Sourcing

Sourcing is almost an oxymoron when applied to commodity markets. After all, a commodity market is characterized by a diverse and ample supply of buyers and sellers with essentially the same price for essentially the same product.

At best only about half the electronic materials market is a commodity market. Loosely defined, this half of the market is comprised of those electronic materials, mostly components, whose manufacturers sell through “franchise” relationships with major distributors of electronic materials, such as Arrow Electronics, Avnet Electronics, and Future Electronics. One can usually achieve a good price for such materials simply by having these suppliers quote against one another.

In contrast, the gold is in the non-commoditized half of the market, which is a free-for-all where the suppliers win most of the time. This market is comprised of the plethora of both electronic and non-electronic specialty and custom materials required for building electronic products. Examples include heat sinks, bare boards, metal and plastic enclosures, and custom labeling and packaging. In this market prices for the same or similar products can be two or three times as much from one supplier to another.

Since materials comprise approximately two thirds the cost of typical electronic products, then custom and specialty materials – usually about half the materials buy – are some one third the cost of typical electronic products. Clearly, paying substantially more or less than one’s competitors for half the BOM will either hasten failure or accelerate the path to success.

The principal problem for most middle market customers is their diseconomies of modest scale, where few can afford either the sourcing professionals or the requisite focus to fully exploit the opportunities hidden in their materials costs, especially those pertaining to specialty and custom items. In fact, most middle market purchasing organizations are so consumed by daily procurement issues – like chasing missing parts, dealing with the fallout from last minute “pull ins” and “push outs”, and fighting supplier price increases – that no time or energy is left for true sourcing, which is where the real dollars can be made.

In contrast, AMI, almost always the low cost provider for its industry’s middle market, understands the value of professional sourcing, has developed and invested in the requisite capability, and delivers that value accordingly.

AMI sources approximately $8 million custom and specialty materials annually, ranging across some three thousand part numbers and dozens of major part types. Although AMI’s annual cost-down results vary, they always total several hundred thousand dollars.

AMI uses a variety of sourcing methodologies, and applies those depending on part type, size of opportunity, and the like. Bare boards for a single customer, for example, might be sourced from half a dozen of AMI’s dozen or so board suppliers, thereby aligning the requirements of each board with the supplier of the right niche expertise. Results can be striking, with $45 boards becoming $30 boards, and overall bare board costs dropping 15 to 20 per cent. Another example is end product packaging, which engineers sometimes over-specify relative to associated drop test and other protective requirements. For one control panel with an historic $9 per unit packaging expense, AMI worked with its suppliers’ packaging engineers to propose more appropriate specifications for corrugated gage and end cap technology. The end result was improved test results, unit packaging expense approximating $5 instead of $9, and annual savings approaching $50,000. Overall, the opportunities are nearly endless, and the resulting savings establish a new and lower base that can pay continuing dividends year after year.

AMI’s sourcing engagements are as varied as are its customers and their requirements. Most such engagements start with AMI assessing its customer’s consolidated costed BOM and the associated AVL. Following that is a meeting with customer personnel to discuss apparent opportunities, determine customer priorities and purposes, and to define next steps and financial options.

In some instances the customer will want thorough and well documented bench mark costs for certain custom and specialty materials that it can then use with its regular suppliers to assist them in achieving the same or similar costs. In other instances the customer will want AMI to identify new suppliers with fully negotiated better prices from whom the customer would procure in the future. And in other instances the customer will want AMI to source, procure, and supply either its full consolidated BOM; just the custom and specialty materials on that BOM; or only a subset of those custom and specialty materials, such as, for example, all or certain bare boards or enclosures.

In either circumstance, the financial opportunities are almost always of sufficient magnitude to support the financial requirements of both AMI and its customer.

AMI, with its powerful sourcing capabilities, is the right size and the best choice for the EMS middle market.