Buyers use a variety of software applications to manage bills of materials and supply base risk
Over the years, purchasing and supply chain management software has evolved, helping to make purchasing more efficient and allowing buyers to focus more on strategic issues rather than administrative or tactical ones.
The days when buyers would have to send paper purchase orders to suppliers, wait for acknowledgments and receive paper invoices are long over. Those functions are handled by supply chain management software. Debbie Wilson, research vice president for Gartner Inc, said that most major electronics companies have supply chain management (SCM) software such as SAP or Oracle, as well as purchasing software for specific purchasing functions such as bill of materials management, risk management and component obsolescence.
In the electronics industry, “supply chain management software usually covers planning, logistics, sending out an order from a planning system and getting acknowledgments back and invoicing,” said Wilson. Purchase orders are automated and dispatched from the planning system, she said.
“On the procurement side of software is where you have your pricing, sourcing, contract management, management of all your suppliers and risk assessment,” said Wilson. “Those are usually completely different solutions” than supply chain management software, she said.
She said large companies in the electronics industry usually have multiple systems for supply chain management and procurement. “Right now we are in a world of proliferation” and there are software solutions that “do one or two things,” said Wilson. An OEM may have a planning system that has the company’s “ordering system and the company may have something else for logistics and something separate for quality and still something else for product lifecycle management (PLM),” said Wilson.
The same is true with purchasing software. “A company may have a sourcing software program and other software for contracts and for supply risk,” she said.
Feel the pressure
Wilson added that there is intense pressure in the industry “to move away from having all these little solutions that do one thing great” and to bundle those separate functions into suites. “But it’s hard to do and it takes time and to some degree will never get there,” she said.
Wilson said there are a number of procurement software suppliers used in the electronics industry, but there are no real “lead vendors” as there are for SCM software where SAP and Oracle are the biggest vendors.
A lot of purchasing software has been developed for electronics manufacturing services (EMS) providers because those companies handle a lot of purchasing on behalf of OEM customers, said Wilson. She noted that EMS providers have many OEM customers, are larger than most of them, and handle much of the purchasing of components and other production materials.
“When you give a lot or most of your production over to someone else you tend not to have a business case to buy and use your own software” because the EMS providers are doing most of the buying, she said.
In fact some EMS providers have played a key role in developing purchasing software because they buy so much of the production requirements of OEM customers. Some providers such as Flextronics have directly or indirectly invested or help guide purchasing software companies, she said. Flextronics spun off a software startup, Elementum, in 2014. Elementum developed software for risk management, planning and logistics, said Wilson.
“EMS providers are the ones with the heavy lifting of buying everybody’s parts and doing a good job on razor thin margins. They’re the ones that have incentive to buy the software,” said Wilson.
She noted that purchasing software is not about purchase orders for direct materials. “Purchase orders are standard features of enterprise resource planning systems such as SAP and Oracle, which create purchase orders that can be sent out. That’s a very basic functionality,” said Wilson
Rather, purchasing software handles other functionality, including bill of materials management, supply risk and component obsolescence. She said while purchasing software has become more sophisticated, the needs of purchasers have not changed over time.
“The needs have been there all along,” said Wilson. “The things that these tools do today purchasers did in the 1980s and 1990s. They were just done manually in spreadsheets,” said Wilson. “Technology is finally catching up to what procurement needs. She added that software solutions are now more readily available for procurement.
“If you look at the history of enterprise software, it started with basic financials that were reported out quarterly and annually,” said Wilson. The software told how a company did financially and what its margins were, said Wilson. Use of software gradually crept into “all the different domains like customer relationship management (CRM), procurement and supply chain and it keeps creeping along slowly but surely,” she said.
Purchasing software has helped purchasing become more strategic to companies and allows purchasing departments to operate leaner than in the past, she said.
“It also helps reduce fraud because when things are automated you have a great audit trail of what happens and whether or not things are appropriately sourced and who approved what,” she said. “It has helped the purchasing profession become a lot more professional.”
Wilson noted that purchasing software is also helping suppliers. Software is “digitizing” all the different interactions a company has with its suppliers.
“Suppliers don’t have to pick up the phone or send paper anymore,” said Wilson. With procurement software, suppliers can check the status of an invoice, see when they will be paid, submit new information to customers such as conflict mineral certifications, or view their scorecard to see if there have been any problems with delivery or quality, said Wilson.
Supply chain management software has also made it easier for companies to communicate crucial information to each other.
Dan Panzica, chief analyst, outsourced manufacturing intelligence service for researcher IHS Markit Technology, said many electronics companies use SAP or Oracle or other SCM vendors. However, large global OEMs such as Apple, Cisco and HP and others have developed their own SCM software.
The companies may feel that they have a unique supply chain management process and need to customize a solution, said Panzica. The advantage of having proprietary SCM software is that it can be customized “to fit perfectly with your business and you control it,” he said.
“In many cases the software works across the entire supply chain all the way to the field, including service,” said Panzica. “Within that same platform you could take a look at the returns and repairs so you can track field incidents.”
Inventory management is a big part of proprietary SCM management, he said. Large global electronics companies believe the use of their own SCM software helps them better manage inventory and “keep it as lean as possible, almost to perfection,” he said. “It’s never perfect, but is a really good,” said Panzica.
Of course SAP and other SCM management software programs also help OEMs and EMS providers manage inventory levels. The programs can also be customized through various modules that customers can purchase.
“There is an SAP purchasing module, a quality model, an engineering module,” said Panzica. “There’s a lot of modules with SAP that can be customized for your business or you can customize your business on the SAP process.”
Some companies that developed SCM software for their own uses, such as HP and Microsoft, also sell their software to other companies. Other leading SCM software vendors include JDA Software, Manhattan Associates, Epicor, IBM, Descartes System Group, GT Nexis, Infor, and High Jump Software among many others.
Panzica said SCM software has evolved over the years. “The biggest change is how fine tuned the software has become,” he said. “The software looks at multiple levels into your supply chain. It also has the ability to collaborate across platforms, which is a big change in the last 10 years,” said Panzica.
He noted that there are several hallmarks of effective supply chain management software. One is providing visibility into inventory at different nodes in the supply chain because most companies want to run as lean as possible.
“That means you have to have the right amount of inventory and need to place your orders within lead times,” said Panzica. He noted that in the electronics industry there are always some parts that have fairly long lead times so it is important to “do your planning within the lead time window.”
He added that on the operational side and the EMS side, a “company needs the ability to track parts through the shop floor so you have very high visibility within your factory for each operation node.”
Another important feature is the ability to manage change whether it is a change “in your process or a product change,” said Panzica.
Good SCM software should also have the ability to provide traceability of a part. You need to know the genealogy of the part, he said.