Obsolescence Insurance, a New High-Margin Business for EMS Companies
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The world of components buying is fraught with risks. Even the newest electronics components buyer at a contract manufacturer or OEM knows the terrain is riddled with dangerous obstacles ranging from non-optimal pricing conditions to delivery bottlenecks and the more intractable challenge of dodging counterfeit parts to ensure the supply chain doesn’t become corrupt. Those are the basic problems and the warning signs are taken seriously by industry experts.
One company that’s taking steps to help components buyers address these challenges is Arrow Electronics Inc. The company’s Verical business unit has been active in helping electronics parts buyers not only secure needed stocks for volume production but it is also busily involved in assuring these professionals that their concerns can be easily addressed through the provision of numerous guarantees related to availability, security and timeliness of delivery.
In furtherance of this, Verical has partnered with Electronics Purchasing Strategies to enhance the dissemination of critical information and data about the purchasing and procurement functions to buyers, OEMs and contract manufacturers. That is the story behind the establishment of Connect, the online news and market intelligence site for the procurement professionals published as a part of EPS.
Verical Connect is but one in a series of educational and business development actions that electronics supply chain practitioners have long advocated to reduce risks in the design chain and in the manufacturing sector. It’s also another sorely needed weapon in a growing arsenal needed by components buyers who daily face numerous challenges as they try to ensure components get to the manufacturing floor on schedule, at the right price and right volume. It's a delicate balancing game of matching demand, supply and pricing for all players, including OEMs, EMS companies, component suppliers, distributors, logistics companies and other third-party support services providers.
Today’s purchaser is basically the conductor of the production orchestra. He or she must buy the right components at the “right” price, ensure they are delivered on schedule to the right production floor just-in-time, (JIT), create the perfect lag time between deliveries to reduce inventory overload and avoid shortages, deftly scale regulatory compliance hurdles and keep one eye on the manufacturing process to ensure the right balance between components, work-in-progress and finished-goods.
No wonder purchasers spend so much time outside the public eye, preferring instead to focus on the minutiae of procurement’s unglamorous demands. One of the cardinal principles purchasing lives by is the “no line down,” concept. They are the Guardians of the Production Galaxy and in many ways the unsung force nobody really knows about – except bean counters in the CFO’s office – despite the ubiquity of the services they provide.
Good and reliable external partners are critical to the success of this group of service providers in the electronics supply chain. Many such partners stand out. They include components distributors, software vendors, third-party demand and supply data and pricing information providers, logistics services companies and other support services providers. In this group, though, distributors stand out because they are at the core of purchasing’s procurement requirements. They stock components, provide sourcing information about availability and datasheets relevant to the parts and offer a wide range of other services that include shipment and regulatory compliance.
There are specialization of services even in distribution, though. Some companies go beyond simply selling components. They offer other services that help allay many of the concerns purchasers have and even go beyond these to help manage and address many of the risks inherent in procurement functions. This is where the biggest component distributors shine. They have a large breadth of products and support customers also with numerous value-added services. Some, like Arrow, offer additional supply chain management offerings that are critical to a successful procurement and production program.
Arrow is going beyond even this. The company’s Verical division is primarily focused on the electronics components procurement community and has intensified efforts to service this group with a range of add-on offerings that aim to address purchasers’ concerns with tailored products. Verical’s main strength include the wide and immediate availability of components from a deep bench of trusted and verified suppliers – as much as $5 billion worth of inventory – and the traceability of the parts, according to Verical executives.
Traceability is critical to building sourcing confidence and it is probably one of the most useful tools in any buyers’ toolbox for protecting the supply chain against counterfeiters. Verical executives also tout some of the other benefits procurement managers can expect from using their services. These include the transparency of the purchasing process, the anonymity of the buyer to the supplier and pricing competitiveness.
All these services are important but as in every industry segment information is critical to keeping a competitive edge for purchasing managers. News and data about the industry, product availability, purchasing environment, demand and supply issues and regulatory compliance requirements are a few of the issues that purchasers must constantly stay abreast of.
Verical Connect aims to facilitate this value-added service. The online version and the quarterly digital magazine will dive deep into issues of significance to purchasers, focusing on topics that will include demand and supply conditions, regulatory developments, pricing and availability as well as mergers and acquisition activities that can impact purchasers.
Barbara Jorgensen, a veteran journalist with decades of experience covering the distribution and electronics supply chain, is the editor-in-chief for Verical Connect Online, supported by Lisa Cairns, an industry specialist with more than 15 years of experience in distribution sales, marketing and data analytics. The team is complemented by Nicole Lewis, who has been writing about supply chain conditions from the OEM and supplier angles for more than a decade.
Verical Connect also draws contributions from other EPS editors as well as industry experts on the various topics the online magazine will cover. Contributors include industry executives, analysts and freelance writers specializing on regulatory issues, supply conditions and anti-counterfeiting strategies.
Our goal is to rekindle a vital dialogue about best practices in the electronics components purchasing community and help create an environment where practitioners can get and share information relevant to the advancement of the profession and their careers. Please feel free to join in. To contribute articles, please email Barbara Jorgensen.
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