SupplyChainTalk: From afterthought to essential - optimising electronics sourcing in your procurement strategy 

On 4 December  2024, SupplyChainTalk host Alastair Charatan was joined by Varun Narayanan, Global Category Director, Gilbarco Veeder-Root; Nanda Kishore, VP of Sourcing, Evoy; Luis Taraco, Indirect Procurement Sourcing Manager - NAM, Schneider Electric; and Ken Bradley, Founder and Chief Strategy Officer, Lytica Inc. 

 

Views on news 

Before Trump’s announcement of plans to impose broad new tariffs on Mexico, Canada, and China on his first day in office, company earnings calls were filled with warnings about the impact tariffs could have. “We have a wide range of mitigation options, and in fact, everything is on the table,” Williams Sonoma WSM CFO Jeffrey Howie told analysts last week. That includes price hikes, supply chain adjustments, and stocking up on inventory before any new levies are enacted. Tariffs are nothing new, though. 

 

In 2018, it was a much heavier lift, so now businesses can turn to the same playbook. The measure is primarily about penalising China and the Mexico tariffs may not last too long. Businesses must find the right strategy to tackle it, which can be price hikes, stockpiling or diversifying supply chains away from China – which should be a gradual, ongoing process. 

 

US exporters can change their EMS companies to adapt to the situation. Internally, if the new administration makes countermeasures, the consumer may not be affected by tariffs on imports. Subsidies given to poorly performing companies which can’t compete internationally, however,  will mean that they won’t feel the need to improve.  

 

From afterthought to essential 

Traditionally, purchasing electronic components was buried in manufacturing. Covid changed this. To mitigate the effect of price increases, businesses can have multiple sources approved on their approved vendor list (AVL). Other strategies include predictive analytics to anticipate shortages, adapting the design-to-cost strategy to optimise material usage, collaborating with suppliers and value engineering to reduce production cost. There is also an increasing trend of forward contracts and hedging strategies to mitigate risks deriving from market fluctuations. It must be remembered that 70-80% of the costs are locked in at the time of product design.  

 

You must benchmark your suppliers to see who the good partners are and who are only after milking you. Purchasing is all about creating leverage for negotiation, which can come from many different places – for example, the connection you have with your negotiator. It’s also key to optimise your relationships with your preferred suppliers, who are usually identified on the basis of score cards. Another approach is to focus on relationship alignment and assess the supplier based on how they responded and treated you as a customer in times of crises.

 

Preferred suppliers are not inherently single source – they can mean multiple options within a flexible framework. For selecting preferred suppliers, it’s also an important criteria to see what percentage of the revenue they are impacting. There are certain components too, where you can’t have multiple suppliers such as FPGAs and GPUs.  

 

The panel’s advice 

• There are some table stakes that preferred suppliers must meet in terms of service and quality.  
• At the end of the day, you are looking for suppliers that can get your time-to-market down.    
• Collaboration is a key element of supplier management beside aiming for the lowest cost. 
• Focus on value rather than cost management, where value incorporates not just cost but also security of supply and compliance.  
• Always measure your cost improvement in the context of where you are currently on the market.