[Infostock Daily=Senior Reporter Kim Jong-hyo] Samsung Electronics and SK Hynix will change their procurement process of semiconductor materials, parts, and equipment from short-term bidding to long-term contracts.
It is expected to pave the way for the growth of South Korean material, parts and equipment suppliers, which have been enjoying rapid growth due to the semiconductor boom.
According to Samsung Electronics and SK Hynix on the 5th, the purchasing teams have scrapped the existing purchase method and completely changed the contract terms to manage the order surge, supply chain interruption due to Covid-19, shortage of raw materials triggered by the Korea-Japan trade war.
"Both Samsung Electronics and Hynix have concerns about running plants stably in the long run because of the unstable supply and demand of semiconductor materials," a Samsung Electronics official told Infostock Daily. "Thus, we decided to abandon the existing procurement process and turned to long-term contracts with the duration of 3 to 5 years".
Prior to the change, Samsung and SK Hynix received bids from suppliers and chose the lowest price every September.
Both companies only placed orders as much as they needed while they agreed on supply deals verbally. Domestic suppliers have been biting the bullet since two companies were the only sales outlet.
However, the situation has been reversed as China is completely blocked by Covid-19, and raw materials from Japan became difficult to procure due to the prolonged Korea-Japan trade war.
An official of SK Hynix said, "As the situation in the industry took a drastic turn by external factors, we scrapped the competitive biddings and are trying to sign a long term contract with the duration of 3 to 5 years. Our procurement team is doing their best to secure the deal".
With the goal of setting up sustainable supply chain, both Samsung Electronics and SK Hynix offered to sign a long-term contract to the suppliers. It is confirmed that both companies will try to pay the best price meeting the suppliers requirement.
Both companies are reportedly planning to finalize all contracts by June of this year.
Senior Reporter Kim Jong-hyo kei1000@infostock.com
