What Your Supply Chain Manager Wish You Knew

Summary of Paul's Tips:

• Loop in your supply chain team early, it benefits you! Doing so helps to avoid potential delays or product-killers down the line.
• Regular communication is important, but doesn’t always need to be a formal meeting. Sending a quick Slack message, grabbing a friendly coffee, or forwarding an email is an effective way to keep your SCMs up-to-date.
• Careful with what you communicate to vendors, as it might impact supply chain’s ability to negotiate.

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I’ve spent my entire career working with Supply Chain Managers (SCM) in many different capacities -  as a Mechanical Engineer at a consumer electronics startup, a Program Manager at a large enterprise company, and a Product Manager at an industrial manufacturing company. In 2021, I was an Engineering Program Manager at Verkada. It was the peak of the supply chain crisis. Getting chips took enormous effort, and the ones you could get were either off-brand, prohibitively expensive, required outrageous lead times, or all of the above. Working in such unusual times gave me a newfound respect for Supply Chain Managers and the difficulty of their roles negotiating between coworkers internally and vendors externally. 

I sat down with Paul, a seasoned Supply Chain Manager at a large consumer electronics company, to better understand his approach working with engineering teams. Over the course of the hour, our conversation changed my perspective on supply chain’s role in the early product development process. Here are some key points from our conversation. 

Mai:

Cost is extremely important when it comes to hardware, and when I think of SCMs, I think about negotiating costs. My process has typically been to find a few vendors, get quotes for my parts, and, after getting samples, loop in the SCM to help negotiate the costs. What are your thoughts with this workflow and are there any downsides?

Paul:

This workflow can work for custom parts. However, I’d be careful using the same approach for off-the-shelf components. Direct discussions between engineers and suppliers might inadvertently provide the supplier with insights into the company's specific needs and the extent to which their component is integral to the product's design. This knowledge gives the supplier an advantage, as they become aware that their component is essential, reducing the company's leverage in negotiations. Such a situation could escalate to a point where it requires the intervention of upper level management, like a Vice President, to resolve the issue. I’ve seen this happen several times before.

Mai: 

What happened at that point?

Paul:

In numerous instances, the VP had to negotiate directly with the vendor and use leverage to push back. It slowed down the whole process. Negotiating with vendors is a delicate aspect of business that requires careful handling to avoid revealing too much strategic information. So while direct communication can be efficient, it's crucial to be mindful of the information shared to prevent compromising negotiation positions.

There’s a lot of moving pieces in hardware. That’s why it’s critical to engage SCMs really early on in the product development process. 

Mai:

The hardware development process is pretty long and iterative, with lots of different builds and stages. How early should a SCM ideally be looped in? During the prototyping phase, for example, there’s so much uncertainty. Is it worthwhile to sync with a SCM that early on?

Paul:

Absolutely. My goal as a SCM is never to hinder progress. I’m here to anticipate and prevent future slowdowns. A lot of decisions get made in the early prototyping phase that people don’t realize. For example, when an EE selects an SoC, even just for prototyping, that's a pretty important decision. There’s boards spun up, firmware written, and testing done to validate that chip. Most likely, the only person that can provide that chip is the supplier. With that one design decision, that EE has chosen the supplier, limited the options for second sourcing, and locked in the price. 

My objective in these conversations is not to influence design decisions, but to make sure that I’m ready for the design well ahead of time. I want to gain an understanding of what the components are (and it’s OK if they change), a range of possibilities for their costs, and whether the initial design is in the realm of meeting the project's financial targets (e.g., margins). 

Mai:

So in these conversations, what information do you look for? 

Paul:

I look for red flags. Some red flags I’ve seen have included whether we’ve worked with the vendor in the past and if they’ve caused problems for teams in other departments, or whether the vendor even has capacity in their factory to produce the component. I’ve even had to work with teams to find alternate suppliers because new embargo restrictions prevented us from working with certain suppliers. 

I also like to sync with other critical teams, like marketing and finance, to understand more of the financial metrics of the products, like what is customer willingness to pay and what are the margin requirements. For example, if I get brought late to a project, like at the DVT phase, I don’t have a lot of leverage to negotiate with vendors. That lack of leverage could add a few dollars to the BOM, and that might decrease our margins to the point where leadership has to get involved to green light the product. 

Mai:

Given the importance of this collaboration, what does an ideal engineering-SCM relationship look like?

Paul:‍

The worst type of relationship is one with no shared trust because with no trust, there is poor communication. Because of the nature of our work and how things are constantly changing, there is a constant communication gap that you have to work hard to close. 

In my current role, I have a great relationship with my engineers, and it has markedly improved our work output. This approach benefits not just myself but also the engineering teams, because we’re hitting our targets and avoiding delays. 

Mai:

Can you explain tactically how you build these relationships?

Paul:‍

Nothing fancy. It’s just like with any other relationship! We eat lunch together, grab coffee, and have regular informal conversations. Of course we also have scheduled meetings for updates, but communication doesn’t always need to be formal.

Mai: 

That definitely changes my perspective on vendor conversations! So if you wanted a mechanical engineer to read this and have one takeaway, what would it be?

Paul:

One thing that I would tell Mechanical Engineers to keep in mind is that a strong relationship with your SCM will benefit your career growth. Senior engineers, such as VPs, are measured based on KPIs like cost and margins, so when junior MEs demonstrate their understanding of SCM’s role in the process, they are signaling to their team that they understand how their product fits into the company as a whole and can approach product development with a business mindset.

In general, to everyone I would recommend befriending your SCM! Treat them as a partner and keep them looped into your plans, it can only benefit you!

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