Electronic Products & Technology

Turnkey services increasing to meet supply chain changes

October 1, 2013  By Todd Burke, senior account executive, Smith & Associates

Semiconductor penetration continues to increase and diversify across market sectors and into more end-product devices. With this increase of semiconductor chips on Bills of Materials (BOMs) populating more industry sectors, end-product manufacturers in particular are finding themselves in need of global, turnkey solutions to manage the growing list of required electronic component sourcing and inventory management services.

Not only are semiconductors and electronic components on the rise in BOMs, the complexity of the chips is increasing as well. What this means is that industrial manufacturers are facing both a steep learning curve pertaining to the acquisition, possession, and internal distribution of components, while they simultaneously contend with the ever-increasing sophistication of components requiring testing and quality control to detect counterfeit, fraudulent and/or subpar parts from entering their inventories.

Having industry standard, quality management systems (QMS) and procedures in place is important for navigating complex electronic component supply chain challenges. Balancing QMS needs with overall cost management for the acquisition and possession of electronic components is at the center of industrial companies’ strategic shifts for turnkey sourcing and inventory management services.

Turnkey solutions in demand from industrial companies

Among the most cited reasons that industrial companies increasingly are demanding turkey services are cost savings, inventory management and quality assurance. These strategic advantages are realized by consolidating vendors from a group with individual strengths to a few, best-in-class providers, that provide broad and deep supply chain experience through a full range of global services, industry standards, quality management, processes and procedures for sourcing and handling an array of components that notably include electronics.

Reducing the vendor base in and of itself is a significant cost savings and improves both risk and quality management. There are many cost benefits to turnkey services, both externally and internally to the company. By reducing the number of vendors, the costs of regular auditing and transaction costs are also reduced while more favorable pricing for increased orders are achieved, for example. Similarly, internal costs that can be reduced include the need for investing in the construction and maintenance of warehousing space and technical engineers to ensure the proper management of the materials, particularly for electronic components and parts.

“Reducing the vendor base in and of itself is a significant                                                      cost savings and improves both risk and quality management”

Additionally, costs include meeting and maintaining industry standard handling and anti-counterfeiting processes and procedures. These handling and anti-counterfeiting operations must be done by trained quality inspectors; having the proper equipment, packaging, storing facilities, insurance, and related possession costs for the inventory. In reality, such dedicated electronics inventory management capabilities are not a core competency in many industrial or other enterprise settings.

The goal for businesses and turnkey service providers is to reduce the total cost of acquisition and possession of parts while ensuring long-term supply chain stability. In terms of costs, the costs can be tied to the value of the inventory being managed such as the number of transactions per week or month, or it can be negated altogether by agreeing to pre-defined monthly or quarterly sales targets. In the end, turnkey services are centered around a partnership in which both parties want the other to succeed and thereby both do.

Quality is always paramount

Quality and best practices are at the core of turnkey service demands by industrial customers. The unique nature of many electronic components dictates using service providers with specialized process and industry recognized certifications. At a minimum it is essential that supply chain partners hold SAE and ISO accreditations and certifications, notably ISO 9001, ISO 17025, and ISO 14001.

Evaluation of electronic components’ quality can require laboratory testing. In the case of the semiconductor and electronics industry, testing laboratories can be accredited under the ISO/IEC 17025 quality standard. The ISO/IEC 17025 is both a management and a technical facility quality standard and is importantly related to ISO 9001, Quality Management Systems (QMS). Laboratories and businesses receiving ISO/IEC 17025 and ISO 9001 accreditation, therefore, have demonstrated not only that the operations, procedures, business and quality management processes are well-established, adopted throughout the organization, and meet rigorous requirements, but it also means that the technical laboratories, in which the testing is performed, is staffed by appropriately certified and trained professionals. Also, these sophisticated, high-tech labs must meet multiple levels of equipment, facility management, and should be able to perform standard, non-standard and laboratory-developed methods for testing and calibration of the products being handled.

“Quality and best practices are at the core of turnkey                                                            service demands by industrial customers”

Additionally vital to the safe and proper handling and storage of electronics is the ANSI ESD 20:20 certification. Furthermore, in sourcing and ensuring the traceability of electronic components, having industry-recognized processes and procedures in place is paramount; among those should be AS5553, AS6081, AS9100, and AS9120.

It is important that checklists of accreditations and certifications, such as those listed above, be considered only a starting point. On-site auditing and due diligence of supply chain partners are paramount to ensuring that the full suite of services for sourcing, documenting (including reporting and traceability), testing, handling, storing, repackaging (when necessary), and logistics handling of all semiconductor and electronic components is properly and consistently followed.

Beyond the quality and control standards required to be certified, there are also vendor auditing and rating systems that bring with them a history of sourcing relationships and experience with quality management that are essential to successful anti-counterfeiting efforts. While each supplier will have their own vendor rating and quality control (QC) operations in place, it is essential that employees have continued education for technical and operational procedures and that they understand how to implement these policies and procedures in their enterprise. Performing on-site audits of suppliers is the best way to ensure that these critical business practices are in place and in use.

Collaboration vital for industrial semi supply-chain

The semiconductor and electronics supply chain is a complex, global network that has always been rather volatile in nature due to sometimes-dramatic supply and demand shifts and the threat of counterfeiters looking to take advantage of those less-seasoned in global sourcing challenges. As industrial companies
are seeing increases in their electronic components inventories, there is the simultaneous need to control costs and hold vendor bases to a set of best-in-class providers. Understanding what the challenges are and having a guidepost to conduct due diligence on electronics service providers is critical to ensuring quality parts and quality management processes and procedures for this sector.

“The semiconductor and electronics supply chain is a complex,

global network that has always been rather volatile in nature”

For those who are long-standing in the semiconductor and electronics industry, vigilance and quality inventory sourcing and management is certainly not news. Along with the rise in semiconductor penetration in designs, there is a simultaneous diversification into more sectors and industries. Increased chip commoditization and new design architectures of components expand the reach of electronics into more industrial designs as well as internal and external corporate clients to meet rising demands for enhanced device capabilities and more real-time connectivity with field sites and remote locations. While the advantages for industrial electronics are clear and growing steadily, there are new challenges being faced by industrial companies as they work to balance costs and QMS requirements when sourcing, handling, and distributing semiconductor and electronic components.


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