Component Supply Management to Drive Supply Chain Efficiency in High Tech
With advances in product design, High Tech products often look sleek and simple on the outside, masking the underlying product and supply chain complexity.
An end product can have 1000s of components across deep bills-of-material (BOMs), with 16-plus level BOMs not uncommon. There can be 100s and 1000s of unique end items, where components may be shared and where there are multiple revisions for each end item. There are multiple suppliers for each component, and manufacturing of sub-assemblies may be done internally or out-sourced. Sourcing and production can take place across multiple factories, multiples countries and multiple regions. And of course in the end the product needs to find its way through the distribution network and through the right channel to the customer.
For many High Tech companies, it is the responsibility of the component commodity manager to manage the component supplier base across this multi-tier complexity, to ensure an efficient supply chain that meets customer service levels while streamlining cost. The cost side of the equation certainly gets a lot of attention, especially as component costs generally drop month-over-month, where manufacturers and their suppliers effectively battle over realizing the savings. However, other factors such as product order lead time, product quality, product compliance, weight/dimension, etc. are also important to negotiate with and understand from suppliers, as these impact the performance of the overall supply chain. And negotiating these other factors generally has a cost implication – a supplier may commit to reduce lead time but may ask for a higher price.
Whether a small, mid-size or large High Tech company, component supply management is an important function for High Tech companies. A smaller company may have only a handful of component commodity managers, while a large company may have 100s. Commodity managers are generally responsible by commodity group, e.g., flash memory, passives, motherboards, etc. and they could have a global/regional/factory focus. Many companies that outsource a lot of their manufacturing still pro-actively manage a significant portion of their component supply, e.g., for strategic design components, for components where they can negotiate a better cost than the contract manufacturer, for supply-constrained components, etc.
Companies on the higher end of the maturity curve approach component supply management as a pipeline of opportunities, where an opportunity could be something like “Re-negotiate motherboards in APJ because factory volume has doubled” or “Drive 5% improvement in overall lead time for laptops going to US customers” or “Product Manager has asked to drive down cost of end item now that is has ramped to production”. Corresponding projects are set-up and executed (e.g., one-three week duration) per the pipeline, with specific objectives defined and tracked, e.g., reduce component cost by 2%. A component supply “project” generally consists of the following steps:
- Extract master data (e.g., pricing history, quota arrangements, lead-times) and transaction data (e.g., PO history, performance to commit, forecast) from back-end systems
- Perform analysis and simulation to recommend action to meet the objective, e.g., re-negotiate price and change volume mix with existing flash memory suppliers.
- Collaborate and iterate with suppliers to reach new agreement
- Update master data in back-end system based on new agreement
Another way to look at component supply management is as more of a decision-support function that sits between and integrates with the domains of engineering (PLM), procurement (ERP, SRM) and supply chain management (SCM).
As such, there has tended to be more of a do-it-yourself approach for component supply management, especially compared to the more transactional process areas. Many companies have developed home-grown solutions that are heavily manual and spreadsheet-driven. Extracted data is often stale and inconsistent. Large data volumes limit what can be analyzed, and especially what can be simulated. It is difficult to integrate across different stand-alone tools and efforts are silo’d, enabling suppliers to arbitrage to their advantage. Overall, the result is an inefficient and un-scalable process, which means companies need to throw more bodies at the problem and/or limit the number and scope of projects.
SAP is in a unique position with underlying technologies and tools to provide solutions to these component supply management challenges.
Much of the back-end data to be extracted and later updated resides in SAP systems, and SAP provides technologies, such as HANA Cloud Integration (HCI), to streamline this integration. SAP HANA significantly accelerates analysis of large data volumes, which is further complemented by SAP predictive analytics and the Integrated Business Planning (IBP) simulation framework to enable intelligent analytics. SAP IBP also provides a range of planning engines to potentially support specific simulations. SAP Fiori provides an easy-to-use workbench based on HTML5 technology, for different user roles including Commodity Manager. And of course Fiori with the SAP Mobile platform provides a range of capabilities for mobile access. Finally, Ariba Network supports structured collaboration with suppliers, while SAP Jam facilitates the more unstructured collaboration, internally and with suppliers.
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