Depending on which industry sector they’re working in, procurement professionals face different challenges as they go about their daily work. Managing supplier relations, negotiating prices, keeping risk at bay, staying compliant and finding new ways to leverage technology are just some of the mountains that these professionals are dealing with today.
Buyers across most industry sectors—automotive, medical, information technology, and so forth—are also grappling with challenges that are unique to their industries. The global semiconductor and component shortages that took hold during the pandemic may have impacted everyone (and, since faded), and a host of new issues are keeping procurement professionals up at night.
“It’s been such a mixed bag across all of the different industry verticals, end markets and customer segments,” says Gerard Magnarelli, sales manager at Fusion Worldwide, an independent electronic component distributor. “Each sector is dealing with its own unique issues.”
Here are three challenges that most procurement professionals are grappling with and some tips on how to deal with these issues:
1. Inventory is Piling Up
Inventory levels that were built up to serve as a “cushion” during the pandemic are now overflowing on many companies’ shelves as the business environment changes. In fact, Magnarelli says quite a few companies are dealing with slow-moving inventory, plus the high liability associated with letting too much inventory sit on their shelves or in their warehouses. “This is an obvious consequence of the chip shortage, where most companies were double- or triple-booking their orders,” Magnarelli says.
To offset the problem, procurement should tap into the “excess mitigation” services offered by distributors like Fusion Worldwide, which takes on the financial and physical liability associated with the inventory. “We basically ‘pay’ the customer for that inventory,” Magnarelli explains. At a simple level, the program works like this: Fusion brings the inventory back in-house, stores it for a designated period of time and then uses the inventory to fulfill that customer’s orders (as needed).
2. Shortages of Parts and Components Continue
As much as inventory levels are growing for about 90-95% of electronic components, procurement professionals still face difficulties getting the rest of their bill of materials (BOMs) fulfilled and delivered in a timely manner. “We’re still seeing lead times and pricing on the rise for certain components and for certain end customers,” Magnarelli says.
For example, the computing market continues to face shortages on GPUs and certain memory products, and namely because of the artificial intelligence (AI) boom. “Some microcontrollers and networking products are also severely constrained,” he continues.
Procurement professionals that need help finding those hard-to-find items should work with distributors that understand the market and know how to “stay ahead of the curve with market information and intelligence,” Magnarelli adds. “We’re constantly working with our strategic partners to figure out what potential issues are in the pipeline, and then communicating that information back to customers so that they have the time to plan against critical shortages.”
3. The Need to Do More with Less
Companies in most industry sectors are under pressure to do more with less, and to cut costs wherever possible. This directly impacts their procurement teams, which have shifted their focus over to cost savings and cost reductions in the current business environment. “It’s about finding prices that are lower than what the manufacturer offers and recuperate a lot of the negative purchase price variance (PPV) that companies have spent over the last two years,” Magnarelli states.
To help buyers deal with this particular challenge, Fusion Worldwide provides a cost savings service that’s focused on a core goal: figuring out what goals its customer has for the upcoming year, the metrics it wants to achieve, and what percentage “under cost” that it would like to pay. From there, the distributor uses an internal proprietary database, talks to its own suppliers and strives to maintain total, real-time visibility into global pricing.
“That way,” Magnarelli concludes, “we can execute when our spot pricing is lower than our customer’s standard cost for a component.”