Front End I Electronic Components Supply Network
According to Oscar Wilde “a cynic knows the price of everything but the value of nothing”. Adam Fletcher argues that unit price transparency isn’t what really matters in component procurement rather the total acquisition cost, which involves factors beyond mere unit price, is the more critical metric but is often the more difficult to measure
B
efore the arrival of the internet most organisations managed to successfully launch their new
products despite limited intelligence and availability of component pricing in the market. Their primary source of market intelligence and price information was obtained from purchasing, estimating and engineering personnel who interacted with a wide variety of sales and marketing people from competing suppliers in the market.
The electronic components markets have always been cyclical but ‘pre-internet’ were more regionally focused, with some market price differentiation. By carefully determining the current point in the cycle (i.e. a Buyer or Sellers market) it was possible to determine whether to take a long or short-term procurement decision. Most organisations had a primary, secondary and tertiary preferred supplier structure. They strategically focused their new product development on products from suppliers in the ‘primary’ list that were on the market or very close to release. They gleaned additional intelligence from catalogues and price lists, competitors, from inter-company data, by informal data sharing with colleagues and from market information printed in the trade press.
8 March 2013
Today... There is a vast amount of data and pricing information available on the internet provided both by the electronic components manufacturers and their authorised distributors. Generic search engines like Google provide quick access to some information but the use of dedicated industry specific search engines yields better results. Parametric search facilities - which focus on the specific features (colour, voltage, size) of a product – are a particularly valuable tool for improving search efficiency and selection. Electronic components manufacturers and their authorised distributors have put a lot of effort into the provision of comprehensive on-line information including life cycle information on their products together with and an insight into which of their components they recommend for new designs
Legitimate industry specific search engines aggregate information directly from a known range of the manufacturers and their authorised distributors, who guarantee the quality of the information provided to users on a real-time basis. There are also illegitimate search engines that merely “scrape” data from likely sites and present it to users as valid data. Unfortunately for some, there are also
Components in Electronics
search engines that propagate fraudulent data and deliberately set out to deceive users.
Most electronic components are today priced globally with the primary currency being US$. Many websites provide exchange rate conversion of pricing information into a regional or local currency appropriate to where the user is based, adding local taxes etc automatically where applicable. The downside is that most on-line pricing information available today is primarily linked to a very specific manufacturer’s part number, and usually doesn’t provide much more than 1, 100 and 1000pcs price guidance. The increased use of social networks is enabling the wider sharing of some price information but most of the discussions are focused on technical and other commercial information. What is not currently available from either source however is an insight into which combination of physical device packages, temperature ranges, voltages etc and manufacturing / transport packaging variables is or will achieve the lowest costs and therefore define what is or likely to become the industry-standard high volume device. So whist the internet provides access to vast amount of data, human intelligence still needs to be applied to convert the results into really useful technical and commercial information.
The future...
Customer pricing in the electronic components supply network will continue to remain a highly competitive and very complex issue with a great many variables. The competitive nature of the market and need for both increased volumes and constant cost reduction will continue to drive innovation and price decline.
A few organisations believe they will be able to develop websites able to support individual component or full Bill of Material costing and price optimisation for existing and new product introduction based on the customer’s purchasing position. I think that this is highly unlikely to be successful because there are hundreds of thousands of available parts and just too many unknown variables involved in the calculation to yield a successful outcome. To further increase absolute price transparency would require purchasing organisations to disclose competitive price information to a third party for the benefit of a perceived “wider good”. How effective this would be or if it is a legitimate (or indeed legal) activity to pursue remains to be seen. It seems likely however that future generations of websites will provide automated trading platforms that are able to compare pricing (and importantly availability) for a given customer against agreed volume pricing from a number of preferred suppliers and recommend actions and/or place orders appropriately. The electronic components Bill of Material cost for European-based Systems Integrators is stable or declining. These companies have to be exploring other commodity areas where increased procurement / engineering investment holds the promise of better overall cost reduction results. Perhaps the electronic components supply network needs an optimised “Trip Advisor” and “Go Compare” combination that will enable a wider view on the overall value added proposition provided by suppliers rather than just their unit price!
ECSN |
www.ecsn-uk.org Adam Fletcher is Chairman of Afdec/ECSN
www.cieonline.co.uk
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