Strategic sourcing advice: lessons from the pandemic

Digi-Key’s senior director, global assigned accounts, Tom Treichel, argues that during the pandemic inventory and on-time delivery are differentiators and partnerships are key.

The Covid-19 pandemic has taken a toll on supply chains and procurement professionals around the world. So, what have we learned? Long-time Digi-Key customer and SVI’s vice president of supply chain and North American operations, Wayne Ellis, said: “The most expensive supplier to work with is the one that can’t meet my delivery dates.”

SVI is a leading EMS service provider based in Thailand with regional and global operations across South East Asia, Europe and the US.

A 33-year veteran in electronic components sourcing, Ellis has experienced it all including a flood and factory fire within three years. Now, the COVID-19 pandemic proved to be one of his toughest challenges.

Ellis said: “In the past, we have experienced disruptions in supply due to natural disasters, strikes or other geopolitical issues. We have also experienced shortages due to increases in demand. Never have we experienced both, to this extent, at the same time. Military and medical supply chains were filled first, leaving other customers to scramble for the little remaining goods.”
Most manufacturers have since rebounded, for the most part, but some lead times remain stretched. As automotive and consumer manufacturing come back online, Ellis expects some lead times to stretch into Q4.

During the early days of the pandemic, SVI’s medical customers saw significant increases in demand and SVI sprang into action working closely with their distributor partners.

Ellis said: “We worked with customers to provide letters stating the end use of the product, then contacted distributors, and in some cases, had regular three-way calls with the manufacturers and distributors to review the demand upsides and negotiate for increased supply to ship to us. I am happy to say that we have been able to meet demand with the tremendous support of our partners, and as a result, have helped to save lives.”

Some SVI customers dictate certain parts are purchased from specific suppliers, making sourcing a complex, sophisticated puzzle. Thus, Ellis and his team work with nearly 1,000 active suppliers.

The SVI team uses a ‘total cost of ownership’ model for selecting suppliers, looking at: payment terms, freight terms, minimum order quantities, etc. Recently they have removed lead time out of the cost of ownership model and made lead time a qualifier. Why? If parts do not arrive on time, and a line sits idle, costs can exceed $1,000 per hour. This is why Ellis tells his team to choose dependable delivery and flexibility over lowest price.

Working with any distributor is a true partnership and one of the ingredients to building partnerships is information sharing. Sharing forecasts and telling suppliers your true needs is critical. Allow suppliers to build a model around your needs. According to Ellis, many sourcing professionals tend to tell suppliers what they need to do, but suppliers are the experts in supply chain strategy, so he recommends listening and accepting their help to meet needs. For example, SVI has a vendor-managed inventory program where they provide suppliers with forecasts and their supplier partners ship parts according to the forecasts.

Digi-Key partners with SVI and Ellis has relied on Digi-Key for more than 20 years. Ellis credits Digi-Key’s model (deep, rich inventory available for overnight shipping) along with what he calls the ‘best website on the planet’, top-notch service, support and training, for being a reliable, trusted supply chain partner. Ellis’ team also uses Digi-Key’s APIs and supply chain programs to streamline sourcing and reduce costs.

As Ellis noted, pricing is part of strategic sourcing, but serviceability is critical. The ability to support the quoted or awarded price on that part, as well as deliver on time, is key. To get a true understanding of a distributor’s serviceability, we recommend looking at historical factors and asking:

  • Is this a stocking part of the supplier?
  • What is the lead time?
  • What is the lead time historically? If they say six weeks, does it arrive in six weeks?
  • What is the overall on-time delivery performance?
  • Do they ship the correct parts?

Develop a scorecard for each distributor to track these factors and determine how partners are performing.