Electronic component sourcing: evolution and strategies

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WITH the accelerating pace of new product development and small volume projects, the Australian electronics industry prides itself in its relentless drumbeat of innovation.

Advances in the component sourcing process have kept up with the frenetic design and production workflows which define today’s approach to electronics design and development, where time to market is key to success.

Bigger companies often have specialist component engineers in charge of selecting, sourcing, testing and qualifying parts, as well as maintaining approved parts lists and finding substitutes for obsolete components.

But design engineers at smaller firms, who cannot afford the overheads of a dedicated component engineer, can often find themselves involved in or in charge of the component sourcing process, and liaising with production over parts sign-offs.

Electronics News talked to element14 and Successful Endeavours for a vendor and design house perspective on component sourcing.

A bit of history

Ray Keefe is the founder, electronics designer and embedded software designer of Successful Endeavours. He has been working in the industry for the past three decades.

“In the 1980s, [the component sourcing process] consisted of ringing around suppliers, getting catalogues, looking up catalogues, finding stuff, contacting the supplier again to find out whether you could actually get that, or what the lead times were,” Keefe said.

Given the limited technical information which can be squeezed into paper catalogues, element14’s regional director Peter Davis recalled that vendors would maintain paper databases of data sheets for each component, which their staff would fax or post to customers as requested.

With the amount of manual work required, electronics design and manufacturing houses found they could gain a competitive edge by building big component databases to shorten the sourcing process.

The 1990s saw vendors starting to provide their catalogues on CD-ROM or as software. This move to digital technology, while not truly supplanting paper catalogues, added searchability. It became easier to engineers to find new components.

“That brought to engineers’ desktops some of that backend automation that people had been building into their systems. We started to see the designer taking a stronger role in the sourcing process than they had in the past,” Keefe observed.

Starting from the early 2000s, vendors moved online, making the full spectrum of component information available for viewing and searching, and integrating product discovery with the online purchase process.

“We now have on the web a full datasheet for every single component part that we sell,” Davis said. “We also have full image stocks of everything, if you want to have a look at the product before you buy. We also include often line-drawings and specifications in regards to print layout. We have examples of 3D images, so people can get a look at the products online to get views from multiple dimensions.”

With the advent of online communities, vendors like element14 are also offering peer ratings on parts and components, and forums on which users can share comments about products.

Of course, the traditional paper catalogue is still around and still in use, as are its different digital reincarnations.

And element14 still has a team placed locally which helps customers cross reference components, find alternatives, and provide parts data, be it online or over the phone.

A global approach

All this information being placed online by various distributors has in turn led to the development of electronic parts search engines such as FindChips and Octopart, which offer consolidated product data and tracking of the prices and availability of components from vendors around the world.

“Customers are using these more and more to source product as they can bring together lots of different global distributors together all into one internet-based virtual marketplace,” Davis said. “They do however have limitations that customers need to work with, often single US$ pricing, little information about lead times and in stock positions, but this will improve over time.”

As a vendor with operations all around the world, element14 sees a global approach as an unavoidable reality in today’s electronic components market.

According to Davis, the very structure of the element14 online database means products sold by the company in Europe and America are automatically visible available to customers in Australia, rendering geographically-based barriers meaningless. Any product launch now is a global product launch.

 “We try to deal with all the manufacturers where we can on a global basis,” Davis explained. “We are in discussions with the manufacturers continually about pricing on a global basis, about global product releases, and worldwide availability of products. “

“We are trying to open up as many products from a particular manufacturer as we can to every single customer around the world.”

Manufacturers who prefer to implement different strategies for each geographic market, or who wish to test the market with region-specific launches of components have pushed back against the current, meaning there is constant negotiation between global vendors and more conservative manufacturers.

However, Davis says element14 has been largely successful in establishing global distribution contracts with its top suppliers.

“Data helps with that. With element14, all our data is transparent to our global teams, and they know which products sell well in which market, and what the best cost is globally in each of the markets, so it does enable us to go back to the supplier with a lot more information,” he said.

Due diligence

While engineers now have unprecedented access to a global supply chain, component information and tools, Keefe says the basics of detailed research are still a necessity, especially for very specific components.

“You can go to the manufacturers’ websites, run their selection tool, select what you want and do not want, and they will narrow down the subset of candidates,” Keefe said. “The only drawback is that sometimes those tools skip over components you could have used, because of the way they categorise the features.”

As such, Keefe will sometimes execute a less refined search, then manually scan through the parts listed, to make sure the online search systems have not skipped any promising components.

Keefe also subscribes to the newsletters from the major parts vendors and manufacturers to keep up to date with the latest product releases.

Aside from actually knowing what components and capabilities are out there, engineers also need to look at their availability, especially considering the small runs which are typical in the Australian industry. Most manufacturers will not deal directly with a customer requiring only modest quantities of components.

“Part of the sourcing problem is filtering through what you can and can’t buy, and what you can buy in small quantities or in the quantity you are interested in, versus what you can buy if you want to order 100,000,” Keefe explained.

In 2012, Successful Endeavours embarked on the development of a three-phase power factor correction controller which needed processing capabilities for real-time harmonics analysis and advanced math.

Keefe decided on the ARM Cortex M4 processor for the application. Even though an initial search indicated that multiple manufacturers and vendors offered the processor component, in-depth research revealed only one manufacturer was able to provide the part in small production/prototype quantities within the timeframe of the project.

Workflow integration

Keefe divides the components needed for any particular project into two main classes: specific and unique parts which are only available from a selected manufacturer and/or vendor list; and components which need to meet certain specifications, but which can be sourced generically.

As a design house, Successful Endeavours takes part in projects where the design is handed over to a manufacturer, or in design and supply contracts where the firm designs the product, and also organises manufacturing.

With the former, Keefe will liaise with the manufacturer to ensure design for manufacturing capability, and this involves component sourcing.

“If we are dealing with a manufacturer, they might have preferred manufacturers lists, which we should take into account in our sourcing,” he explained.

“We will generally hand over the bill of materials not just as a list of designators and quantities and component descriptions, but will often provide an example supplier.”

For design and supply contracts, the transition between design and component sourcing, then manufacturing, is much simpler.

“If we are the end manufacturer, then it’s quite easy: we know our capabilities, we know who we like to buy from, we know what works well, what doesn’t work well, we can design our product around our test capabilities,” Keefe said.

Cost factors

Besides the obvious considerations for technical and dimensional specifications, the component sourcing process also has a direct relationship with the bill of materials cost.

Keefe cautions against an over-emphasis on optimising BOM costs during the design and component sourcing phases.

While it might be tempting to reduce the materials cost by buying separate cheap components over more integrated options, the costs of loading more parts onto a board can outweigh those savings.

Process costs are especially significant when doing the relatively modest runs that Australian manufacturers specialise in.

“When you are sourcing, particularly for lower production lines, look into buying more highly integrated parts, so the loader has less work to do,” Keefe said. “Because there are process costs associated with this, not just materials cost.”

According to Peter Davis, another hidden cost can be much more insidious: counterfeits and grey-market parts sourced for a lower price from lesser-known distributors.

“We get horror stories literally every week from customers who have bought products from other distributors which they later found not to be manufacturers’ original parts, they might have been pre-used or pre-loaded, or they are just grey products imported out of Asia,” he told Electronics News.

“The low initial cost of the components is false economy, because of the cost of reworking boards, sending stock back, testing them and making sure the components are the quality they need to be.”

“All of that would not have been necessarily had they bought the products from somebody who has this proved quality assured, direct relationship with the manufacturer.”

An integrated future?

EDA suppliers are now seeking to increase the integration of the component sourcing and selection processes into their software solutions. Case in point: Altium Designer’s “Live Links to Supplier Data” feature.

According to Altium, the software uses a direct connection to supplier web services, allowing electronics engineers to search across said supplier’s entire online product catalogue, then integrate the data at various stages within the design process,.

Designers using the software can import component parameters, data sheet links, pricing and stock information, etc, from Farnell (element14), Mouser, Digi-Key, Newark, Allied and Arrow.

“We work with clients who might have an Altium database, and they build a component for every individual part that they might order, with the manufacturer’s reference information built into it,” observed Keefe.

“[Altium] are putting a lot work into library development to support that process…they have certainly identified that as one of the key strategies for their forward competitiveness.”

The mechanisms for component sourcing continue to multiply and evolve with technology, and engineers can benefit from improved information availability, automation and access to a global supply chain.

However, whether they are flipping through catalogues, ordering through the phone, searching and transacting online, or leveraging the latest component libraries and workflows in EDA solutions, the basic strategies and requirements remain the same: to deliver the required level of functionality within the scope, timeframe and budget of a project, while minimising the risks from counterfeits and sub-standard quality components.