Sourcing Strategy
developed purchasing is involved.”
One duty of
buyers in product development is to make sure the new designmeets a cost target. If there is a $40 bill- of-material cost target,
procurement will help designersmeet it. Sometimes that is
accomplished by purchasers suggesting strategic suppliers that LG already does business with. Other times, purchasingmay suggest new suppliers or technologies that can reduce BOMcost.
Be innovative
But reducing costs is not the only role of the procurement engineer as Linton explained: “I want them actively involved trying to come up with ways to offer innovation to R&D. If they see a BOMfor a prototype, that has a lot of different components on it, I want them to push back and suggest ways of embedding functionality on fewer parts to try something different.”
Linton added: “The role of purchasing in design is to be a
collaborator because we are the eyes and the ears for the company concerning what is going on outside with suppliers. He says R&D people may go to a trade show or a conference, but don’t have the breadth and depth of knowledge of the supply chain that we do because procurement people are constantly in the market and picking up on what’s going on out there.”
Besides working with R&D and design centers, procurement
engineering also works with suppliers. Tae-Woo Kim, vice president development and procurement team, mobile communications, says procurement engineers meet with suppliers to share technology roadmaps. They discuss technologies that suppliers are working on, including trends in semiconductor packaging, chip densities and power consumption among other issues.
Power consumption is important because of the growth of
battery operated laptop computers,mobile phones and portable electronics product. So with semiconductor suppliers procurement engineers will discuss process technologymigrations to determine how quickly the suppliermay bemoving from65nm to 40nmprocess technology because as process geometries shrink power consumption of chips is reduced.
Integration lowers cost
Kimsaid: “Another key issue that procurement engineers discuss with suppliers is integration of functionality on a chip.” For instance withmemory, DRAMand flash could be integrated into a single package, reducing component count, board space and cost. Another example is baseband processors used in cell
phones. LG now uses processors that handle 3G wireless connectivity,WiFi and GPS. In the past, separate chips were required to handle additional functionality.
Kimsays procurement engineers helped reduce the number of
components in a cell phone by 37 per cent over two-years through component integration. That led to cost savings because fewer components are used. Also,more business can be awarded to fewer suppliers, increasing LG’s purchasing leverage.
Linton explained the work of procurement engineering on chip
integration has also led to changes in how LG looks atmaterials cost: “There has been a rapid reduction in the number of parts because we are buyingmore integrated systems-on-a-chip parts. So thatmeans justmeasuring the cost of individual parts is the wrong way to go.We need tomeasure BOMcosts on a product rather than part cost. So we are changing ourmetrics.”
With the trend toward integration, procurement engineers
have to be wary of chips that have functionality that LG does not need. For instance, an Intel processormay havememory that LG does not need for an
application.Manager global procurement planning group, Jung min Song, said: “Often there is embedded software in chips that we don’t need yet LG is expected to pay for it.”
Linton said: “We are
doing something called systemcost management where we review a BOMand de- feature or take off the design things we don’t want to pay for. The supplier can put the feature set in the technology, but we are not paying for them because we don’t need them.”
Manager global procurement planning group, Jungmin Song, ensures the company does not pay for device functionality it does not need
Song added: “Suppliers say it is impossible, but we tell themwe
do not need that specification so we don’t have to pay for it. So we get some savings.”
Purchasing: The Next Generation
While purchasing at LGE has been revamped, it is still evolving. The next iteration of strategic purchasing at LG is ‘multi-tier sustainable sourcing’.
Linton explained: “We are taking strategic sourcing to the next
level with sustainable sourcing. Under the concept, buyers take a deeper dive into the supply chain tomonitor andmanage not only their component and othermaterials suppliers, but their suppliers’ suppliers as well.”
For instance with semiconductor suppliers, LG buyers not only
deal with a chip supplier, but also with the semiconductor supplier’s foundry.
Linton said: “At LG we go out and talk with to the foundry
directly. That is necessary becausemany chip suppliers are Annual Edition 2011 | 57
p58
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68