Converge Product Procurement Podcast Transcription

Procurement MP3 File

 

Paul Gillin:
Procurement is the engine that keeps technology manufacturers going. It’s a complex and finely tuned process that demands constant attention to market changes, production demand and pricing. In fact, the procurement discipline is so specialized that some people have compared it to financial trading. Specialists who can act quickly to take advantage of price variations and new alternative sources can save their company significant amounts of money.

However, cost savings is only part of the overall equation. Professional procurement partners can also deliver a hidden layer of supply chain solutions and value to technology manufacturers. Because they’re connected to so many suppliers worldwide, they can identify new reputable sources of components for their customers that those customers otherwise wouldn’t have known about. They can even help fill gaps in the supply chain through alternative sourcing strategies and they can also help prevent costly inventory shortages and manufacturing interruptions.

Not all procurement partners, of course, are the same. Customers need to take into account the experience, scope and quality standards of each potential partner.

Hi, I’m Paul Gillin, welcome to this Converge podcast on the topic of procurement essentials. Joining me is Scot Hennessey, he is Senior Sales Director of the Americas at Converge, and in this interview, Scot talks about some of the dollars and cents benefits that procurement partners bring to the table.

Well Scot why don’t we start out by talking a little bit about product procurement. Tell us what it is.

Scot Hennessey:
Product procurement in the independent distribution channel offers its unique value to the supply chain. Its own unique story so to speak, and in some aspects of our business, we are very similar to a franchise distribution model and even in some cases we’re similar to the manufacturers’ direct model. The differences here at Converge, in our service offering, we designed it to provide a rapid response and competitively priced solution to break downs and any unexpected changes in our customer supply chains.

Our services typically inject flexibility into a supply chain which can in turn assist in smoothing out the ups and downs inherent with forecasting and market dynamics. Our role in the supply chain is not to replace the component manufacturers’ relationship with our customers or even franchise distribution relationships, but instead to complement the makeup of any given supply chain strategy, to afford our customers a competitive advantage. Our procurement services, whether they are used in spot fashion or whether they are more strategically oriented in a program format, can be the difference in today’s competitive environment.

Paul Gillin:
What are some of the major needs of OEMs and CEMs?

Scot Hennessey:
Typically when companies come to this channel they have four things in mind. The first is supply assurance. If there is a breakdown or gap in their supply chain and they need product just-in-time, they look to this channel to deliver materials so they can keep their lines running.

The second is cost. Companies are always looking for ways to improve their bottom line and the independent channel typically offers them the opportunity to buy material below their standard to do just that.

Quality is a real important aspect. Companies are always expecting and in need of partners who can deliver quality material 100 percent of the time, so that their supply chains are protected and quality is never an issue.

The last item I would suggest is inventory management. Companies are always looking for partners who can help minimize their inventory exposure, relative to cost and supply chain challenges. That ties back to operations and the movement of material back and forth to meet the needs of their particular supply chain and forecast.

Paul Gillin:
Well Scot you mentioned quality, and with manufacturers increasingly concerned about the quality of the components they buy what can the supply chain partner do to put their minds at ease?

Scot Hennessey:
The first step to safeguarding your supply chain, from a quality concern, is to have a solid understanding of your vendor’s operational infrastructure and capabilities. In our space there are very few companies that made the commitment to quality that Converge has, and that can afford to invest in the necessary infrastructure needed to deliver this type of quality. I myself, along with my global operations team, take part in hundreds of audits throughout the year but just five years ago, in retrospect; we might have had a handful of audits throughout the year. So, you can see how big an issue this has become.

I know how time consuming and costly it can be to manage a vendor base but I think it is imperative that companies make the investment in time and money to visit each independent they are considering. This way they can be assured that what they are being told is supported by the necessary processes and procedures it takes to be best in class when it comes to quality. The due diligence is guaranteed to pay off.

Paul Gillin:
Well now what are some of the certifications and quality standards that customers should look for in choosing a reliable procurement partner?

Scot Hennessey:
It starts with looking at a company who has an established global footprint and established global operational capabilities. And within that operation they should look for established processes and procedures that are well defined for incoming inspection geared towards the identification of counterfeit and substandard product. Here at Converge we follow a 76 point inspection process developed in conjunction with many of our customers. It’s a proprietary process that incorporates the IDEA inspection standard 1010-A in addition to numerous other steps. And lastly, companies should also make it a point to look at the engineering staff of each organization they’re considering. Converge has a staff of six quality engineers who man three logistics hubs around the world. These are the people who are going to insure that the company remains diligent and compliant and is always in a stage of constant improvement when it comes to quality.

Paul Gillin:
Well Scot everyone is concerned about cost these days. What can OEMs and contract manufacturers do to reduce their product procurement costs?

Scot Hennessey:
Well cost is a constant driver within our industry and because it is so important we are always looking for ways to deliver our services in a more cost effective manner. Our main advantage here at Converge in delivering savings to our customers is our relationships that we have with the global OEM and CEM community. We typically service our customers in both buying and selling fashion. With these long term relationships in place we have established pathways to material that allows companies to place one call into Converge and receive a broad-base buying leverage which could lead to benefits of their own. That same call into Converge plugs the customer in for a global network of commodity managers, information and supply base. So it’s making it possible for a one-step transaction from an OEM or a contract manufacturing customer of ours, directly to themselves, which effectively minimizes the margin stack and the cost to the customer. And not only does this provide the opportunity for significant savings to our customers but it also ensures that the quality of the material that we are buying is maintained through a defined chain of custody.

Paul Gillin:
Well Scot as you mentioned earlier nobody wants to keep inventory on site any more. How is the campaign to push inventory back into the channel affecting the supply chain?

Scot Hennessey:
This trend is a very real trend and it’s absolutely picking up momentum. Every organization is looking for less economic liability and expects its supply base to take an active role in providing solutions. We find that the typical scenario is, a direct component manufacturer ships product to the OEM customer. The OEMs look to their contract manufacturers to take liability for that material up until the point that it is manufactured and put on boards and shipped out. And in turn, the contract manufacturers are also looking for downstream ways to push that liability to either franchised distribution or in some cases independents such as Converge. In today’s day and age franchised distribution is not offering the solutions to the degree they once did. So we’re finding new opportunities in this arena to deliver value to our customers in the form of supplier managed inventory and other robust inventory management and fulfillment programs.

Paul Gillin:
So, Scot, tell us about some of the special expertise you have developed over the years in learning how to optimize that process of managing product procurement?

Scot Hennessey:
The product procurement expertise we’ve developed really goes back to the past 30 years that we’ve been working at this. The investment that we’ve made in infrastructure really enables us to deliver our supply chain services anywhere in the world in a seamless and scalable fashion today. We’ve built a global commodity team that boasts ten years of experience, on average, and is supported by our Oracle database system which is fully integrated across all three hubs, supported by additional IT systems and tools, as well as our market and intelligence data that allows them to tracks the world’s availability of parts real time. We have a team of traders that are really the most experienced in the industry. We’ve established buy / sell relationships with the top technology companies in the world, giving us a level of liquidity needed really to solve our customers’ material needs in a rapid and cost effective manner. At Converge quality and customer service is part of everything we do.

Paul Gillin:
Well Scot without naming names let’s make this real. Can you give us an example or two of how you’ve helped a customer out of a tough situation?

Scot Hennessey:
Sure, I’ll give you a few examples. Going back maybe three, four five months ago there were two manufacturers, direct component manufacturers of flash memory who merged two divisions within their organizations to create a new company. That company sold flash memory. And what occurred in the marketplace was, due to that merger, companies AVLs were affected, and affected supply chains in a negative way causing interruptions because part number schematics and pure availability had become suspect and inconsistent. So companies came to Converge to look for relief in finding the legacy components that might be in the marketplace to get them through until the new company could organize around its supply chain and its customers to get things back on track. So that’s an example of where we were able to step in and provide customers who had too little, with product just in time to resolve their needs and keep their supply chains up and running.

Another example would be last time buy that occurred last week, where a customer, who had been supporting a project for approximately five years, was forced with a last time buy on a component that they weren’t quite sure what they were going to do. They came to Converge to get an idea and an understanding of what the liquidity and price points in our marketplace might be. It turns out we quoted the customer a price point that was a forty percent less discount to their standard price. And in turn, the customer placed a purchase order with us for the balance of the life cycle for that product and we shipped to his forecast over the next 12 months.

Paul Gillin:
Well Scot, all eyes are on Asia these days. Technology manufacturers are looking at new sources there, what should they consider when looking at Asia as a potential new business partner?

Scot Hennessey:
Every company investigating new suppliers in this channel needs to do so very, very, very carefully. I also suggest that they do it in concert with a company like Converge because we are in the marketplace every single day monitoring new suppliers that come on to the scene, working with the established suppliers that have been around for many, many years. Also tracking suppliers who are not considered credible due to issues that have surfaced over the years of trading and we know which companies are credible and which companies are not credible. We know which companies are new and which companies are established and worthy of trading with. And we know so in each and every region inclusive of the Asian region. And we know this because we have offices in each region, we have people who speak the languages, people who are active in those regions with those suppliers each and every day, so we have a deep understanding. We also conduct audits of our own where we go into the marketplace and we evaluate potential new suppliers. We do that often not just for our own purposes and benefit but we also do that at the request of customers so that we can ultimately deliver more value in the forum of liquidity to them in the long run.

By working with companies like Converge you can place a competent and capable third party between you and potential dangers which is very important.

Paul Gillin:
So summing up everything you said Scot, what are the major recommendations you would offer customers who are looking for procurement partners?

Scot Hennessey:
It is unusual that I speak to a customer now who already hasn’t been bitten by a quality or service related issue when working in the independent channel. So because of that I recommend that every company take action to develop a comprehensive strategy for engaging the independent channel. I think companies should get out and meet the team starting with the operations team, through sales and all the way up to executive management. And don’t forget to investigate the history of each company. Things such as how do they deal with corrective actions in the past or customer service matters that might have popped up which is going to be very indicative of how that company behaves in the future. Once that due diligence stage and process is complete, be selective, chose only the most qualified partners that you have available to you. Once that selection has been made, you know, I suggest you commit the resources to those partnerships to assist them in the ongoing development of improved processes and procedures that relate to quality.

Paul Gillin:
Well thanks to Scot Hennessey Senior Sales Director of the Americas at Converge for sharing his insights about the dollar and cents benefits of procurement partners. And thanks to you for joining us for this Converge Podcast on the topic of Procurement Essentials. My name is Paul Gillin.

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