Original Date: 07/25/2005
Revision Date: 09/12/2006
Best Practice : Electronic Component Procurement
Northrop Grumman Electronic Systems initiated Electronic Component Procurement, a corporate purchasing program that is reducing procurement cost of certain electronic components by 12% to 16% annually. This process identifies the different business sector users of given electronic components and consolidates the purchasing of these components under a corporate master procurement contract, significantly reducing Northrop Grumman Electronic Systems’ supplier base and leveraging the power of larger procurements to drive down cost.
In early 2004, Northrop Grumman Electronic Systems (NGES) initiated a purchasing program to combine the procurement of electronic components commonly used across all business sectors and individual sites of the company. NGES anticipated that by leveraging corporate spending for electronic components through distribution and direct OEM purchases, annual savings in excess of $1 million would be realized through this integrated purchasing process.
An Electronic Components Team was formed, with members selected from the major NGES business sectors that used significant amounts of electronic components. To develop and implement the program, team members were asked to review their organization’s annual procurement activity on a commodity basis and to list dollar-spending amounts by specific commodity and by manufacturer/supplier.
Thorough review and analysis of the data collected showed that switches, relays, connectors, capacitors, resistors, attenuators, integrated circuits, transistors, and diodes were the high dollar/high volume commodities being used across the different business sectors and sites. The data also identified the suppliers/distributors being used for the different procurements. Fourteen suppliers/distributors with a current relationship with NGES were selected for inclusion in a request for quotation (RFQ) to bid on the procurement of electronic components across the major business sectors. One of the objectives in the selection process was to include a strong Small Disadvantaged Business presence. The initial RFQ was sent to 14 suppliers/distributors, with 11 ultimately submitting proposals. After all proposals were reviewed and evaluated, five suppliers/distributors were selected and awarded contracts for the purchase of the specified commodities. Contract awards were also made to secondary sources of supply to ensure material availability in all situations.
NGES is forecasting a 12% savings average across all participating business sectors by the end of 2005. NGES has also reduced its supplier base through the use of exclusive contracts on the electronic components and has automated the ordering process for the contractual commodities. NGES currently has more than 12,000 unique parts on an AutoBuy system on these contracts. The company has seen a significant reduction in product lead-times and a large reduction in order processing costs. These savings are passed on to NGES customers through reduced costs of their manufactured products.
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