With the downturn in the economy causing slow or declining revenue growth, manufacturing companies have an increased focus on cost containment. Many of these companies realize that maintaining or improving the efficiency of their Supply Chain is critical to meeting, even exceeding, net income objectives. This means that the procurement departments of Original Equipment Manufacturers (OEMs) are amongst the most sought after “customers” in Corporate America. Suppliers, in a similar economic struggle to maintain sales quotas and profit margins, seek to capture these “customers” using as few resources as possible.
One of the most effective ways to serve customers is to listen to their ‘voice’. Let us now explore a specific example of how “Supply-Side” representatives (i.e. Contract Manufacturers, Component Providers, etc) in the electronics industry are capturing the “voice of the customer.” Within the $1.7 trillion electronics industry, Electronic Contract Manufacturers (ECMs) and Original Design Manufacturers (ODMs) are creating strategic alliances, larger distributors are acquiring smaller distributors, and component suppliers are consolidating. Why is all of this activity happening? It is because everyone on the Supply Side (ECM/ODM, Distributors, Component providers, MFG Representatives, etc) is competing for OEMs that represent the “ideal profile” of the perfect customer. These perfect OEM customers are the top 5% that represent 80% of the electronic industry’s spending.
There are four elements defining the common characteristics of the “ideal OEM customer”:
1. Billions in total spend
2. High volume with very few SKUs
3. Highly accurate forecast/EDI systems
4. Strong engineering skills with the talent to clearly defined product roadmaps and specifications
For suppliers, these characteristics are ideal, as there are fewer resources required and less ‘hidden’ costs to serve these types of customers.
The next great invention will “not” come from the top 5% of the customer base. Thus, the suppliers that are not focusing on the 95% may be left out in the cold when the next Apple or Microsoft suddenly appears on the scene. The “growth” of the industry is driven by the replacement of electromechanical components with Electronics for many OEMs. In addition, the majority of new inventions & start-ups are introducing products that contain Electronic Components/Assemblies. For these reasons, ECMs/ODMs should “not” ignore the remaining 95%.
My question is this… With all of the Supply-Side economics in place to satisfy the top 5% of the industry, what are the other 95% left to do? If Supply-side representatives are ignoring 95% of the base for the top 5%, are they truly listening to the “voice of the customer?” Who is representing the Demand-side of the equation?
What’s the answer to this question? We are heading for a new era in Supply Chain management. Its name is “Demand Side Representation.” For many of the 95% of the OEMs navigating the electronics industry, going to market alone is the equivalent of going into court without a lawyer. While the supply side of the industry is loaded with manufacturers’ representatives focused on very large OEM companies, the bottom 95% tend to fend for themselves. For these smaller OEMs, this lack of scale and expertise is a disadvantage when negotiating with the Supply-Side representatives that would rather deal with the top 5%. If your company is one of the smaller OEMs, then the solution to quickly improving your voice is to get creative and build a more substantial representation on the demand side.
What are the options for improving your company’s “voice?”
1. Merger & Acquisition to improve you scale
2. Talent Acquisition to upgrade your Subject Matter Expertise.
3. Strategic Alliances/Partnerships to “Bundle” supply chain requirements.
The following is an evaluation of these options:
Partnerships are the only real viable option for most companies. An example of this is the combining of electronics spends by BMW and Daimler. In their partnership, they’ve combined their Procurement Talent and Electronics spend in an attempt to improve their “voice” in a supplier-dominated industry.
Ultimately “leverage” is the controlling voice of the customer. A small change in your cost of goods sold can have a dramatic impact to your net income. Not getting your sourcing and development structure right from the beginning can make all the difference in your long term viability. What are you doing to ensure you are getting your fair representation with your supply base? Are you getting the pricing, priority, quality, and attention you deserve?
In the world of Electronics Supply Chain Management Who really is the ‘Voice of the Customer’?
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Contact us: Customer_service@kismetssp.com
Managing Partner & Co-founder
KISMET Strategic Sourcing Partners, LLC