What Engineers Must Know About the Supply Chain, Part 2

In part 1, I talked about the influence design engineers can exert on procurement and the supply chain. This is often a negative influence that comes without proper education or information.

What do I want top designers to know about supply chain design?

Leverage is a critical factor in negotiations. Without it, you take what is being offered; with it, you obtain amazing deals. Designers have tremendous leverage when selecting vendors for new products. Designers should not award a design win to any vendor until production-level pricing has been found acceptable through market price benchmarking.

In a major design project, leverage the opportunity for price concessions by your production components. This is critical with single-sourced devices with high IP content, such as FPGAs, chip sets, and processors.

Benchmarking component prices before signing a contract is also critical on short-lifecycle ODM products.

Component registrations can happen without the OEM knowing it. Registration locks a company into a supply channel and essentially eliminates any hope of ongoing cost reduction on a component forever. Even minimal or no engineering support from a distributor or representative can lead to a registration.

Demand to know whether you are being registered, and ask for justification as to why. Stop doing business with any manufacturer or supplier that registers you without your knowledge and approval.

Bone Up

Design engineers can improve their supply chain by learningmore about regulations, registration, and sourcing strategies.

Design engineers can improve their supply chain by learning
more about regulations, registration, and sourcing strategies.

Supply chain disruptions, supplier failures, and quality problems can happen at any time. Make sure you have specified at least two manufacturers for all components in your design (except single-source ones). Don’t cheat and think that specifying a 5 percent version of a component as a second source for a 10 percent one counts; it still creates a single point of failure risk. Alternate manufacturing sources also create leverage for better pricing.

Focus on a few component manufacturers to allow concentration of spending (small AVL/AML). Make sure these manufacturers deserve your business by being service-oriented, cost-effective, and reliable sources of acceptable, quality devices.

Specify components to concentrate the purchasing to as few component values as possible. For example, don’t specify many decoupling capacitor values on a circuit if one value will do.

Simulate your design to ensure it works under all operating conditions of voltage, temperature, and manufacturing tolerance. For each component, make notes on the design file as to the level of testing that would be required to qualify a new component for substitution. Notes about things like component engineering paper study, emissions testing, or resimulating would greatly assist when components become obsolete or future cost reduction opportunities are identified.

Design for portability
Something that is not discussed often is that design decisions on testing and assembly can lock a company into a specific contract manufacturer, because the cost of moving is prohibitive. Products that require multimillion-dollar testers are an example, particularly if a low-cost test method could have been used instead.

There may not be a reason to move from a particular contract manufacturer, but the prohibitive cost of moving still eliminates a degree of freedom to reduce leverage. Where possible, design so that products can be moved from factory to factory, manufacturer to manufacturer, or country to country with relative ease.

Companies have growing responsibilities to shareholders and government entities to report on environmental and social performance, such as RoHs and restrictions on conflict minerals. Other requirements relate to the reporting of risk. These requirements have become more demanding since the 2008 financial collapse and require more due diligence with suppliers.

Some suppliers cooperate in these risk assessments, but others are less willing to do so. This puts your company at risk. In selecting suppliers, make sure compliant, socially responsible ones that are willing to share information receive your business opportunities.

This is my initial list, and it may differ from yours. I would appreciate your comments on what designers need to know about aspects of the supply chain.

By Ken Bradley – Lytica Inc. Founder/Chairman/CTO

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Ken Bradley

Ken Bradley is the Chairman/CTO & founder of Lytica Inc., the world’s only provider of electronic component spend analytics and risk intelligence using real customer data.

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