists on commodity management teams, despite the industry downturn that has resulted in overall smaller staffs. Larger companies use specialists to identify new innovative technologies that can be used in future products, as well as to source commodities that are new to the company.
The specialists also look for potential new suppliers and also help develop sourcing strategies for commodities, including the number of suppliers that should be used. They also monitor market conditions of a commodity and negotiate contracts with suppliers.
Many OEMs also have purchasing generalists, who may handle multiple commodities and more of the routine purchasing functions, such as placing orders with suppliers.
IBM has specialists on its 13 procurement councils, which manage various commodities, including memory ICs, passives and connectors among others, says Winnie Sun, vice president of production procurement sourcing at IBM in Research Triangle Park, N.C.
"We are specialists and we are becoming more specialized, covering a wider variety of areas," she says.
She says commodity specialists help IBM "compete in a very challenging economic time and help us buy more effectively and partner with suppliers."
For instance "the deep knowledge we have in the memory IC space can help our product design, so we have the best product innovation, quality and speed to market," she says. For example a specialist working closely with a supplier can evaluate a supplier roadmap and determine when a technology may be available.
With DRAM, the specialist would be able to determine when the next-generation DDR DRAM technology or a higher density chip would be available from a supplier and at what cost. That could be critical information because future IBM products would likely use the technology and higher density chips.
Aligning with design
Prentis Wilson, vice president global supplier management for Cisco Systems in San Jose, Calif., says Cisco needs supplier management specialists because "we generate a lot of new technology and innovation. That requires that we have strong technology alignment with our supply base and with design."
Cisco's supplier management organization is tightly integrated with Cisco's engineering team, he says."Our sourcing resources are embedded with our engineering team to help drive the innovations we need. We focus on specialists around certain technologies such as application specific integrated circuits (ASICs), memory ICs and optics."
Some members of Cisco's supplier management organization have PhDs and design backgrounds in certain technologies. "That's how specialist we get," Wilson says. However, in other cases, Cisco has specialists in low-tech commodities. One example is furniture.
Furniture is a key part of Cisco's TelePresence product line. TelePresence is a high-end teleconference system. Users sit in chairs at tables facing high-definition monitors and cameras in a conference room or in an office to meet virtually with people in other cities, countries or continents with similar equipment. Special chairs and tables are integrated with the video and sound systems in the teleconferencing systems, which can cost $340,000.
"When we first launched TelePresence we didn't have specialists around furniture," says Wilson. So Cisco had to hire people with such expertise. The specialists had to qualify suppliers' capabilities to manufacture the furniture that would be integrated with the high-tech equipment.
Cisco also had to find purchasing specialists for the high-tech components of the TelePresence system, including high-definition plasma displays, cameras, speakers, microphones and projectors. There was little expertise at Cisco with those products, many of which had to be customized for the TelePresence system. It was a new product for the company, which is better known for networking equipment such as hubs, routers and switches.
Changing technology
With semiconductors and other electronics components, Cisco needs specialists because technology and the electronics market both change so quickly.
"We need people who understand the industry and the technologies that the suppliers are investing in," he says. They have a deep understanding of our suppliers' technology roadmaps." Such knowledge of the supply base and technology roadmaps is important in Cisco's new product development efforts.
With the in-depth knowledge, "we can go back to the supply base and shape their technology investments based on where our future product platforms are going," Wilson says. At the same time, Cisco's supplier management specialists can bring back to engineering teams information about which suppliers are developing technology that may be used in future Cisco products.
"We can prepare our design team for the next level of evolution in technology," he says. "We can also plan value engineering opportunities for a product upgrades in the future."
Having specialists at that "level of intimacy on the supply side and engineering side gives us huge leverage. It serves us well," he says.
Purchasing specialists involvement is also beneficial to suppliers. "Suppliers save a lot of money because they are not guessing at where to invest research and development dollars and are not guessing what technologies are going to win out," says Wilson. "They get a lot of support from us.
"Because of our specialists, a lot of suppliers come to us often to discuss technology roadmaps and roadmap alignments," he says.
A hybrid approach
Electronics manufacturing services provider Celestica, based in Toronto, has a hybrid model of purchasing specialist and generalists, says Jim Simpson, director of supply chain management and engineering services. Such a model "brings us the best of both worlds," he explains, because generalists develop close relationships with OEM customers, while specialists provide an in-depth knowledge of technologies and suppliers.
He says buyers, who are placing purchase orders, are generalists although they are specialized around a customer. OEM customers have dedicated buyers, who purchase for a particular customer.
The buyers are part of a matrix organization that includes customer-centric and commodity-centric functions. The customer-centric buyers are generalists and are placing orders and monitoring the requirements of the customers. They monitor how quickly an OEM customer wants to ramp up or ramp down production of a product and manage inventories to the appropriate levels, says Simpson.
"They are customer centric and may be program centric as well," he says. "That allows them to develop the intimacy around the end product and the challenges that they are facing with that."
But the drawback of customer-centric buyers is they can lack in-depth knowledge of commodities such as microprocessors, DRAMs and resistors. However, that issue is addressed by commodity-focused buyers.
"On the other side of the matrix, we have our commodity management organization, which is commodity centric," says Simpson. "That's where we have the specialization where there is a commodity manager in charge of one or two commodities."
Technically focused
The commodity managers are "very technically focused and have industry linkages and knowledge of the industry and a specific technology," he says.
However, not all commodities require specialists. "It depends on the sources available and the complexity of the commodity," says Simpson. "With some commodities like DRAM, you need to have a person who is an expert on DRAM and DRAM only because there are tremendous differences between DRAM and SRAM."
Simpson notes DRAM is "highly complex marketplace where prices change daily and players are coming in and out of the market." However, for other commodities such as logic devices, there is a tremendous amount of overlap between logic and linear and other active devices.
"Those are ones that you can consolidate under one because there is supplier overlap, they are similar technologies and similar marketplace forces," he says.
Celestica, like Cisco, doesn't just have specialists for high-tech parts. It has specialists for commodities like sheet metal and plastic parts as well. "For those, we not only have a dedicated commodity manager, but an engineer as well. They are a team together," Simpson says.
Celestica has specialists in sheet metal and plastics because the EMS provider's "responsibility engagement is a lot higher than it would be for microprocessors," he says.
"With an Intel processor you are not that intimately involved because you are not going out and determining who the supplier is going to be for the part," he says. "It's already determined."
However, with build-to-print commodities like plastics and sheet metal, an OEM may design the part and turn it over to Celestica to have it sourced. "An Intel processor you buy from Intel, but a sheet-metal part you can buy from anyone," says Simpson.
Because Celestica has to manage sourcing of metal and plastic parts, it has an engineer on the sourcing team, who can qualify the part and supplier.
"We need to have more resources because our scope of responsibility is higher for build-to-print than for an already defined product" like a semiconductor, he says.
For build-to-print parts, the specialists audit the supplier to makes sure that they have all the capabilities that they claim they do and all the quality processes.
"You then project manage that part all the way through because you have to establish the tooling," says Simpson. The tooling must produce the part to the diagram that was provided to the supplier and supplier's manufacturing process must insure quality parts every time.
He says specialists tend to have an engineering background, but may also have MBAs.
"The commodity manager can balance the technical challenges and requirements and the business aspects as well. You don't want them to be so pigeon-holed and focused that they can only drive one level of commodity," says Simpson.
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