Spot allocations, unexpected upside demand, quarter-over-quarter growth and positive book-to-bill--all signs that the long-awaited change in the component procurement environment looms near. As a manager or a member of a supply chain team, how are you handling the uptick in the market? There are practical steps that can be taken to avoid overpaying for products, losing products to competitors, line-down situations and disappointing customers. Here are seven suggestions:
Identify a practical number of reliable open-market sources. No vendor can be all things to every customer. As a minimum, use three open-market sources and no more than five. This range increases the likelihood of one of the vendors' finding the part, while minimizing the risk of creating artificial price inflation through an increase in perceived demand.
Avoid making a decision based solely on purchase price variance (PPV). While price is important, the cost of disrupted production and disappointed customers can be much more significant. As the market changes, beware of the vendor trying to buy its way in on price. The old adage "if it seems too good to be true, it probably is" applies in the distribution market as well.
Ask your vendors if they are willing to guarantee delivery. In a fast-moving market, reliable delivery can be more important than price. Look for vendors that will guarantee delivery or, even better, ones that will provide a written money-back guarantee. The last thing you want is to think you've fixed a problem only to find it has escalated.
Start a mentor program for your purchasing personnel. Put experienced employees in a position to answer questions about how to handle certain situations. The market has been one-sided for the last three years, and many of today's buyers have never lived through even spot shortages, let alone a strong up market. Without guidance, the opportunity to make mistakes is exponentially higher.
Streamline the production of hard-copy purchase orders as well as the PPV approval process. The current down market has resulted in a slowdown in many procedures and processes. Inventory has been available for days, if not weeks, after receiving a quote so there's no incentive to act quickly. As the market moves, however, availability will change. Consider the creation of dedicated teams to expedite the approval process on fast-moving products.
Build some buffer stock. Viewed as taboo for the last few years, a buildup of buffer inventory could be your saving grace as allocations proliferate. Be sure to work with a vendor that has the financial and logistical capability to manage bonded inventories and scheduled shipments.
Listen to your vendors. You need to have sources of information above and beyond your direct suppliers. A good supply partner should be able to tell you where the market is going, not just where it's been. In other words, find a source that can provide you with market intelligence and analysis.
John S. Irving can be reached at email@example.com or www.fusiontrade.com. Fusion is an independent distributor of electronic components.