Focus on BUSINESS
2021: A Year the EMS Industry Needs
It’s a drink from an educational firehose, but the lessons will pay off.

Many will disagree with this column’s title this month, especially supply-chain professionals working 24/7 to address a market with varying material constraints, continual logistics challenges and unforecasted demand spikes. That said, over the past few years the electronics manufacturing (EMS) industry has had a changing of the guard. While some replacements are veterans of the last round of market constraints, most haven’t seen the perfect storm that 2021 represents. The lessons learned this year will create invaluable experience for this next generation of leadership. Here are a few examples:

Information technology. Over the past decade, even small EMS companies have upgraded their IT capabilities to provide real-time visibility into most of their critical metrics. However, while an exception-based real-time system is wonderful in situations where exceptions happen in relatively low volumes, it creates information overload when it is identifying hundreds of exceptions in a month. The current market challenges are driving management teams to analyze what data they need to prioritize and how that data can be best formatted to help them stay ahead of shortages or capacity constraints. This will broaden the use of time-saving apps and create management teams with a better understanding of systems strategy strengths and weaknesses.

Supply-chain management. This year will likely teach newer supply-chain professionals a degree’s worth of knowledge. Current constraints are driving a much more hands-on, collaborative approach to addressing critical material shortages. Risk management and negotiation lessons are being learned as companies decide how far beyond traditional forecast windows to place orders and work with customers to negotiate better priority for essential products at the manufacturer. There will also be lessons learned in the use of non-franchised sources for scarce material and a better understanding of best practices in vetting these sources and documenting their use with customers.

Program management. Program managers are learning a wealth of lessons in terms of forecasting, capacity planning and working with customers in a materials environment with lengthening lead-times and increasing prices. This year will likely improve negotiation skills and risk management. And just as the telecom bubble in the ’90s taught a generation of program managers to carefully document customer commitments on continually increasing upside orders, I suspect this pent-up demand bubble may also teach a few lessons when it eventually bursts.

Inventory management. The current market dynamics make it easy to segue from a Lean “pull” system mentality back to the old “push” mentality on the production floor. If customer orders are increasing astronomically week over week, doesn’t it make sense to build out the products with available material and production capacity earlier than scheduled so capacity will be available for next week’s surprise upside demand? The answer is likely “yes” in an environment with continuing upside demand increases, assuming material can also be pulled in. A key lesson will be judging when demand is tapering and adjusting finished goods inventory accordingly.

Inventory Control graph with Stock Quantity and Time
FIGURE 1. Material constraints mean supply-chain professionals must take a more hands-on, collaborative approach.
Logistics. Transportation has been a wild card through most of the pandemic and will likely get worse before it gets better. A lot of air freight is transported on passenger planes, yet the number of flights has been reduced as discretionary travel slackened. Shipping and truck freight are over capacity. Cross-border shipments may be delayed by changing Covid-19 conditions that trigger changes in restrictions. In short, what used to be the simplest part of the manufacturing realization process now requires much greater coordination. That in turn is teaching multiple levels of EMS organizations about logistics options.

Continuity planning. Changing Covid-19 restrictions, particularly outside the US, are continuing to impact EMS facility operational status during a time when many facilities are at or near capacity. This is an acid test of the ability of impacted companies to transfer work among facilities. Longer term, this creates nimbler operational strategies and realistic planning that can efficiently support force majeure or disaster recovery activities.

Sales training. The most effective EMS salespeople are those who understand how their company addresses common challenges. This year will give every EMS sales team a full library of challenges and solutions stories, and likely a better understanding of key systems and processes associated with those solutions. At the same time, it will also open the door to more candid conversations with prospective customers. In a stable market, OEM sourcing teams often are reluctant to share information. In the current market, these same teams will spend more time in conversations evaluating prospective EMS suppliers’ systems and processes for dealing with material constraints and upside demand. This will enable salespeople to build stronger initial relationships.

Customer expectations. The same changing of the guard found in EMS is taking place at OEMs. Challenges seen this year will teach the next generation of sourcing managers what their EMS providers can and cannot control. If there is a benefit to the pandemic, it is shared challenges have built more collaborative relationships among many OEMs and EMS providers. OEMs will be well-served by a generation of sourcing managers who understand the benefits of that level of collaboration and the value EMS providers bring to this type of challenge-rich environment.

In a nutshell, as operationally difficult as 2021 is shaping up to be, the lessons conveyed this year will likely create a cadre of seasoned manufacturing professionals that will benefit the EMS industry and its customers for years to come.

Susan Mucha
Susan Mucha
is president of Powell-Mucha Consulting Inc. (powell-muchaconsulting.com), a consulting firm providing strategic planning, training and market positioning support to EMS companies and author of Find It. Book It. Grow It. A Robust Process for Account Acquisition in Electronics Manufacturing Services; smucha@powell-muchaconsulting.com.