MicronPC looks to suppliers for key technologies

By Staff -- Purchasing, 11/16/2000

It's no secret that in the PC industry if you don't come out with a computer with the latest and greatest technology before or at the same time as your competitors, you will lose market share.

At MicronPC, a $1.6 billion build-to-order personal computer manufacturer based in Nampa, Idaho, purchasing plays an important role in making sure the computer company is supplied leading-edge technology for its systems. Over the past three years the company has made a painstaking effort to reduce its number of suppliers so it can work closely with fewer of them. The idea is to become a more important customer to the suppliers and to make sure MicronPC gains access to the latest technology that computer buyers are looking for.

MicronPC uses about 60 suppliers to provide about 90% of the material that it needs for its computer systems. "A little over two years ago it was about 160," says Bob Haycock, vice president of purchasing for MicronPC. Haycock heads a 100-person purchasing group. Supplier quality engineering and supplier logistics also report to him

"We made a real conscious effort to reduce the supplier base so we could become more important to suppliers and to improve communication with them," says Haycock. "That's hard to do with multiple suppliers."

In fact, MicronPC is heavily dependent on its suppliers. It spends about $900 million annually with suppliers. "We buy the materials that we integrate into manufacturing a PC," says Haycock. " We don't have surface-mount equipment or anything like that. We buy motherboards from OEM suppliers such as Intel and others."

Key suppliers are brought in at the concept stage of new product development, says Haycock. Those suppliers make memory, processor, software and multimedia products for MicronPC.

"We have developed a reputation as being innovative and you can't do that in a silo," says Haycock. "You have to communicate openly with strategic suppliers and there has to be a certain level of trust. Suppliers do that for us because we have the reputation of being first to market. They want to partner with companies who can get their product to market as fast as possible," he says.

To manage supplier relationships, Micron has 10 commodity teams for critical parts and assemblies including memory, central processing units (CPUs), motherboards, displays, peripherals, software and mass storage among others. The teams are chaired by purchasing and are cross functional with representation from planning, new product development, engineering and marketing. "The teams meet weekly to discuss a variety of issues including new technology developments, cost, quality and delivery issues among others.

The commodity teams are one way that MicronPC's purchasing operation has changed. "Purchasing at MicronPC has evolved over the past couple of years," says Haycock. "It has matured." Purchasing used to be one group, supplier quality engineering was part of quality, and receiving was part of inventory. "We made a conscious effort to bring it all under purchasing's roof to be more efficient, and it has worked wonderfully," he says.

Commodity teams also develop supplier strategies and determine how much business suppliers are awarded. "If we can avoid it we will not have a single source," says Haycock. "Sometimes you have a customized product or suppliers have a certain amount of market share and you have to use the product of one supplier." But generally MicronPC likes to use three suppliers per commodity, but does not divide up the business equally. How much business a supplier is awarded is dependent on technology as well as performance to Micron's PC requirements.

Since MicronPC has pared down its supplier roster over the past several years, the company will change suppliers only when its existing suppliers fail to meet its requirements concerning technology innovation, cost, quality and delivery. Micron PC will add a supplier if it can provide new technology that customers want.

"There are a lot of technology leaders out there who aren't necessarily mature companies, who haven't mastered the blocking and tackling aspect of being a supplier" says Haycock. "If technology is promising enough to us and our customers, we will work closely with those suppliers to get them to meet our business needs outside of technology."

Because the computer industry is so competitive, suppliers generally don't need help or motivation in reducing cost. "They know to survive they need to do that. There's not a heck of a lot we can tell Western Digital about how to make disk drives more efficiently," says Haycock. It's a competitive business.

However, MicronPC sets cost targets for suppliers which are driven by personal computer pricing. "If it gets more aggressive we have to be more aggressive with pricing for suppliers," says Haycock.

One way that Micron PC is trying to reduce its cost of doing business with suppliers is through electronic commerce. One of the top initiatives is to establish e-commerce Internet purchasing relationships with all of their key suppliers. That initiative is under development. Key to the initiative will be allowing suppliers to see a new order for a system when Micron sees the order.