As one of the first vertical industries to outsource component manufacturing to offshore suppliers, the high-tech sector has more experience with supplier risk management than most. Computer industry titan Hewlett-Packard has been at this for more than two decades, so it serves as a model for companies that are just beginning to mitigate sourcing risks.
HP began its supplier management program at the dawn of the PC era. Back then, "there weren't as many standards or qualifications, and you had a lot of different suppliers of components all over the world," says Greg Shoemaker, director of central direct procurement for HP. "We started putting together an overt internal plan called the Procurement Management Process to address that."
Based on a homegrown Web-based application, this process covers five different phases of procurement, from identification of a need to evaluation, selection, contracting, and execution. The selection process always entails site visits to the potential supplier, down to the specific plants that would produce the item in question. It's a question of scale.
"With the volumes that we produce at, we have to make sure companies have the wherewithal to sustain our needs," Shoemaker says. "We go look at test parameters, test results, yields, quality planning reviews to make sure the product meets our needs from the get-go. If the yields don't support the surge capacity, that is a problem."
HP constantly reviews its supplier standards and performance via scorecards, often revising them upward to keep in line with ever-increasing customer expectations.
The list of supplier risks — quality, capacity, reliability, price, geopolitical, environmental, social responsibility, currency fluctuation — seems to expand daily. Environmental regulations have placed a weighty burden on high-tech manufacturers, as they must prove the provenance and safe disposal of every hazardous component in their lengthy bill of materials.
Ask Shoemaker what keeps him up at night, though, and you'll likely hear about some of the more classic risks: reliability, quality, and capacity. "Is there enough capacity out there to meet our needs? Assuming there is, is it of the right quality and reliability?" Shoemaker says.
To keep ahead of competitors in a relentlessly cutthroat industry, quality and price are paramount. "We always have to be on our toes to be sure we are getting the best part at the best price," Shoemaker says.