By John Briant
Everyone thought overcoming the Y2K bug would be the primary challenge in the first year of the new millennium. Looks like everyone was wrong. Although there were signs of a changing electronics marketplace in 1999, the rate of commodity consumption in 2000 was a surprise to many.
Presently, the electronics industry is faced with one of the most volatile and heavily allocated marketplaces in several decades. From component manufacturers and distributors through to contract manufacturers and customers, these external forces have had an affect on all. Many companies have completely re-engineered their supply-chain strategies to accommodate the volatility and shortages. That may not have been enough for others, however, and they have had to take a second look at those strategies.
In today's environment of distorted volume and supply, it is important to review existing supply-chain strategies and question their applicability to today's market conditions. Here are some helpful reminders that can keep everyone focusing on the basics.
Focus on Partner Relationships
The old adage that, "It is not what you know but who you know," certainly applies here. During tight allocation times, suppliers should work first with partners with whom they have a mutually beneficial relationship. The more strategic the relationship has been in the past, the more likely the supplier partner will look after the organization's best interests now and into the future. Personalities, loyalty, trust and past history all play important roles in how the supply base priority-ranks customers. All past networking efforts start to pay off when searching the globe for components that are unavailable or diverted elsewhere.
Focus on Customer Relationships
Customer relationships are equally important in the supply equation. Closer communication may be required with customer planning, design engineering and manufacturing teams to come up with alternatives and solutions to address challenges of component change, allocation and nonexistence. In some cases, In the case of a contract manufacturer, the customer may have placed restrictions on the approved vendor list (AVL) or bill of material (BOM), thereby limiting the number of approved sources. In other cases, a standard commodity material may require additional screening or quality improvements necessary to meet the customer's end requirements. In any case, understanding, communicating and working these challenges up and down the supply continuum is essential to keeping the material flowing.
Think Outside the Box
In addition to working more closely with the supply chain (or its individual elements), maximizing creativity in the problem-solving process can bear much reward. Recently, a printed circuit board (PCB) supplier solved a connector allocation problem by using its leverage to bypass traditional channels and procure devices directly from the manufacturer. The supplier then added value by inserting the connectors into the PCBs and shipping the higher level assemblies in the expected lead time. While outsourcing is not a revolutionary concept, many organizations in different areas of the chain miss opportunities within their own backyards.
Reducing Costs
Connector commodities, as an example, offer many unique opportunities to reduce the cost of the total assembly. The first opportunity is the selection of the connector during the design phase. Proactive suppliers are aggressively pursuing early supplier involvement with their customers in order to offer an already available connector or to steer engineers from limiting the AVL. Second, many custom connectors have a high degree of labor content associated with their fabrication. Here, taking an outsourcing track leads suppliers to pre-tin leads, add secondary electronics to the shells or perform many other labor-intensive processes that are currently being done further down the supply line. Last, performing partial or completed board-level assembly and test is also an opportunity for many suppliers in this market. If the "think-out-of-the-box" process is explored, suppliers frequently will be glad to offer value-added processing that may dramatically improve the total cost of acquisition.
Remain Flexible
Customers continually maneuver within their market space to optimize their competitiveness. To be competitive, they must create as much flexibility in the supply chain as possible. To achieve this flexibility, suppliers must be able to depend on accurate forecasting, fast execution and excellent asset management. Although achieving forecast accuracy with the customers is paramount, market conditions may force reactive measures to meet market windows or surge upsides.
One widely used approach to enhance flexibility through the supplier's supply chain is utilizing an advanced planning system (APS). Simply put, an APS enables customers and a supplier to collaboratively plan and optimize the supply chain to satisfy end users.
Conclusion
Looking forward into 2001, most suppliers expect the stock of commodities in the electronics industry to remain highly allocated. In order to satisfy customer demand, organizations must continue to work diligently to observe those all-important basics in order to develop strong supplier relationships, work with customers to grow alternative supply sources, and create and coordinate maximum flexibility in the supply chain to safely ride the allocation roller coaster.
JOHN BRIANT is Corporate Vice President, Materials and Logistics, EFTC Corp., 2501 West Grandview Rd., Phoenix, AZ 85023; (602) 282-5107; Fax: (602) 789-6200; E-mail: john_briant@eftc.com; Web site: www.eftc.com.
