Using Data Analytics to Evaluate Component SuppliersUsing Data Analytics to Evaluate Component Suppliers

Streamlining data procurement with a data-driven approach will help ensure consistent supply.

John Boullie, Vice President, Strategic Procurement

July 24, 2024

6 Min Read
Data analytics plays an increasing role in electronics component procurement.
Data analytics plays an increasing role in electronics component procurement.TarikVision/ iStock / Getty Images Plus

At one point in time or another, every electronics manufacturer has experienced the pain of a component shortage — and the resulting loss in revenue. Whether due to a global pandemic, natural disaster, demand spike, or political crisis, supply shortages are becoming increasingly more common and, more often than not, they catch unsuspecting manufacturers off guard.

So, what should an electronics manufacturer do to safeguard themselves against a sudden supply shortage and manufacturing standstill? This article explores effective strategies, including adopting a vendor-neutral procurement approach, streamlining vendor evaluations using data analytics and automation, and leveraging the growing role of AI in procurement to make more informed supplier decisions.

Supplier Diversification Important

To ensure supply chain resilience and protect business operations from disruption, electronics manufacturers should adopt a vendor-neutral procurement strategy. Diversifying the supplier mix is crucial to creating the flexibility needed to weather supply shortages and market fluctuations. It also has the benefit of increasing negotiation leverage with suppliers.

Ensure Security of Supply

Supply security can come under threat at any time due to factors such as component availability, price fluctuations, and quality control issues. In addition to the supply-impacting events mentioned above, a fire at a component facility, for example, could result in a sudden production halt. Or, staffing shortages or strikes could cause component quality to dip, rendering the component unacceptable for use in the finished product. Occasionally, manufacturers could engage in “artificial scarcity” — intentionally holding onto supply in order to drive increased demand and higher prices.

Minimizing the occurrence of single-source components in your portfolio is an important first step. While working with fewer suppliers may streamline the manufacturing process, collaborating with a diverse group of qualified suppliers allows for swift redirection to an alternative supplier if the preferred supplier experiences issues. This agile approach also arms you with backup options if a component price suddenly spikes.

Maximize Leverage

The advantages of supplier diversification extend beyond risk mitigation — electronics manufacturers also gain significant negotiation power by having purchasing relationships with multiple vendors. Being a large or frequent customer for several suppliers fosters healthy price competition among vendors, while simultaneously improving your supply security.

Establishing a strong purchase history and relationship with multiple suppliers also helps to unlock various service enhancements over time, such as improved lead times and customer support, priority access to components, better payment terms, new discounts, and more. This gives secondary or backup suppliers the opportunity to prove themselves and potentially claim the primary or preferred supplier position based on favorable price, performance, and service.

Using Data Analytics & Tech

Historically, sourcing and evaluating prospective suppliers has been difficult and time-consuming. Now, thanks to advancements in procurement technology and data analytics, electronics manufacturers have much simpler ways to perform these essential tasks using comprehensive component databases and real-time, data-backed pricing and performance insights.

Identifying Component Suppliers

Manual supplier searches feel like a black box, often leaving manufacturers wondering, “Are there cheaper and/or better suppliers out there that I simply don’t know about?” This can lead to a range of issues, including potentially inflated component prices, questionable quality or distribution performance, and surprise add-on costs.

However, there are now tools in the marketplace that create component transparency for electronics manufacturers. Procurement tech platforms allow users to search for vetted suppliers for particular component types. Additionally, by entering a Manufacturer Part Number (MPN) for a currently used component, manufacturers can see suggested alternative parts from other approved vendors that could help with material shortages or cost-saving opportunities.

Competitive Spend Benchmarking

A common concern electronics manufacturers have is not knowing if the amount they’re spending on each component is fair and competitive. This is another procurement challenge that’s increasingly becoming a thing of the past thanks to technology that gathers real spend data on electronic components from companies across the industry, which it then anonymizes, aggregates, and presents as spend data analytics. Lytica’s SupplyLens™ Pro platform, for example, allows manufacturers to conduct accurate spend benchmarking. The technology allows manufacturers to compare the price they pay for a particular component with the price others paid for the same component across different suppliers, and a comparison of their overall component spend to their industry peers and identify opportunities for cost savings.

This data-driven knowledge base allows electronics manufacturers to better evaluate current and future suppliers and also equips them with valuable negotiation power based on real-world data.

Calculating Product Development Costs

Traditionally, manufacturers have priced out new products using list prices or public domain pricing, which are often outdated and inaccurate. This leads to unexpected price increases when the time comes to manufacture the product, in turn lowering product profitability.

Having access to real, up-to-date electronic component pricing data improves the process of calculating new product development and manufacturing costs, allowing for more accurate planning and forecasting of end product costs. Modern procurement data analytics tools will even help match suitable components for new products, recommend pricing targets based on device type, and flag pricing outliers. Identifying multiple component suppliers early on in the process also ensures smooth product launches without the risk of component shortages.

How Can AI Help?

Beyond technologies for supplier visibility and spend analysis, Artificial Intelligence (AI) is making waves in procurement. While its applications are diverse, two areas show particular promise: AI-powered supplier intelligence and proactive shortage detection.

Supplier Intelligence Gathering

Once a potential supplier has been identified, electronics manufacturers must consider vetting factors beyond just price. For example, company credit ratings, stock market performance, legal history, and customer reviews are all important data points to take into account when deciding on suppliers to partner with.

AI can be deployed to sift through large amounts of external data that might otherwise be tricky or time-consuming to find. It can then provide detailed supplier summary reports and even benchmark various suppliers against one another based on the factors that matter most to your business.

Proactive Shortage Detection

Electronic component supply shortages typically occur suddenly, coming as a surprise to manufacturers and causing immediate, unexpected disruptions to production. But this doesn’t have to be the case.

AI can be trained to detect and flag anomalies that could impact component supply. These anomalies could include impending weather events around supplier facilities, emerging political unrest, or market changes that are likely to create a spike in demand. When an irregularity is detected, AI could alert the manufacturer to keep an eye on the situation and consider alternative supply chain tactics for the near future.

In these situations, AI could even simulate different supply scenarios — along with probability and success metrics for each — and provide recommended actions to take. Armed with this data, procurement teams would be better equipped to proactively avoid stockouts and optimize inventory levels, striking the right balance between component storage costs and upcoming production needs.

Manufacturers that embrace a diversified, data-driven approach to electronic component procurement stand to safeguard themselves from supply shortages while simultaneously forging new vendor relationships and growth opportunities. Here are some key takeaways to consider:

  1. Develop a vendor-neutral strategy for electronic component procurement to ensure supply security.

  2. Use your negotiation leverage with multiple vendors to receive better pricing and service.

  3. Leverage modern procurement platforms to more easily find and vet new vendors.

  4. Tap into real-world spend analytics to evaluate your spend and benchmark it against industry peers.

  5. Keep an eye on emerging AI approaches to enhance supplier evaluation and predict component shortages.

Author Bio:

With a professional backdrop that includes leading global procurement for business development and consulting for Boullie Group, John Boullie his extensive supply chain and procurement expertise. Boullie provides Lytica’s customers with the knowledge to drive robust sourcing strategies and harness the full potential of the company’s SupplyLens™ Pro Platform to drive substantive economic value. He has honed an acumen for operational excellence and process improvement, and his proficiency in Six Sigma and LEAN methodologies leads to sustainable savings and performance enhancements.  

About the Author

John Boullie

Vice President, Strategic Procurement, Lytica

With a professional backdrop that includes leading global procurement for business development and consulting for Boullie Group, John Boullie his extensive supply chain and procurement expertise. Boullie provides Lytica’s customers with the knowledge to drive robust sourcing strategies and harness the full potential of the company’s SupplyLens™ Pro Platform to drive substantive economic value. He has honed an acumen for operational excellence and process improvement, and his proficiency in Six Sigma and LEAN methodologies leads to sustainable savings and performance enhancements.  

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