Considerations for Sourcing Direct Materials

A managed and strategic sourcing strategy for direct materials can pay great dividends in savings over the lifetime of a specific product line, but tends to be more technically involved and have a higher time commitment.

The gathering of technical specifications will usually take up the most upfront time. Interdepartmental communication within this phase of the sourcing process is critical in order to understand the hard requirements of the specifications as well as areas of flexibility.

For machined parts this will involve gathering a PDF drawing for each component for initial conversations with the machine shops, as well as design files in a generic 3D CAD format such as STEP (Standard for the Exchange of Product) which is in an ISO standard exchange format. Factors to consider may include tolerancing of critical dimensions, geometries of individual features, and material specifications and finishes.

In addition to engaging with the suppliers when initiating the relationship and during revisions of the drawings, frequent requoting with both the incumbent and a set of alternate suppliers can be a key factor in understanding the true competitive market costs.

When working with electronics parts such as Printed Circuit Board Assemblies (PCBA) the process becomes more involved due to not only maintaining the most current revision of electronic design files such as Gerber files, but also the management of individual off-the-shelf component specifications and availability, obsolescence, and substitution concerns.

The Gerber design files form the basis of the conversations with EMS (Electronic Manufacturing Services) suppliers and the quoting process, since they are in a generic ASCII vector format for 2D binary images of the circuit board's copper layers, solder mask, silkscreen, and drill data and can be read by any supplier independent of the original design program. PDF files describing the board's layout, schematic data, and fabrication requirements are also required for a complete and accurate quote.

Along with the design information a BOM (Bill Of Materials) is also provided to list each component of the board assembly. Within the BOM, passive electronic components that do not control current through a command signal are listed and may include capacitors, resistors, inductors, transformers, and filters. These components are usually more open to substitution, but sometimes have a critical tolerance value and any alternates need to be validated by the Engineering design team. The active components, which do control current, are more critical and can include most ICs/transistors/semiconductor devices, sensors, display devices, vacuum tubes, and silicon-controlled rectifiers. Active components have firm requirements due to design constraints and may be in short supply at times or need to go through a thorough end of life cycle upon obsolescence. This can include purchasing through brokers, negotiating directly with the manufacturer to ensure supply, purchasing a bulk supply to ensure a transition period, and working closely with the Engineering design team to validate an appropriate substitute and ensure a smooth transition to the new component.

Therefore, by dedicating the initial time necessary to gather all specifications and understand the constraints of the design, a program can be developed to provide year over year savings by requoting parts to maintain competitive pricing and utilize substitution and negotiation strategies with suppliers when individual part costs begin to rise.