Strategic Purchasing
Buyers in NPI Can Help Meet Cost Targets of New Designs

Buyers in NPI Can Help Meet Cost Targets of New Designs

About 15 years ago while attending a trade show, I interviewed a sales manager at a major semiconductor manufacturer about how his company worked with OEMs that were designing new systems and were considering using one or more of the chipmaker’s semiconductors.

 The sales manager said his team would meet with the OEMs’ engineers, discuss the specs, the features and technical aspects of the new system being designed, and the semiconductors being considered. The OEMs’ design engineers would ask a slew of questions about the parts to determine if the chips were a good match for the new system. Often the OEM engineers would decide the semiconductors were a good fit for the design, but the supplier was directed to talk to purchasing before the part could be included on the bill of materials.

Purchasers would then grill the supplier on a host of business and supply-chain issues, including the price and total cost of the part, if the supplier could make the parts in the volumes that the OEM needed, how much the supplier could reduce the price over time, the supplier’s ability to deliver the part to multiple global locations, if the part could be fabricated at multiple global facilities, if there was a second source for the part, what were the expected lead times of the part, and the quality levels based on parts per million defect rates.

He said such discussions happened a number of times with large OEM customers and he thought it would be better if purchasers were involved earlier in the new product introduction process so purchasing and supply-chain questions and issues could be addressed earlier in the design process.

Today, more buyers are involved with design, at least at major electronics OEMs because the role of electronics purchasers has evolved. Years ago, purchasing had no say concerning new designs. Engineers designing new products would select the parts and suppliers and then “throw the design over the wall” along with the bill of materials to the buyer to purchase the parts.

But as companies became less vertically integrated and outsourced more, purchasers started to become more involved in design for various reasons, including to reduce cost and supply-chain risk.

The role of electronics purchasers in design varies depending on the size of the OEM, the types of product the company designs and manufactures, and how dependent the OEM is on key suppliers for new technologies. Buyers at some small to medium-size companies may have no role at all in design.

Others may have a small role and deal with suppliers in the design stage concerning cost issues. But at leading-edge electronics OEMs, the buyer’s role has evolved to be more strategic and often includes helping to select suppliers, technologies, and parts. They work closely with design teams and help decide which suppliers are the best supply-chain solution choices for a product being designed.

Large electronics OEMs often use purchasing engineers (PEs) in new product development. As the title implies, purchasing engineers have technical degrees and may work in the OEM’s research and development department or in design centers. Some are on new-product development teams and have multifaceted roles.

Some PEs are used to make sure cost targets for product being designed are met. A purchasing engineer may help reduce material costs by steering designers to suppliers that an OEM is already doing business with if the supplier has the right technology for the new design. Using suppliers that the OEM is already buying from allows the OEM to place more business with the supplier and secure lower prices because of larger purchasing volumes.

In other cases, the PE may recommend new suppliers that can build parts at a lower cost than suppliers that the OEM is currently using.

A PE may also review a bill of material (BOM) and suggest ways to reduce the size and cost of the BOM by integrating functionality into fewer parts. For instance if a DRAM and flash chip could be integrated into a single package, it would reduce cost, component count, and board space.

Besides focusing on cost, a PE may suggest a new supplier that has developed a new technology that the OEM can use for future products. The purchasing engineer may also work with suppliers to review technology roadmaps and discuss trends that could impact future designs such as memory IC density, process technology transitions, semiconductor packaging, system-on-chip technology, and power consumption, among other issues.

In some instances, purchasing is involved in transformational decisions for design. At some OEMs, purchasing has helped determine which design and development work can be outsourced and which suppliers have the capabilities to perform the work.

 Such involvement in design is indicative of how purchasing at some companies has become more strategic. The idea is that procurement should not be reactive, but more proactive if it is to have a meaningful impact on design and sourcing decisions and help companies meet strategic business goals.

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