An effective allocation strategy for electronic component procurement is critical in today’s fast-paced and constantly evolving market.
Outdated procurement methods often lead to a range of issues, such as inflated component prices, compromised quality, and intricate inventory handling.
On the flip side of the coin, an efficient strategy helps organizations build a more resilient supply chain, manage costs, simplify inventory management, and improve product quality. One of the best ways to improve your allocation strategy is to consistently review your strategy to stay flexible and up-to-date as conditions rapidly shift in the electronic components market. Additionally, diversifying your suppliers can significantly bolster security, balance pricing and quality, and optimize supplier relationships.
Below are several ideas to consider when evaluating your allocation strategy.
Evaluating the Security of Your Supply
It’s critical to regularly review your strategy to assess and improve the security of your supply chain.
The cost of an allocation strategy can be viewed as an insurance policy premium for securing the supply chain. One needs to ask, “How much is the premium I am paying, and does it improve my risk situation?”.
Consider the following related to price, manufacturability, and quality. If I have three qualified manufacturers, then:
- Price:
- Do I need to share allocation on any given MPN across them, or can I buy all from one if I keep a healthy level of business with each?
- Manufacturability:
- If I have my own factories, should I frequently buy something from each to ensure there are no manufacturability problems?
- If I use EMS, is manufacturability a consideration in allocation as the EMS is manufacturing with all of them across their customer base and can detect and solve issues with this?
- Quality:
- Process and product performance variations are less if I limit the manufacturing to one manufacturer. Is this a consideration I care about?
An effective strategy is essentially a risk mitigation plan and a way to pre-emptively address supply chain disruption challenges from unexpected events.
One of the best ways to avoid supply chain insecurity is to rely on various suppliers for your electronic components, but not necessarily everything from every qualified one. Does the amount I buy or how much I spend with a qualified manufacturer determine their efforts to support me with eligible products during times of shortage?
The Key? Utilizing multiple suppliers for your electronic component’s procurement reduces the risk of falling victim to a supplier-specific problem or disruption, like a fire in their factory. It’s also a buffer against uncontrollable events like natural disasters, political or international crises, or sudden customer demand shifts that could impact a supplier’s ability to provide components in a timely fashion.
Additionally, utilizing multiple suppliers is a good way to remain flexible and nimble during market fluctuations. Whether it’s adapting to a spike or decrease in demand, your electronic component procurement process must remain agile to meet organizational and business needs.
Balancing Supplier Pricing and Quantity
Another benefit of consistently reviewing your allocation strategy is the opportunity to seek out the best, most consistently available components. Working with different suppliers can, however, get tricky and expensive, so there are limits.
For sake of argument, several common pricing challenges arise when dealing with different suppliers. Prices are significantly influenced by shifting market conditions and supply. Working with multiple suppliers can make cost predictions and budgeting their management difficult. Negotiating with multiple suppliers also can eat up time and impose a hefty administrative burden on your team.
However, working with multiple suppliers is crucial for managing risks and ensuring effective procurement. While fewer suppliers may enhance product quality by streamlining manufacturing processes, collaborating with diverse, qualified suppliers offers numerous advantages. It provides backup options and allows for swift business redirection if one supplier falls short. This diversity mitigates risks and fosters adaptability, making it a key strategy in procurement practices.
One more benefit of working with varied, qualified suppliers? The ability to secure the best pricing possible on your electronic components, thanks to easier price cross-checking and improved negotiation tactics.
Maximizing Leverage with Suppliers
Organizations that work with select electronic component suppliers are able to research pricing for components, take advantage of more competitive quotes, and ultimately avoid overpaying for parts. But how do you decide on allocating your business? Do you purchase parts from each qualified supplier, or do you spread your purchases among a select few? What method do you use, and what’s the associated cost?
If your organization makes frequent or substantial purchases from a supplier, there’s an opportunity to negotiate better discounts across suppliers. Ultimately, this can deliver significant savings while simultaneously improving your supply security by diversifying supply.
Consistently splitting your business amongst a select variety of suppliers is also helpful for improving lead times. Significant customers often receive priority access to components, as well as better customer service.
Finally, being a significant customer for multiple suppliers also encourages suppliers to consistently aim to continue to win your organization’s business. Competitive suppliers will strive to provide better deals, offer higher quality components, and create a more positive, amiable relationship with your allocation team if their business is on the line.
Re-thinking your Allocation Strategy
Strategic allocation is a powerful tool that can significantly impact pricing dynamics within electronic component procurement. By concentrating on part-level purchases from a primary source for a specific component, organizations can leverage increased business to negotiate better pricing.
This targeted approach doesn’t hinder relationships with other suppliers in the same commodity. Instead, it ensures that substantial levels of business are maintained across multiple suppliers for other components within the same category. This tactic allows for obtaining favorable pricing agreements without compromising the flexibility and security offered by diversified supplier relationships. Essentially, it’s about optimizing purchasing power for specific components while retaining the ability to engage various suppliers for alternate parts within the electronic component landscape, ensuring a balanced and cost-effective procurement strategy.
