How should buyers evaluate semiconductor supply partners?

Several months ago I spoke with a procurement manager who was being let down by the same supplier for two different parts in the one quarter. Initially they had seemed very easy to work with but eventually became a problem. This sentence has stuck in my mind as it captures a very important dimension of supplier evaluation that is rarely measured by most metrics.

As mentioned above, Reliability of a supplier cannot be evaluated during sales process. The reliability of supplier is discovered at 4 PM on a Thursday when you require 500 pieces of a specific Microcontroller that were supposed to arrive a week ago on Tuesday. And all the capability statements of Rep of supplier will become worthless!! at that moment.

The metrics that actually matter (and the ones that don’t)

Everyone’s first question is price, but that’s not particularly interesting. What’s more interesting is the amount of additional expenses that a “saving” of $0.08 per unit can rack up for a company in supply disruptions. Yes, you read that correctly: $40,000 extra in expenses for the difference of $0.08 per unit. Not a good trade.

So what should you actually be measuring?

• On-time delivery rate over the past 12 months — not their claimed average, their verified one
• How quickly they respond when something goes wrong, not just how fast they reply to quote requests
• Whether they carry safety stock on the parts you buy most often
• Their process for communicating lead time changes before those changes blindside your production schedule

None of this is glamorous. But it’s the gap between a supply partner and a vendor, and that gap, when a shortage hits, becomes a chasm.

Quality checks: the part everyone skips until they can’t

Most semiconductors can be easily counterfeited. During a shortage, parts are often flooded into the supply chain by all hands trying to get product to market as fast as possible. It is common for these parts to end up in a supplier’s inventory. Only a trustworthy semiconductor distributor (semiconductor distributor) will be able to tell you where a semiconductor for sale originated. It could be an authorized part (i.e. it went through the authorized distribution channels for that semiconductor) or it could be a lower quality or even a completely counterfeit part. You should be concerned about where your semiconductors came from. Make sure your supplier is trustworthy.

This can usually a semiconductor distributor will be able to give you a clear and confident answer of where their semiconductors came from. They should have the ability to tell you all about their Authorized, Franchise, and Direct to Manufacturer relationships. Don’t be afraid to push for an answer to your questions, and if the supplier seems evasive or secretive about the origin of the parts they are selling you, it is likely that they are trying to hide something.

Some questions worth asking directly:

• Do you source exclusively from authorized manufacturers or franchised distributors?
• What inspection process do you run on incoming parts?
• Can you provide a certificate of conformance on request?

So to sum up for all you potential customers out there, if a semiconductor distributor is not able to answer with confidence the questions outlined above then it is best to look elsewhere for a supplier. There are many quality distributors out there in the industry today who are able to meet the needs of their customers for all of their semiconductor requirements. And, these types of distributors will not make you feel like you are being an inconvenience to them when you ask for information.

Part availability in a tight market

So as I mentioned earlier the semiconductor market is different than a typical commodity market. Components can have a number of different lead times and these can change often and usually overnight. Some components will be put on allocation by the manufacturer and then later taken off of allocation by the manufacturer. Sometimes components will be in abundance for months or even years and then suddenly be gone. This is typical in the semiconductor industry and creates a lot of challenges for companies trying to anticipate the lead time of parts prior to placing an order. Then, to make matters more complicated, some parts that were not available for months or years will show up in warehouses around the globe with no indication of when they will be used. The semiconductor market can switch from extreme supply to extreme demand at a moments notice and usually does so without warning.

As mentioned before, a good supplier must be able to supply you with the correct part, and he must have an understanding of your requirements in order to pick the right part for you. It is also very important for a supplier to have a good relationship with the manufacturer of the part that he is buying for you. This will allow the supplier to have the most up to date information about any upcoming shortages. The supplier can then use this information to inform you of any potential problems that may affect your production. Many suppliers hold a “buffer stock” of commonly used parts. If the part you require is on allocation, then the supplier may be out of stock of that part. However, if he has held a buffer stock of the required part then he should be able to supply you with that part.

(On a side note: Be wary of distributors who try to market themselves as having “Proactive Market Intelligence” (PMI). Until they put their money where their mouth is and can inform you of impending shortages, alert you to end-of-life parts and other useful information to save you time and headaches before stock runs out – then their emails regarding stockouts of parts you’ve purchased from them amount to nothing more than spam)

Reactive (left) vs Proactive (right)

What good sourcing support actually looks like

The best supply partners act as technical consultants to their customers. They know the end-of-life part before you do. They have a part to replace a part that is failing in the field by midnight. They reject an order when it appears to be counterfeit. They hold their customers’ hands through a failing supply chain and say “I told you so” when a part fails a month prior to its intended failure point. The supplier is always thinking about your supply chain the same way that a mechanic is always thinking about your car’s potential failures. They can fix what’s currently broken but they can also tell you what will fail in a month.

That kind of support is rare; it is genuinely rare. But it does exist. And once you have found a supplier who provides this kind of support to you and your organization it is very hard to go back to being treated as a mere customer by a supplier and be satisfied.

In the end, the work of a procurement manager does not end at choosing a supplier. The procurement manager described above needed to establish a process to ensure her chosen supplier would hold up when things got really bad. Price, Speed of Delivery, and Onboarding were not aspects that she would have considered in determining her supplier’s ability to hold up when things were at their worst.

One last thing

Always ask for references. Preferably from other buyers from similar industries, with similar order values. Ask them what the supplier said or did when crisis time hit and the good or service started to fail. Ask them if the supplier communicated well and on time, or not at all. Ask them if good solutions were found, or just good words and false promises?

Ask for references from recent buyers of similar components in similar volumes. Ask for their experiences during the last supply crisis. How did the supplier communicate? Did they go silent or were they proactive? Did the supplier come up with good solutions or only excuses and empty promises? The last question is the most important. If all your RFP responses only tell the story of easy to work with until they weren’t, then that story in itself tells you almost everything you need to know.

Joy Root