Electronic Design

Keeping The Vendor Off The Critical Path

Product developers sometimes ask me how they can shorten development cycles when 80% of their cycle time is dictated by vendor lead times. They correctly point out that most of their product development lead time is determined by long lead-time parts or capital equipment. They assume that this portion of the development cycle is outside of their control.

Not all product developers make this assumption. Instead, many view a long supplier lead time as they would view a long lead time from an internal organization. It's not a rigid constraint, but rather an opportunity to actively engage in problem solving to reduce these lead times.

Remember, almost every long vendor lead time isn't a single monolithic activity, but a collection of individual activities—each with its own lead time. If you understand how your vendor stitches these individual lead times together, you can often reduce them. For example, a machine builder may quote a lead time of one year after receipt of order. Does this mean it takes one year to build the machine? No. The machine builder itself often has long lead-time components, which must be ordered in advance. Frequently, machine builders are unwilling to order these components until they have a firm order from their customer. This is especially true when the customer gets bids from many suppliers before they choose one of them.

What can we do? Shift the risk of buying these long-lead components from the supplier to yourself. Either buy these items on a separate P.O. to take them off the critical path, or order them yourself and provide them to your supplier as customer-furnished items. This takes a lot of time off the critical path without taking a major financial risk.

Sometimes, you may be able to solve problems that your vendor cannot. For instance, the vendor may be a small company buying parts from a large semiconductor company. As a small customer, it might receive little priority for scarce components. In contrast, if you are a division of a large corporation buying a lot from the same vendor, you may be able to use your influence to obtain critical parts for your vendor.

Often, your vendors may be unwilling to take risks that you consider reasonable. For example, you might be willing to order parts as a "risk buy" just to keep their lead time off the critical path. Your vendor might consider this to be an intolerable risk. Why? Delaying the market launch of your product may have a high cost to you, but the vendor's contract might provide no incentive for early or late delivery. When the economic incentives are misaligned, priorities are likely to differ. Consider aligning incentives to make the supplier share your willingness to take rational risks.

Finally, recognize that handoffs between organizations frequently lead to unnecessary duplication of work. For instance, it's common to see vendors conduct reliability testing before customers conduct their own qualification tests. Sometimes an upstream reliability test can be modified to meet all requirements of the vendor and the customer. Paying a little more for extra testing at the vendor can save much cycle time.

These examples show that a long vendor lead time can sometimes be a convenient excuse rather than a fundamental constraint. For smart product developers, they should be an invitation to begin some creative problem solving in partnership with the vendor.

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