Cut Out the Commodity Gamble

Availability of commodity parts is often taken for granted, but pricing can be volatile. A proactive purchasing strategy can minimize the risks, says microchipDIRECT global sales manager, Martin Warmington

Global sales manager microchipDIRECT, Microchip Technology, Martin Warmington

Watching manufacturing lead-time trends on singlesource products can become an obsession. When there is no other source for a part, the manufacturer’s lead-time will dictate an original equipment manufacturer’s procurement strategy. So, for example, when lead times go out, stocks may be depleted faster than forecast, but when lead times come in, the OEM may need to push out scheduled deliveries and relax its inventory levels.

This obsession with proprietary parts is understandable, but it can mean that commodity parts are not given the same level of attention. Where there are pin-for-pin replacements, there are usually multiple sources for devices such as low pin-count microcontrollers or standard memories. For this reason, manufacturers tend not to treat commodity parts as strategic devices.

Pricing fluctuations

But, while the availability of commodity parts is often taken for granted, pricing can be more volatile. Buyers will often have two or more sources for the same part at similar pricing levels, at least until one manufacturer cannot supply anymore. A single large order is all it takes to reduce market availability and increase pricing significantly, which is why commodity parts should carry the same importance as proprietary devices.

At a minimum, buyers should regularly check lead-times from the manufacturer, but there are more proactive methods that can provide greater protection against volatility.

Plan procurement

Including commodity parts in a distributor supply agreement is a useful tool for managing volatility. OEMs can ensure the supplier is ordering those parts into stock, rather than using backto- back orders on the semiconductor manufacturer, as this practice will still leave the OEM susceptible to risk.

Alternatively, microchipDIRECT can send a leadtime email at the start of each week providing information on all the parts in the order book. This gives buyers a timely way to plan their commodity procurement for the months ahead.

Purchasers can also utilize microchipDIRECT’s standard 30-day cancellation policy, whereby any order for standard noncustom parts can be cancelled up to 30 days before the shipping date. This allows buyers to secure availability without the risk of over-ordering and being left with unnecessary stock.

OEMs can access their order-book online, 24/7, to check the real-time status of each item and make changes immediately. This allows buyers to respond rapidly to dynamic changes in the market. Treating all components with equal importance and sourcing from multiple suppliers brings many benefits because just below the surface of easy availability and low unit cost, there is always the potential for volatility. Many manufacturers in the semiconductor and passive markets have had 26-week lead-times for the simplest of commodity devices.

Commodities should therefore never be ignored — it’s not worth the gamble. By applying simple procurement techniques, buyers can minimize their risk and greatly lessen the volatility inherent in the commodity component market.

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