Transforming the Electronics Industry: The Shift Towards End-to-End Procurement Automation
Outdated procurement strategies for electronic parts have reached a tipping point. As the speed and complexity of demand continue to escalate, intelligent automation of procurement processes is not simply advantageous; it’s evolving into a fundamental requirement. Early adopters are already reaping benefits like increased efficiency and notable cost reductions, signifying that effective, intelligent automation isn’t just the future of procurement in the electronics industry; it’s rapidly becoming its present. As demand grows more complex and fast-paced, the transformation towards intelligent automation in procurement processes is more than just a strategic advantage — it’s become indispensable.
Imagine a scenario where overwhelming paperwork, disconnected systems, endless spreadsheets, or tedious manual data entry no longer burden the procurement of electronic components. Think of a streamlined process that perfectly aligns demand with supply, making procurement as smooth as possible. This is no longer an abstract concept but a budding reality that forward-thinking organizations are already implementing.
Progressive companies are incorporating intelligent automation into their procurement processes, replacing conventional, labor-intensive, and error-prone methods with swift, precise, and dependable automated systems. These pioneers enjoy the fruits of their inventive approach, experiencing significant enhancements in their supply chain’s flexibility, strength, and adaptability.
Understanding the Procurement Process of Electronic Components
Before we unpack how automation is reshaping the procurement landscape within the electronics industry, it’s essential first to outline the traditional processes involved in acquiring electronic components. Let’s begin by distinguishing between two frequently conflated terms in supply chain management: purchasing and procurement. Though they may seem synonymous, they each carry distinct meanings in this context.
Purchasing is a component of the broader procurement process. It centers around obtaining goods and services. It encompasses order placement, goods receipt, and supplier payment processing.
Procurement is a broader concept, taking a strategic stance beyond just purchasing. It encompasses a comprehensive approach to securing goods and services, aiming to bring added value to the business by optimizing quality, cost, and efficiency. Procurement involves recognizing business needs, sourcing, pricing, availability, and evaluation, building relationships with suppliers, managing inventories, and measuring supplier performance.
From this perspective, automating procurement involves streamlining the routine buying tasks and the strategic aspects of procurement. The outcome is a smoother operation, enhancing efficiency and a more robust strategic footing for the business.
Knowing When a Procurement Process is (or is not) Automated
Often organizations believe they have achieved automation of procurement processes when in reality, they have simply made a purchasing process more efficient.
Materials Resource Planning (MRP) or Enterprise Resource Planning (ERP) systems store data with, among other things, specific information about purchased parts. This data may include default supplier, target pricing, contract pricing, and minimum/multiple purchase quantity information. It is certainly possible for a system utilizing this data to produce a purchase order against known component demand. That does not equate to automation.
In believing purchase orders provided from an MRP/ERP system equates to automation, one would be required to believe that information stays the same over time, which is incorrect. Components go obsolete. Prices change, potentially becoming more expensive but also becoming less expensive. Supplier quality and compliance fluctuate. Competitive or alternative parts are designed and presented in the marketplace. If a process does not recognize information changes over time, the process will ignore opportunities. Automation has ceased if exceptions that inevitably occur in a process are managed manually.
Let’s also refer back to the difference between purchasing and procurement processes. For a procurement process to be automated, it must include workflow approvals, business rules, offer selection management, exception management, alternative component evaluation, alternative supplier evaluation, validation, and feedback. It is more difficult, but possible, to automate these procurement processes.
The data exchange methods between a buyer and seller are also fundamental. Any process that relies upon email at any point is likely, not automated. The data exchanged between trading partners should be in real-time and in a format that is easy to consume. For example, the use of file formats such as PDF likely indicates that there is potential for further automation.
Buyers usually count on sellers to enhance their processes, and often, sellers are happy to offer these extra services as a value-add to keep their customers satisfied. But it’s good to remember that these value-add services also come with a cost. Even though the seller picks up the slack for any inefficiencies on the buyer’s end, these costs tend to resurface in higher component prices.
Also, be careful not to fall into the trap of thinking a process is automated when it’s actually not. This kind of misunderstanding could lead you to miss out on other opportunities. It’s always a good idea to keep an eye on the real costs and the actual level of automation in the process.
The Rise of Digitalization and Automation in Electronic Parts Procurement
The notion of a digital supply chain may seem daunting. However, at its heart, it revolves around a simple question: Is it efficient to manually handle every transaction, from sending out Requests for Quotes (RFQs) to finalizing purchase orders and coordinating change orders? Instead of complicating matters, sensible digitization of supply chains can streamline them by eliminating relatively simple, repetitive tasks and freeing up valuable resources for more strategic activities.
Intelligent automation can now play an impactful part in multiple steps of the procurement process, be it processing data required for planning, managing purchase orders, receiving confirmations, overseeing tracking and shipping, or handling invoices. This transition turns the supply chain into a more agile system, thus enabling employees to invest their energy in more strategic aspects of the organization.
The power of end-to-end parts procurement automation lies in speeding up individual tasks and weaving together an entire process through targeted software applications, and integrating business-specific guidelines into the algorithms powering the automation. This modern method transcends older models like Electronic Data Interchange (EDI) by offering more seamless, proficient, and flexible operations.
Essentially, the focus is not merely on ‘doing things faster’ but on ‘doing things smarter.’ By integrating various tasks into a cohesive and interconnected workflow, procurement automation establishes a seamless and intuitive system that dynamically adapts to the evolving demands of the business. This capacity to learn, adjust, and optimize renders end-to-end procurement automation a transformative solution for companies operating in the electronics industry.
Companies like Amazon have paved the way for this change, showcasing how APIs could link suppliers, customers, and the company without dedicated and custom point-to-point connections, eliminating scale and communication problems.
A Success Story that Demonstrates the Advantages of End-to-End Parts Procurement Automation
End-to-end parts procurement automation brings several practical advantages. Firstly, it eliminates the need for manual data entry, saving time and resources. It enhances accuracy by directly utilizing supplier data, leading to near-error-free quoting and purchase order entry.
Furthermore, sensible procurement automation strengthens relationships between companies and suppliers. Removing repetitive ordering tasks from the equation allows for more meaningful collaboration and problem-solving.
The case of Sonic Manufacturing serves as a concrete example of successful procurement automation. (1) Sonic’s noteworthy achievement has been the improvement of its parts procurement process, accomplished through incorporating APIs, the development of custom scripts, and the application of new business processes. Sonic Manufacturing services include in-house board layout, prototyping, and New Product Introduction (NPI), with a turn-around of five to ten days.
A few years back, Sonic’s team decided to use APIs to streamline sourcing and enhance purchase order delivery, even though this approach was relatively untried in the electronics industry. The standard method of choice then was electronic data interchange (EDI) solutions, but these needed to mesh better with the fast-paced and dynamic nature of parts ordering. Sonic’s move to API-based systems helped them overcome these limitations and streamline their operations.
Data revealed that about 70% of orders processed through EDI by major distributors were accurate, leading to a rejection rate of about 30% for orders intended for automatic processing. These rejections then required manual handling, causing the process to be both costly and inefficient. By contrast, the API solutions provided by Orbweaver allowed Sonic to automate about 98% of all orders, with only a small 2% requiring manual handling.
API offers several key advantages over alternatives like EDI:
Live validation: API enables real-time confirmation of price, quantity, delivery, and attributes when placing orders, which results in more accurate data.
Accurate pricing: Peer-to-peer data connectivity allows client-specific or contract-based pricing instead of the generally published prices. This capability helps maintain the unique relationship between buyers and sellers.
Efficient exception handling: The system automates exception management in component sourcing, making it easier to convert supplier data into purchase orders and ensuring accurate data.
In stark contrast to their previous approach, a paper-based system prone to errors that required constant manual intervention, Sonic has now embraced a digital strategy. The partnership with Orbweaver has enabled Sonic to automate critical aspects of its supply chain, including supplier selection and Purchase Order (PO) issuance. This shift has significantly expedited the ordering process, which the Sonic Team can complete in minutes. Moreover, the average cost per line item, previously ranging between $25 to $100, has dropped dramatically to just $0.25 for automated items, with manual processing costs also seeing substantial reductions. Overall, Sonic’s journey to automation has brought about remarkable operational efficiency and cost-effectiveness enhancements.
Barriers to Adoption and How to Overcome Them
Despite the potential advantages, transitioning to end-to-end parts procurement automation can present some challenges. However, businesses in the electronics industry can navigate these challenges by taking a proactive stance and nurturing positive relationships with suppliers and partners. Let’s consider some of these barriers and potential solutions:
Technological Difficulties: The shift from traditional processes may bring about technical complications. Compatibility issues with existing systems or the need for additional training for the workforce might surface. It’s worth working with an experienced implementation partner to tackle this, investing in flexible software solutions, and providing sufficient training to ensure employees are comfortable with the new technology.
Reluctance to Change: Major operational changes can meet resistance from staff accustomed to existing workflows. In response, an effective change management strategy can be crucial, highlighting the benefits of automation for the company and individual roles.
Understanding the True ROI: Figuring out the ROI from automation can be tricky. It involves considering the initial expenses, improvements, and reduced errors. Businesses may need some assistance to capture these benefits. Preparing a cost-benefit analysis should encompass everything about automation – from the savings gained through better efficiency to less apparent benefits like improved customer satisfaction.
Cooperating with Suppliers: Implementing automation might change how businesses interact with suppliers. Developing a mutual understanding of the advantages of automation and maintaining solid relationships is essential to navigating this change.
Data Security Concerns: The increased digital data flow raises data security and privacy concerns. Implementing robust cybersecurity measures can help protect sensitive information and maintain trust.
Future Trends and Predictions
The electronics industry is actively looking forward to introducing more features and capabilities enabled by enhanced APIs and intelligent automation. These features will make supply chains even more integrated. There’s a noticeable uptick in demand for APIs, indicating that digital supply chains are becoming a standard part of the industry.
The shift towards intelligent automation in the electronics industry is gaining traction. More companies are embracing this technology, expecting supply chains to become efficient and adaptable. Comprehensive procurement automation may give the electronics industry the flexibility to meet future challenges.
The transition to complete procurement automation is significant for the electronics industry. With the rise in automation adoption, the industry is bracing for a future where this tech is not an optional extra but a core requirement. Companies that have embraced automation are reaping the rewards, indicating those not taking similar steps may be left behind. We are in the era of the digital supply chain, making it a thrilling period.
(1) Sonic Manufacturing Case Study: https://www.orbweaver.com/case-study/sonic-manufacturing/