Benchmarking – Tried & True. What about your component spend?Mark Tayles
Over the 4 years since our firm launched our electronic component benchmarking tool set, we’ve concluded there are only 4 reasons that companies don’t benchmark their electronic component spend for competitiveness.
Okay, there might only be two reasons?
In their 15th release of Management Tools and Trends – 2015, Bain and Company tabulated opinions of Supply Chain professionals concerning 25 management tools for usage level and satisfaction. Benchmarking tied for 2nd as the most pervasive tool. Further, over a 10 year period, only 4 tools consistently remained in the top 10: Strategic Planning, Benchmarking, Outsourcing and, Mission & Vision Statements. This confirms that benchmarking is an entrenched discipline within progressive companies.
Benchmarking has long been a solid fixture in operationally intensive activities like manufacturing and logistics. Lytica played a pioneering role in bringing true benchmarking into the electronic component purchasing domain. I use the word true because our process allows clients to benchmark their pricing against what other companies are really paying for the same components (same basket of goods).
The rapid growth of our benchmarking reports, along with the high renewal rate, is indicative of the ongoing value that clients derive from this market price normalization process. Clients learn the competiveness across each of their purchased commodities along with identifying components that are pricing outliers. This is an authentic sign that our tools work. However a single benchmark event does not equate to a benchmarking culture. By definition, benchmarking is an enabler along a continuous improvement journey. Just as the R&D and Product teams are racing to stay ahead technically, the Operations and Supply Chain teams need to be pulling ever faster as well. Lytica’s tools aid that cause.
Recently we reflected on which vertical market segments currently use our tools, why they use our tools and what their rate of adoption is. We added anecdotal evidence and concluded we could categorize clients into two broad categories based on their motivation for using our tools and the value they derived from them.
Operationally Challenging segment
Customers in this segment operate with incredibly complex SCM challenges. Using the EMS sector as the epitome, they have:
- a high mix, low to medium volume component usage,
- are multilingual with respect to part numbering,
- have a particularly lean gross profit model, and
- are particularly compressed on build cycles towards the end of fiscal periods.
In addition to these, their planning challenges are often exacerbated by incomplete BOMs. These customers use our benchmarking toolset to characterize competitiveness across extremely large bills of materials in a very short time (less than a week). Given their lean operating model, doing more with the least amount of resources is particularly attractive to this segment. We find many of these same attributes within our Industrial vertical customers.
Contrast this to the following broad category of customers:
These customers are engineering at breakneck speed, harnessing the latest device marvels to differentiate their product in the marketplace. Products that bring either twice the performance or half the price – often both. These customers use our toolset to do more with less so they can redirect resources to higher value activities such as overall supplier development and custom products. The Communications and Video vertical markets are great examples where superior product features equate to market leadership. Lytica’s tools allow a pragmatic methodology for ongoing cost reduction.
Across both of these broad motivations clients often adopt our benchmarking toolset as an integral part of their annual negotiation and Quarterly Business Review (QBR) processes. These companies share the trait of aggressively pursuing a competitive cost base.
Regardless of which prime motivator(s) you see within your company, harnessing the operational vigour of benchmarking as it pertains to your material spend is a proven approach that returns results!
By Mark Tayles – Lytica Inc. President/CEO