Electronics Purchasing Needs To Be Both Strategic and Tactical

Nov. 16, 2016
Many electronics companies focus on strategic purchasing, but tactical buying will be necessary as long as there is unpredictability in the supply chain.
It is sometimes said that purchasing at OEMs and electronics manufacturing services (EMS) providers has evolved from being a tactical function to a strategic one.

In fact, there has always been a tactical and strategic side to purchasing and many large electronics companies have both strategic and tactical buyers, while smaller companies have purchasers who handle both functions.

Strategic buyers, especially at large OEMs, develop long-term sourcing strategies for their companies. They decide how many suppliers their companies should have for various electronics commodities and select suppliers for those components. OEM strategic buyers also evaluate the capabilities of potential new suppliers, develop supply-base risk-management strategies to guarantee continuity of supply, and work with engineers and new product development efforts because 70% to 80% of the cost of a new product is development and design. Some strategic buyers also scout out new suppliers that may be developing  technologies that could be used in new products.

Strategic purchasers take a long-term approach to sourcing, focus on lowest total cost of ownership, and work to develop longstanding alliances with key suppliers. Besides collaborating with design teams, strategic purchasers also work with suppliers to identify mutual opportunities to reduce cost of a product, rather than just demanding that the supplier cut the price of components. They also share cost information with suppliers.

In negotiating with suppliers, the goal is not to obtain the lowest possible price for parts, but to reach a mutually beneficial win-win solution that is advantageous to the buyer’s company and the supplier.

The idea of strategic purchasing is to balance the short- term, immediate needs of the company with the long-term goals of the organization. At the same time, strategic buyers will work with suppliers to make sure the requirements of customers are met and there is continuous improvement in product quality, delivery, and cost.

On the other hand, tactical buyers are not concerned with the long-term goals of the enterprise, but with day-to-day purchasing functions such as sending out requests for quotes, requests for proposals, placing purchasing orders, and expediting those orders. They handle more of the transactional activity, which at most large companies has become automated through the use of MRP and ERP software programs.

Tactical purchasing is reactive and is more common in small and medium-size electronics manufacturers.  Tactical purchasing is concerned with making sure that a production line at a factory has all the parts it needs to keep running. The focus is on the short-term immediate supply problems and challenges of the factory.

 Tactical buyers aren’t as concerned with total cost of ownership, but on low prices for parts and fast delivery from suppliers. In fact, tactical buyers may use search engines to find suppliers and low-cost parts and may engage in online auctions to drive down the price for parts, a practice that many suppliers loathe. They may not be as concerned with win-win negotiations, but with getting price concessions from suppliers.

Many tactical buyers don’t communicate regularly with suppliers unless there is a problem such as a late delivery or a quality issue with a part.

For some, tactical purchasing may seem antiquated, but in fact at many companies it serves a valuable purpose because of unpredictability in the supply chain. For instance, most major OEMs and EMS providers spend a lot of time and resources developing sophisticated supply-chain risk-management strategies. Despite those efforts, when a natural disaster strikes a region where there is component manufacturing, it often shuts down production of semiconductors and other electronic components. Then it is up tactical buyers to find other sources for the impacted parts, whether it is another component manufacturer, an authorized distributor or reliable independent distributor.

Over the last 10 years or so, as many OEMs outsourced more production to EMS providers, much of the responsibility of tactical purchasing of components shifted to contract manufacturers. The OEM’s strategic buyers manage the long-term relationship with suppliers and negotiate contracts for many components, but the OEM’s EMS providers place the orders for the parts against those contracts. If a delivery problem arises because of a natural disaster or because a chip manufacturer had a yield problem or for some other supply-chain issue, it’s up to the buyer at the EMS providers to find a solution to keep the production line running.

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.

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