Negotiate in times of crisis!
Sourcing specialists in the electronics industry, EMS, OEM and ODM, regularly engage in periodic negotiation campaigns with electronic components’ suppliers.
This activity can be spread out over 4 to 6 months, it can mobilize the purchasing team, and involve thousands of parts.
At a time when tensions in the electronic components’ market are not favorable to sourcers, some will opt for a status quo and prefer not to carry out periodic negotiations.
However it may be precisely the opposite that must be done!
Giving visibility, revisiting the purchasing strategy, reviewing logistics contracts, finding innovative solutions with suppliers and generally maintaining close contact with them is paying off thus securing the supply chain and allowing costs’ control.
The process :
Below is the operational process formalized by Buymanager stemming from various feedback from electronics sourcing teams.
1. Negotiation preparatory phase
Creation of purchasing forecasts
Purchasing forecasts are usually derived from the calculation of the net requirement (MRP).
Annual forecasts often stem from projections of purchases at 3, 4 or 6 months.
To ensure effective competition, it is important to know all approved sources for each part.
Target prices stem from the price reductions that the company is aiming for. Adjustments can then be made according to commodities.
Updating the list of suppliers to consult
In view of the frequent purchases and acquisitions at manufacturer and franchise levels, the linecards’ matrix must be revised each year.
2. Integration of purchasing forecasts
This phase involves the import of the data to be negotiated, its classification, as well as its consolidation.
The consolidation work requires having reliable and structured manufacturer references and allows noticeable cost reductions.
3. Selection of suppliers and distribution of price requests
Rather than sending all the components to be quoted to every supplier, best practice is to rely on the “Distributor-Manufacturer” networks. This targeting makes handling by suppliers easier and reduces their response time.
Some sourcers communicate a target price from the outset, others wait for a first return of offers before doing so. This requote process is generally only carried out with the most important suppliers.
4. Registration of supplier offers
This step is the first difficulty for all sourcers: each supplier offer can include several hundreds of lines, if not thousands!
The difficulty is that suppliers do not usually respond on all lines all at once. Replies are sent in successive batches as manufacturers report their prices. The simple integration of data in a global table becomes very complicated, and in any case it is highly time-consuming.
5. Analysis of offers
Prior to negotiation, the positioning of distributors vis-à-vis the various manufacturers is analysed, to define the assignment strategies (scenarios) ensuring:
• a balance in the assigned turnover is maintained,
• earnings are optimized and the supply chain is secured
• the key negotiation areas are defined.
A very complex equation to achieve without a dedicated tool!
6. Face to face negotiation
Once the areas to work on have been defined, negotiation meetings will allow buyers and sellers to review all or some of the components, depending on the volume of the portfolio and the time line.
During this step, 2 key points affect the results’ performance: preparatory work for the interviews and the ability to have instant access to all relevant data (positioning of the competition, objectives, financial stakes, logistical parameters).
The award of parts to suppliers is a combination of several criteria:
• Special effort of a supplier on one or more parts.
• a strategy of brand assignment to a particular distributor
• a strategy of business break down between several distributors
• Logistics constraints
8. Approval, notification of suppliers and updating of the ERP
This last step is essential as it allows negotiated prices to come into effect. The financial gains are only effective once there are actual supplier invoices using the new negotiated prices coming in.
In some organizations, assignment must first be validated by an approving manager. This is when turnover and savings attributed to selected suppliers is verified.
Supplier award is the contractual stage where awards are confirmed to suppliers: during the various communications and negotiations, the buyer has recorded agreed revised prices. Suppliers check prices relayed to them.
Transfer to the ERP
The end of the process consists in transferring the prices to a centralized application, for example to an ERP, for their implementation. It is essential for a fast and complete integration that the data is previously structured in a format tailored to import mechanisms.
If manufacturer references have been consolidated, it is essential this is reverted and part codes are individually isolated.
Aware of the acute challenges and the stakes of buying electronic components, Buymanager started proposing a periodic negotiation module in 2015.
At the beginning of 2018, a series of discussions with its customers was initiated. This has resulted in the formalization of the operational process now available in the latest version of this module, Nego v2.
For more information, contact Julie Manchelle
firstname.lastname@example.org tel: 04 57 13 81 30.
By Loïc BIAREZ, CEO of BUYMANAGER.