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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
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.

Registration
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.

Sourcing
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.

Simulation
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.

Regulations
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.

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6 comments on “What Engineers Must Know About the Supply Chain, Part 2

  1. Brian Fuller
    March 20, 2013

    Ken, I know that when you were at Nortel, you addressed some of this by luring design engineers into procurement and supply chain jobs. 

    But did you have an education / awareness program there for design engineers as you've outlined here? If so, how effective was it?

     

  2. _hm
    March 20, 2013

    @Ken: What about other aspect: supply chain to know about design engineers?

     

  3. prabhakar_deosthali
    March 21, 2013

    I also feel that while Design engineers should have some idea about the supply chain related issues , it is also necessary for the procurement people to have some sensitivity towards why a particular part has been put into the design by the design engineer and not try to bring something equivalent just because some supplier says so.

    The job of a component engineer who is a link between the design engineer and the procurement department becomes more important to handle such issues

  4. _hm
    March 21, 2013

    @Prabhakar: Yes, I agree that role of component engineer becomes very important in balancing part selection and substitution. I also liked idea of Ken to get more experienced design engineer to supply chain and quality assurance.

  5. ahdand
    March 21, 2013

    _hm: I think if the UI is simple then the system process will not look so confusing. It all depends on the minds of the users. So keeping the interface simple as possible is what is expected.

  6. Ken Bradley
    March 21, 2013

     

    Brian,

    We did not have a formal training program at Nortel. At that time putting design engineers in Procurement was somewhat novel. We did make sure that these engineers were mentored. We also had a core group identifying key suppliers and published lists containing these suppliers and the recommended component from them as guidance for these procurement designers. By key suppliers I mean the enablers of the technology platform best suited to our next generation products. In formulating this list all aspects of the supply chain was considered including important time to market considerations like technology reuse and design environment fit.

    The goals of getting designers more supply chain savvy are to improve time to market and profit as well as improve security of supply and supply chain agility. Our readers should not see designers in procurement or supply chain knowledge with designers as strengthening component engineering; it's about improving all aspects of supply chain design and its subset, supply base design.

    I also like and am giving thought to the idea of what do procurement people need to know about design and technology. Good suggestion from   _hm.

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