How to Build a Sustainable Electronic Component Supply Chain

It’s not always clear how to build a sustainable electronic component supply chain.

In fact, according to EY, only a handful of supply chain executives have the necessary tools to execute sustainability goals. 

With good reason. 

Doing so inevitably involves balancing multiple aspects of procuring the needed parts for an end product – including cost, security of supply, and compliance.

Before we go any further into this balancing act, let’s first establish a definition of a sustainable electronic component supply chain.

In this context, a sustainable electronic component supply chain is defined as the ability to maintain a high-performance supply chain while being responsible for the environment and the needs of society.

But how can you build it? Let’s dive in. 

Elements of a Sustainable Electronic Component Supply Chain

It may not be as easy as one, two, three – but there are three main features of a sustainable electronic component supply chain. 

Cost management, security of supply, and compliance are the key elements to actually reaching those coveted sustainability goals. And now that we’ve established that baseline, let’s now jump into each of these core features in greater detail:

1. Cost Management 

A necessary piece of any great supply chain is the ability to keep costs low when procuring components. In order to understand your product’s true cost potential, you need a high degree of confidence in your component data and insight into how your processes benchmark in the marketplace. 

Better processes and better component-based insight lead to better cost results. On the flip side, cumbersome processes and poor data quality ultimately lead to errors in the procurement process, strained supplier relationships, and higher component pricing and overhead costs. 

To optimize cost on electronic components, procurement organizations need to invest in their ability to benchmark their existing pricing at a component level and gain actionable insight into where they can improve based on credible market data. 

How can procurement solve this? 

One solution to consider is our Spend Benchmarking capability – which draws on the world’s largest and only independent database of millions of electronic components and their real-world prices paid by actual customers. By securely uploading electronic component spend data, you receive a component-level cost competitiveness score and risk analysis for use in supplier negotiations and architecting an optimal supply base. 

With Spend Benchmarking, procurement benefits from:

  • Identifying the best cost savings opportunities across your electronic component spend (e.g. paying a higher price for a component v. market average) 
  • Determining areas of unnecessary component risk exposure (e.g. unnecessary single-sourced components, BoM containing end-of-life components, etc.)
  • De-risking of components and bill of materials by finding alternatives for use in your products 

Investing in technologies like this will help procurement organizations leverage trusted market insight to identify areas of cost savings and determine which procurement processes are working and which need to be improved.

2. Security of Supply 

Security of supply is another critical element of a sustainable electronic component supply chain. Without the ability to procure needed parts, products are not able to be built and delivered. Several factors strongly influence the security of supply within a supply chain, including:

  • The selection of manufacturers and components used in the product design

When choosing manufacturers and components for a sustainable and reliable supply base, certain factors must be taken into account. For multi-source components, it is advisable to have at least three independent sources of supply for each component that are not part of the same parent company or rebranded and sold by one of your existing manufacturers.

  • The integrity of the data used in obtaining components

Having quality issues in component data is common among all companies. However, those with high-quality data have a competitive edge in procuring components at better prices. It is crucial for businesses to prioritize managing their component data with clean and accurate information to improve their overall performance.

Having worked with thousands of customer files, we have observed various issues affecting component data management. These include companies with multiple client names for the same components due to past acquisitions, outdated information caused by changes in lifecycle status or manufacturer name changes due to mergers, and errors in MPN such as keystroke errors or misspellings leading to unintended character substitutions.

  • The inherent risks in a complex, global supply chain

Managing a sustainable and effective supply chain involves dealing with various risks such as geopolitical events, logistics disruptions, and pandemics. To protect against such risks, due diligence on supplier companies and understanding the key ingredients for component manufacturing is essential. 

While some measures to ensure safety can be complex and expensive, certain practices can easily mitigate risk. These practices include selecting alternate source manufacturers with geographic separation and different countries of origin, requesting suppliers to hold safety stock for high-risk components, obtaining copies of manufacturers’ business continuity plans, tracking component price and availability trends, and simulating potential geopolitical and geographic events to develop a mitigation plan.

Procurement data availability and quality is arguably the most important theme that affects all of the aforementioned aspects of security of supply. That’s why it’s important for component data to be clean, accurate, and continuously reviewed. That’s where Lytica can help.

Lytica can address security of supply issues by:

  • Identifying unnecessarily single-sourced components across customer spend that could lead to shortages if the supplier is unable to deliver.
  • Identifying suppliers who may be at risk of not being able to supply the electronic component anymore due to the presence of contracting product lines.

Identifying potential electronic component alternatives to introduce more diversity into the supply base.

It’s clear that data plays such a crucial role in ensuring the security of supply for electronic components. By leveraging technology, manufacturers can improve their procurement processes, increase supply chain sustainability, and mitigate the risks associated with electronic component disruptions.

3. Compliance 

Within our changing economic landscape, compliance has become increasingly important across the enterprise – and supply chain is no different. 

Electronic supply chain sustainability requires understanding your industry and ensuring you’re complying with everything from product design requirements to cybersecurity practices to government regulations. 

On an electronic component level, those selected must meet all the requirements of the product and the marketplace in which your product will be sold, as well as have certifications supporting their sustainability and compliance claims. For manufacturers, it’s important to work with a vetted set of companies that have demonstrated practices to meet environmental and societal sustainability expectations. 

Placing a premium on compliance will inevitably result in a more sustainable global electronics supply chain as you’ll see a reduction in unnecessary delays, foster better relationships with suppliers, and ensure end products are delivered to meet industry standards.

Equip Your Electronic Component Supply Chain with Market Insights for Sustainable Performance

Building a sustainable electronic component supply chain requires balancing a variety of considerations— including cost, security of supply, and compliance. Overwhelmingly, clean and reliable market insight represents the single largest factor in enabling improvement across each of these dimensions. 

A core part of Lytica’s mission is to help procurement teams build sustainability into their operations through the use of data and analytics. 

SupplyLens™ Pro is our cutting-edge market intelligence platform that delivers an unmatched view into your supply chain. With insight into market pricing on tens of millions of electronic components powered by real customer data, you can make informed decisions about your suppliers and components to effectively balance your unique needs. 

Want to learn more about building a better, stronger, more sustainable supply chain? 

Download our latest eBook, or get in touch today to see how Lytica’s products help solve your biggest supply base sustainability challenges.

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