Selecting Semiconductor suppliers involves intense collaboration between highly skilled technical purchasers, component engineers and R&D engineers. Specs, parameters and features need to be evaluated for products launches that are several years out for cars that need to last for decades. While all of these activities are vital for successful design and manufacturing it is important not to neglect the strategic elements of supplier selection. This is of particular importance in the automotive industry where supplier decisions have impacts spanning decades.
The time from products are introduced to the time they become obsolete are measured in months making the supplier selection even more important. Most suppliers last longer than their products (unless they get acquired)
The overall business model of the Supplier
Semiconductor companies are built for revenue growth. Like sharks, they need to move to stay alive. Because of the massive investments and rapid deterioration of competitive technology, the need for growth is relentless. At the same time, Semiconductor investors expect double-digit returns every year. When semiconductor companies struggle to grow top line they start to grow the bottom line. They shift their focus from investment to optimisation of profit. As a customer, you can experience flat or even increased pricing even though the manufacturing costs keep decreasing. The stalled semiconductor supplier is betting on the cost of switching suppliers is too high for the customer.
A semiconductor company that fails to grow is also in danger of being acquired. As a customer, acquisitions are not your friends. Acquisitions increase the probability that products lines get killed or become low priority and the supplier is bleeding people with valuable knowledge key to keeping the product line alive.
The leadership position of the supplier.
Apart from the business model, it is key that the supplier is an expert within your market. All semiconductor companies want to sell their products but not all can help you innovate and understands your market in detail. Align yourself with the wrong supplier and you will have to teach them about your business. The first parameter in your supplier selection should be the supplier’s revenue and market share.
While NXP still has a leadership position it is also obvious that their position is under pressure in particular from new players like Samsung and Qualcomm signalling the change in automotive electronics from body and powertrain to infotainment and ADAS.
The expertise of the supplier
A good proxy for expertise is to understand how dependent the supplier is on automotive products. It is rare that a high dependence on automotive is not followed by a high level of expertise in automotive.
While Intel might have great products it is safe to assume that Nexperia knows a lot more about the automotive market in general. It will probably also be safe to assume that Intel knows a lot more about ADAS that Nexperia which is why it is also important to understand the product categories that each semiconductor supplier sells.
The Expert/Leader map for Automotive.
A simple way of getting an overview of the expertise and the leadership position of the supplier is the Expert/Leader Map. If a supplier both has high revenue and a high reliance on automotive revenue they are an Expert/Leader. Companies with lower revenue and high reliance on are experts while companies with high revenue and low reliance are leaders.
Not only are these tools relevant for supplier selection, they can also be used for supplier negotiation. Companies outside the Expert/Leader box tend to respond more constructively in negotiations once they have been shown the Expert/Leader Map. They are well aware that buying from Expert/Leaders are a better deal from an expertise perspective and are often willing to compensate. Information and data are vital for supplier negotiations.
None of these tools is meant to be absolutes but should be used in conjunction with the operational purchasing tools.