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Direct materials sourcing: The endless search for parts 

Sourcing direct materials is more challenging than it has ever been. If a manufacturer has 99% of the components it needs for its products but shortages are preventing it from finding just 1%, production is completely derailed and a lot more time (and money) goes toward getting back on track. 15-week lead-times have turned into 50 weeks, and to top it off, companies are facing labor scarcity as they make every attempt to get their products into consumers’ hands. Every day brings a new puzzle. 

Companies require specialized technology to navigate such a chaotic supply chain environment. To learn more about the struggles and technology needs of manufacturers, we talked with Jithendra Palasagaram, the CEO and Founder of Part Analytics, which offers an AI-powered supply management solution for direct material sourcing.

Part Analytics is known for providing a unified Design for Supply platform that digitizes manual processes and harmonizes data from disparate sources to help manufacturers optimize costs, uncover supply risks and accelerate new product development.

We asked him:

As the shortage of computer chips seems to be the biggest risk in the electronics market right now, how are you advising your clients?

“Part of the misalignment comes from how electronics manufacturers want to invest,” he explained. “Chip manufacturers have dedicated more supply to those that make up about 70% of demand and bring in the highest volume of business (primarily for consumer electronics like Smartphones and Data Center technologies) — all of which require bleeding-edge wafer technology. Lower-volume electronics like those used in the industrial, auto, telecom and infrastructure industries, often require older wafer technology, which fab manufacturers are less inclined to invest in. This has posed a lot of risk to our global supply chain, such as delaying access to cars or medical equipment. When you add on the fact that Covid has caused labor shortages and factory shutdowns among key players in the world’s semiconductor pipeline, you get massive, global disruptions.

“Beyond semiconductors, the market conditions and lack of investment in older semiconductor technology have created shortages of different commodities (like MCUs, Display drivers, Discretes, Analog). Even when an OEM or EMS company has more than one manufacturer or part number listed for a given item on their bill of materials, they are still facing shortages due to the underlying capacity challenges and diminishing investment in older technologies.

“Buyers used to spend maybe 5% to 10% of their time on part shortage escalations before 2020. Now they’re spending 50% to 60% or more of their time just chasing parts. It’s become the number one thing they do, day-to-day, checking one distributor or part at a time to see whether parts are in stock. 

“Overall, we would advise our customers or any organization to take a multi-pronged approach to address these challenges:

  1. Scour the supply chain for available parts
  2. Design for availability or in broader sense design for supply by redesigning products SKUs with older technology
  3. Get accurate and long-term forecasts to secure supply
  4. Build relationships with component OEMs and be open to long-term supply agreements
  5. Adopt a supply management platform, like Part Analytics, which makes scouring for parts more efficient and scalable and enables Design for Supply by providing proactive insights early in the design process

“By way of example, our customers have seen a 20% to 50% reduction in part shortage escalations and have saved millions of dollars buying parts from authorized distributors found through our solution vs. paying 10x to 50x the price through brokers. They have stopped wasting so much of their day chasing unavailable parts or unavailable part equivalents.” 

It seems like many manufacturers resort to manual or old processes when managing direct material sourcing, what kind of problems does that pose?

“The challenge,” he said, “is the breakdown of communication. OEMs, EMS companies, distributors and component manufacturers are working within various ERP or PLM systems, which creates a lot of issues. 

“There’s nothing wrong with PLM and ERP systems. They serve their purpose; they manage activities like BOM management, change control and PO management etc. Where they fall short is in addressing the needs of “Design for Supply” activities throughout a product life cycle; engineering and sourcing teams resort to using spreadsheets to manage new product costs and risk management, supplier collaboration (RFQs, quarterly pricing) and getting market data for availability, pricing and lead times. They all end up exporting static BOM or component usage data from their in-house systems and share it with their suppliers over email to get availability, lead time, and pricing information — all of which can change quickly.

“The real problem is that existing solutions on the market today (PLMs, ERPs, S2P Suites, etc.) are not built for direct materials sourcing. All layers of the supply chain should have an ongoing, dynamic pulse on supply availability and prices because with direct sourcing, change is constant.”

The pandemic has tested supply chain resilience, how does good data and analytics help companies weather the challenge?

“The first question to ask is: ‘do we have access or visibility to the data?’ A lot of OEMs have relied on EMS suppliers or contract manufacturers to manage the supply chain below tier-1 or suppliers at the component level. They now need to have better visibility into how much they’re spending cost-wise or what the risk variables are down to the lowest component that goes into their product because it all impacts their revenue. Even a small component that’s only ten cents puts millions of dollars of revenue at risk and can completely stop production.

“Once they have the data, the problem becomes: ‘we have too much data and don’t know what to do about it.’ That’s where data analytics and insights come in. Those with good data and analytics have been better able to adjust and get ahead of problems every time lead times or inventory changes. Our own clients get an automated look into the availability of parts at scale which improves their speed and overall operation. 

“The key is to make sense of all the data coming in from disparate sources to contextualize the data and enable informed decision making. The other important aspect is collaboration between the different stakeholders (internal, customers and suppliers); new technologies based on agile principles are being introduced into the marketplace that address these challenges. 

“Cloud-based SaaS platforms, like Part Analytics IQ platform, allow organizations to take baby steps and run proof-of-concepts in days or weeks to demonstrate value. This is quite different from the days of complex PLM/ERP implementations that may take months or years.”

Which new modules have you added to the Part Analytics IQ platform?

Spend Matters has written about the modules that Part Analytics offers, but more were in the works. So, we were interested to know more about: BOM IQ (spend analysis on parts), Executive IQ (dashboards and KPIs) and Part IQ (parts databases).

“We added two new modules last year: Category IQ and RFQ IQ. With this, our IQ platform provides manufacturing companies with a comprehensive “Design for Supply” solution. We also added additional functionality in Part IQ that provides real-time visibility into inventory and automated alerts for new inventory at scale to address the acute component shortages faced by the electronics industry.

“With Category IQ, commodity teams get spend and supply intelligence with automated data cleansing, spend classification, insights and recommended actions. They can view portfolio level savings opportunities based on market, community benchmarking and alternate sources and proactive risk insights based on availability, lead time, life cycle, compliance and country-of-origin data.

“With RFQ IQ, sourcing teams can run sourcing events for simple projects with few parts to complex events with thousands of line items and 10s of suppliers. Our RFQ IQ module is highly configurable with capabilities for setting up customized bid templates and analytics to analyze bids and award business.

“To sum it up, we are helping organizations to digitally transform their design and sourcing processes to proactively manage supply risk, optimize cost and help mitigate revenue risk by resolving critical component shortages more efficiently at scale.”


This Brand Studio post was written with Part Analytics.