Obsolescence Insurance, a New High-Margin Business for EMS Companies
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Procurement specialists have to focus on a lot of issues strategic to their organizations. But what is the problem that most bedevils buyers themselves? Time management.
PrimeAdvantage, a buying consortium of small and midsize manufacturers, found time was the scarcest commodity among respondents to its 2015 survey. Because of time limitations, 63 percent of respondents said they are allocating their time toward finding new sources of supply to reduce procurement costs. Implementing lean was the second-largest consumer of buyers’ time.
Still, low prices are not the first thing buyers consider when qualifying suppliers. Quality is the leading attribute procurement specialists are looking for: 94 percent of respondents listed this as their first priority. The next supplier qualifications, in order, were: on-time delivery (91 percent); price/performance (81 percent;) and responsiveness to change demands (71 percent).
The other challenges buyers face in their day-to-day activities—following time pressure—are getting accurate spend data; establishing consistency across multiple locations; a shortage of talent, budget cuts and internal stakeholder/departmental engagement.
What’s particularly interesting about this segment of the market is the size of the companies in the sample and the allocation of their spend. Companies range in size from $10 million to $4 billion, and the majority of the spend within these organizations is indirect. Regardless of budget size, 82 percent of respondents to the 2105 survey utilize indirect channels.
Indirect spending is one of the bugaboos of the electronics supply chain, in particular, as buyers increasingly want to be able to follow the parts they purchase from supplier factory through end-product. Of the PrimeAdvantage respondents, which span a number of industries, 48 percent say it is important that they be able to control that spending and 34 percent deem it “extremely important.” In electronics, most of the spending that does not go directly to suppliers goes to distribution.
Another interesting development in the 2015 survey is that 76 percent of participants actively participate in new product development. PrimeAdvatage said in its report that companies are integrating purchasing’s “mastery of materials management” into new product development. Although research conducted exclusively in the electronics industry indicates that purchasing and engineering are no longer divided by an impenetrable wall, the go-to-market strategy of many component suppliers and distributors is to focus on engineering.
Securing a spot in a new product design has the potential of component sales for the lifespan of the end-product. Engineering, however, does not manage the component’s journey from procurement through final production. In fact, 88 percent of respondents in the PrimeAdvantage survey say their performance is measured first by on-time delivery, followed by cost savings realized (79 percent), purchase price variance and inventory turns (75 percent each.)
For the remainder of the year PrimeAdvantage members have tamped down their enthusiasm for growth and expect revenue to increase slightly or stay the same from 2014. Although 88 percent of respondents cite that expectation, PrimeAdvantage says that the least optimistic response it has seen since 2010.
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