Mini-Case Study: How can a company address the problem of part number proliferation where the number of suppliers and part numbers keep growing? What can a company do to leverage existing supplier relationships for new designs instead of simply picking components and loading them on a BOM (bill-of-materials)? How can the workload associated with continuous management of crises with supply partners be reduced? How can an OEM retain its leverage with component suppliers in an outsource model?
Problem: Company B has annual revenues of about $500M. As the company began developing products for different vertical markets, its product offering grew rapidly in a short amount of time. Engineering teams were under significant pressure to reduce their design cycle times, forcing them to make quick decisions on the components and subassemblies they selected for their design. The number of part numbers more than doubled in a two-year period and the materials organization of this OEM and its EMS partner was incredibly strained with supporting a growing supply base. Cost was out of control, shortages and obsolescence notices were a frequent event, and inventories grew significantly in a two-year period.
Solution: Symphony took the following approach to establish an organization that could involve itself early in the design phase. The following points were critical is the success of this effort:
With these key factors in mind, Symphony separated the commodities based on the following quadrant:
| Value | High | Strategy | Leverage |
| Low | Comm'n | Process | |
| High | Low | ||
| Risk | |||
*Note: Value represents the total annual dollar spend. Risk is defined as the areas to which a company can be exposed in terms of supply, inventory, and cost.
This model helped focus the discussion on the commodities that needed the most attention. The commodities that were high value and high risk were the obvious first choice in implementing a strategic model. These were typically custom and semi-custom components (e.g. custom ASIC's, custom crystals) that were sole sourced and relatively high in technology. This quadrant, called "Strategy," drove the first phase of developing a strategic organization. A combination of commodity managers and/or procurement engineers was hired to take the lead in supplier selection, recommendation, and negotiation. Together with the participation of the design team, the strategic materials personnel led the development of commodity strategies that defined the team's short-term and long-term activities.
The second phase was to address the high value, low risk components. These were generally commodities that were standard, but high dollar, such as memory chips and modules. The company did not have enough leverage to obtain the best market pricing on its own. We realized it was best to utilize the purchasing power of their contract manufacturer. The key was to have resources that stayed on top of the market and kept in touch with their counterparts at the contract manufacturer to ensure the benefits were flowing to the company. . The scope of responsibilities for the staff responsible for managing the CM was expanded to include this service to the engineering teams.
The final phase was to address the high risk components that were low in dollars. These were components like custom voltage regulators and resistors. The responsibility for these commodities was placed on the existing component engineers whose focus was to ensure that all standard solutions were considered before the custom component was designed in. If it was still necessary to use a custom solution, the purchasing manager was involved in negotiating with the supplier to provide support to the design effort.
The low risk, low value quadrant was not addressed by the strategic organizational resources and left almost entirely to the contract manufacturer or production buyers to manage.
Result: The payback on this program was almost immediate. The few additional resources that were added to the company achieved cost savings far in excess of their salaries and benefits. In addition to the direct cost savings, there were numerous benefits in terms of reduced design rework and lower overhead. With a strategic approach towards the supply base, where suppliers knew that their current performance could strongly impact their ability to win more business from Company B, suppliers' performance level and motivation to meet the company's changing needs changed. After one year of implementation, material costs were reduced by approximately 20%. The number of new part requests declined by 30%, fewer suppliers were added for new designs, and through a supplier consolidation activity, the purchases were concentrated toward a smaller base of suppliers.