Outsourcing Has Helped Make Purchasing More Strategic

March 3, 2014
As OEMs outsource, there is a greater need for strategic supply chain management.

At most large original equipment manufacturers (OEMs) and electronics manufacturing services (EMS) providers—and many smaller ones—purchasing has become more strategic in recent years. It has evolved from a transactional function to a strategic one that creates value and helps the company meet its financial goals.

Purchasing has become more strategic in large part because of outsourcing. Twenty years ago, many electronics OEMs were vertically integrated and manufactured their computers, telecom systems, and other equipment in-house at their own facilities. Back then, the chief role of purchasing was to make sure manufacturing lines had all the parts necessary to keep production up and running.

Outsourcing changed everything as purchasing duties became more diverse. Strategic buyers became more involved in developing their companies’ EMS strategies. Buyers helped decide which type of EMS provider their companies needed (full service versus “specialized”), how many EMS providers made sense for the company, and where they should be located.

They became involved in evaluating the EMS providers’ capabilities and had input into selecting which ones ultimately would be used. They were also involved in the overall management of the EMS partners.

Although EMS providers often place purchase orders for their OEM customers, OEM buyers often manage the relationships with strategic suppliers, especially for high- technology, high-cost components the EMS partners use to build the OEMs’ equipment.

Strategic buyers must make sure that their suppliers’ technology roadmaps align with their own companies’ technology roadmaps. Buyers must also make sure that new suppliers of an emerging technology have the manufacturing capabilities and can produce parts in the volumes that the OEM needs.

OEMs also rely on strategic buyers to handle many supply chain and regulatory issues, some of which did not exist 20 years ago. By most accounts, buyers are spending more time on such issues as conflict minerals, supply chain risk management, environmental laws and regulations, and counterfeit parts among others.

Purchasing has also become more strategic for EMS providers. While EMS providers handle much of the day-to-day purchasing for the products they build for their OEM customers, they must address time-to-market issues as well.

Don Hnaytshin, chief procurement officer for EMS provider Jabil, recently told me that EMS buyers spend more time collaborating with customers concerning time-to-market concerns of OEMS.

“Speed is extremely important to every customer. Time to market is critical, but so is time to scale or time to volume and time to profits," he said.

As a result, strategic collaboration is necessary between the OEM and EMS provider on demand and supply planning issues.

Purchasers must also collaborate with various internal departments to meet OEM customer requirements, including the advance planning organization, logistics, customer management, and product development, said Hnaytshin.

Such collaboration creates value for OEM customers because it helps OEMs gain market share and realize profits quicker.

As a result of such collaboration, EMS purchasing is now more strategic than it was 20 years ago when buyers at EMS companies would create value for customers through "purchasing aggregation," Hnaytshin added. EMS providers would combine purchasing volumes of multiple customers and receive a lower price for parts from suppliers because volumes were much higher.

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About the Author

James Carbone | Freelance Writer

Jim Carbone is a freelance writer covering the electronics supply chain. A veteran journalist, Jim was a writer and editor for Electronics Purchasing and Purchasing magazines for 21 years. He covered electronics distribution, semiconductors, passive components and connectors for the magazines. He also wrote extensively about the strategic purchasing strategies of electronics OEMs and electronics manufacturing services providers. Before covering the electronics industry, Jim worked as a reporter and editor for United Press International for nine years. He started his career as a newspaper reporter and photographer. Jim is a graduate of the State University of New York at Albany.