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Evaluate spend strategy in Asia
May 17, 2007
Multinational organizations have rapidly expanded in Asia to support manufacturing. Many manufacturers, including electronics manufacturing service providers, original design manufacturers and OEMs, have tried to manage suppliers and leverage sourcing by having a centralized sourcing group and operational buyers at the local facilities. The new information age has provided ERP and other systems to allow a centralized view of data, providing for better supplier management. Or does it?Do these sourcing functions provide the best value for the purchasing spend, especially with the new RFx and auction capabilities of the software tools?
Not just to be a contrarian, but as a reality check on these new purchasing organization structures, we find new problems here in the Asian market.The centralized supplier selection (AVL-approved vendor list) sometimes ignores local operational needs and can result in a number of problems. For example, for emergency and urgent requirements, sometimes only a local supplier can supply the part or product.
Further, the centralized use of the auction process drives down prices, but can affect the overall relationship with suppliers. The effect is felt by the local buyer who places the PO. The sourcing group gets the kudos for the reduced pricing, but the local manufacturing buyer must deal with a possible a strained relationship, or perhaps with delivery problems.
It may be back-to-basics time in that purchasing management needs to look at the overall strategy concerning spend management. That means reevaluating the approach to the spend for the company. Here are some questions to ask in the evaluation:
1.Are my strategic efforts being dedicated to the right services and material, and should more local authority be given to the local buying group?
2.Have I recruited the right personnel at the right location to effectively perform the purchasing activities?
3.Do my sourcing people and my local buyers actively coordinate needs and ideas?
4.Are there cultural problems between the groups? The differences might seem minor, like between Taiwan or Singapore sourcing and indigenous buyers in China, but don’t be fooled. Even though the language and communication is similar, there are differences.
Find more background here: http://www.business-in-asia.com/sourcing_products_in_asia.html
Purchasing management has gotten complex now that the global manufacturing has expanded quickly. No organization solution fits all circumstances, and this is especially true for the current trend in Asia of centralized sourcing and local facility buyers placing the orders. Efforts to coordinate between the centralized and the localized purchasing professionals are a key issue to alleviate the old “line and staff” problems. from the past. Total cost management and the supplier relationship models cannot be affected significantly without an in-depth spend analysis, and the resulting focus on effective purchasing practices.
Posted by Walter E. Buczynski on May 17, 2007 | Comments (2)
In response to: Evaluate spend strategy in Asia
Schuyler Glidden, SGI commented:
I enjoyed your article. What are your thoughts on the most recent mergers of the larger EMS providers. Are they merging to compete with Hon Hai ( Foxconn) - whose growth is spectacular. Another issue that you touch on is relationships.China appears to have a complete disregard for patent and copywright law, especially in the semiconductor market.As these large EMS companies push for cost reductions the quality of the goods delivered diminishes and results in RMAs or worse damaged boards
In response to: Evaluate spend strategy in Asia
Walter Buczynski commented:
I note that some EMS companies are becoming like product or industry specific ODM companies, focused for targeted growth. Recent ads from one was asking for Auto Industry experience. Mergers may add revenue but from what I have seen with Foxconn, they are more vertical in process. This would be financially expensive to challenge for the standard EMS strategy. Really large merged EMS companies will have to be sure to respond to the customer, especially those with time to market issues, or find that they may lose work to the many smaller more nimble firms. IP will always, for the time being, be an issue here in China. It’s the fake parts, active and passive, of which some even pass a basic level power test that become the cost and schedule problem. Even the most reputable sellers get hit from these parts and once assembled in the PCBA, become a major challenge. EMS companies with poorly trained buyers, or lower paid buyers are more susceptible to big purchase problems. Buyer “commissions” are still around in the industry (in many industries), and it may lead not only to higher BOM costs but a risk on the components themselves. If there was a way to add some testing, inexpensively, into the acceptance cycle, of course the risk would be less. But saying that, it is fine for some active parts, but even some high use passives are copied and testing is prohibitive, and the problems will only show up as your say after assembly, causing the usual rework, return, and schedule costs.