It's not uncommon for an electronics manufacturing service (EMS) provider to have a roster of several thousand suppliers. After all, an EMS will often be required to use the suppliers on its OEM customer's approved vendor list (AVL).

In addition, many EMS companies will often shop around business in an effort to get the lowest possible price for a component, which can drive up supplier count. However, Plexus Corp. of Neenah, Wis. takes a somewhat different approach. It buys its parts from suppliers who can provide the lowest total cost, not necessarily the lowest total price.

The strategy has resulted in Plexus buying 90% of its production requirements from its preferred "matrix" suppliers with whom it has long-term relationships. The strategy also has resulted in Plexus using electronics distributors for between 35%-45% of its spend. In addition, Plexus buys virtually no production materials through reverse auctions, which are popular with many EMS providers.

"Our focus and strategy is lowest total cost of ownership," says Brian Batterman, director of strategic materials for Plexus. "Reverse auctions are targeted to lowest price, not lowest total cost. They drive a transactional feel to the business. Our approach is to engage suppliers and be collaborative," he says.

Plexus buyers are concerned not only with the price of a part, but the tools used to procure the parts and the overhead needed to manage the component. That's one reason Plexus uses seven electronics distributors.

"We use them for materials management programs," says Batterman. Plexus uses distributors for in-plant stores, auto replenishment and IC programming among other services.

Such services reduce Plexus's total cost even if the piece price is higher than buying direct from a manufacturer or buying through a reverse auction.

The percentage of Plexus's total spend placed with distribution varies each year but is usually in the 35%-45% range. That is significant when you consider Plexus will buy about $700 million of production materials in 2004.

To manage distributors and direct suppliers, Plexus uses a hybrid purchasing organization consisting of a centralized strategic supply chain organization and tactical materials operations at each of Plexus 13 global sites.

The strategic group "looks at the top 80% of our spend across the globe, aggregates that spend, contracts for that spend and those contracts are ported to the sites to use in their purchasing execution," says Batterman.

Commodity teams set strategies for the commodities that Plexus buys and measures supplier performance. There are teams for various electronic components and customer components, including semiconductors, passives, connectors and printed circuit boards.

Commodity teams and the Plexus commodity council, which meets quarterly, determine which suppliers become "matrix" suppliers. Matrix suppliers are Plexus's preferred suppliers and get 90% of the electronics manufacturing services provider's business business. In addition, they are in line to get future business as well.

All suppliers must pass Plexus's site and quality audits and meet the company delivery requirements. However, Matrix suppliers are screened more rigorously according to Batterman.

"We score them. After they pass that initial test, we go though a strategic supplier direction and analysis screening which checks for a number for attributes," he says.

The screening determines a supplier's financial capability, their capital expenditure plans, product cost reduction procedures and geographical and market footprint and if senior management is involved with the engagement with Plexus.

"If they pass a quality audit, an onsite audit, the attributes filter and strategy supplier direction screening, they are awarded the status of matrix supplier."

A matrix supplier is one of several for a given commodity and can maintain or grow business with Plexus by maintaining its standing. If a supplier's performance slips and corrective action is not taken, the supplier will lose business.

"We manage matrix suppliers through a commodity council structure through my organization," says Batterman. "We have commodity managers around the globe and they meet quarterly to deal with matrix supplier management issues."

The council discusses supplier performance, reviews nominations for new matrix suppliers, and takes actions on suppliers whose performance may have slipped.

Besides supplier performance, business awards are often based on risk. "With custom parts we have a much lower percentage that we can award to any one supplier because the barrier of moving business are much greater in terms of fixed cost," says Batterman. "With components we can award a significantly higher percentage to any one supplier.

"Our strategy mandates that we have three viable suppliers for any one commodity code. There is no maximum number, but we have three to six for most commodities," he says.

The commodity teams also measure and monitor performance of suppliers that are on an OEM customer's AVL.

"We do risk assessment on all of our components by customer," says Batterman. "That includes lifecycle analysis and exposure based on a single source. We will report back to the customer if there is a supplier not performing up to our standards," he says. "We may suggest moving business to one of our matrix suppliers to reduce risk. Or there might be a price advantage or a supply chain advantage by doing so as well."