3 Considerations When Sourcing Low Volumes in a High-Volume Marketplace
The low-volume marketplace is one of the more challenging business environments to source in, especially in the industries dominated by high-volume manufacturing. Consider the automotive market, which is traditionally dominated by a few major manufacturers that have the economies of scale and manufacturing volume to obtain a considerable sourcing advantage over any small players in the marketplace.
Until relatively recently, small automotive companies couldn’t compete against the big players; however, this is beginning to change. With electric vehicles there are many new, smaller companies focused on the low-volume electrical car market because of their EV technological advantage. But despite these companies holding an advantage on the design side, each vehicle still requires traditional car components. Consequently, low-volume OEMs are forced to source traditional car components from a marketplace set up to supply “big three” type companies of the world, which can be a daunting task given the traditional constraints of timelines and budget.
In many cases this results in low-volume OEMs engaging the first supplier who says “yes”, regardless of cost or final quality, leaving them with a cost disadvantage when sourcing in a market dominated by stalwarts. But by taking the time to thoroughly evaluate your primary program needs, many of the sourcing hurdles low-volume OEMs face can be mitigated. Below are three areas to focus on and evaluate early in your program to develop a proactive low-volume sourcing strategy.
3 Considerations When Sourcing Low Volumes in a High-Volume Marketplace
1. Unique vs. Commodity Components
To truly understand how, when, and where components should be sourced, it’s critical to have a deep understanding of your Bill of Materials (BOM) and awareness of component availability in the global marketplace. In any vehicle program, there are components readily available from many different suppliers and some that are only available from a few, or even just one. By understanding this early on in your program, you can prioritize how and when you should engage a potential supplier.
Once evaluated and understood, focus your sourcing on the unique components only available from a few suppliers, as they’ll take the longest to obtain pricing from and to reach a supply agreement with. Generally, these suppliers are set up to supply high-volume OEMs, so sourcing can take a significant amount of time to connect with the appropriate people and to acquire pricing.
Further, many high-volume suppliers aren’t interested in participating in low-volume programs, which require massive supplier searches and a longer engagement process. Therefore, it’s vital to understand how your BOM is divided up and how you can optimize it to reduce time and costs associated with low-volume sourcing.
2. Custom, Modified, or Off-the-Shelf Components
Another cornerstone to evaluate early on in a manufacturing program is how you plan to balance the use of fully customized components with off-the-shelf components, especially in a low-volume manufacturing program. In a perfect world, every component of a manufacturing program would be custom and be perfectly suited for its desired function, but in reality, there are significant tradeoffs — e.g., cost and timeline — associated with developing fully customized components, and they typically require custom tooling, which can take considerable time to manufacture.
High-quality tooling can carry a hefty price tag, and in many situations, the economics aren’t favorable for a low-volume program to have lots of custom tooling because the cost of amortized tools is too great, shrinking profit margins. In similar circumstances, off-the-shelf or modified off-the-shelf components could be the smarter choice. Not only will they reduce your tooling costs, but they can also significantly reduce the time to production because the components are either readily available or can be modified relatively quickly.
Additionally, using off-the-shelf parts can offer your team the opportunity to source from larger suppliers who are traditionally focused on supply for high-volume programs and have no interest in producing a custom solution for a low-volume one.
3. Exploring Component Manufacturing Processes
The next element to consider is how each component can be manufactured. With additive manufacturing and other cutting-edge manufacturing processes, there are many options when it comes to producing low-volume components. These manufacturing processes can offer substantially reduced manufacturing timelines and no tooling for custom components. Still, cost must be considered, as piece prices are usually higher. Exploring different methods of manufacturing could potentially remove the cost and timing barriers associated with low-volume sourcing of custom components.
Conclusion
There are many aspects to consider when sourcing for a low-volume program in a market dominated by high-volume players. And, of course, there’s no silver bullet. Thoughtfully evaluating the three areas outlined above will provide your team with a major step forward in the right sourcing direction.
