Tips for adjusting to changing customer forecasts.
The EMS industry is running true to acycle no one likes: big drops in demandfollowing a period of inventory buildup.The drivers for inventory buildup werematerial constraints and unpredictablespikes in demand following the Covidlockdown period.OEMs increased bothraw materials and finished goods in th-eir desire to stay ahead of parts short-ages and customer spending sprees.Unfortunately, our heated economy isfinally slowing. While consumer spen-ding has remained strong. they are tightening their belts on big purchases andpurchasing fewer discretionary items.
As a result, electronics manufacturing services (EMS) providers are seeing a different set of issues than they havebeen dealing with the past two years. Material inventoriesare still high and forecasts are dropping as customers slowdown new orders to burn off existing finished goods inventories. How do you counter these challenging trends?There should be three areas of focus:
- Make it easy for your customer to understand theircurrent material liability and the impact any forecastpushout has;
- Discuss new product opportunities that could replaceforecast drops and consumme excess material;
- Determine options for mitigating inventory liabilitythrough liquidation;
- Review the customer contract or any excess materialagreements signed during the material shortage periodto see ifthe customer is liable for purchasing excessmaterial or added cost if their forecast drops;
- Work with each customer to develop a plan that helpsthem continue to draw down excess inventory.
The goal isn’t to drop the hammer contractual agreementsmmay represent,but to come up with a workable solutionthat preserves the relationships built during the worst ofthe material allocation period. Given the very much lowermargins that most EMS companies have compared to theircustomers, excess inventory is a much bigger drag on anEMS provider than on an OEM.
Internal Cost Control
Cost cutting in a slowing economy is management I0I andmost companies are already doing this. That said, theremay be hidden opportunities for cost control that get overlooked.
One of the first areas to review is receivables. Are all cust-omers paying within terms? Have packing list or invoicingerrors been slowing payments? Are there opportunitiesfor negotiating more favorable terms to balance the cost otnigher inventories?
Another area to consider is human behavior. We have justfinished a period where unplanned costincreases,expedites and schedule changes were the norm.That 5uspendeca lot of cost control checks and balances. Have team members returned to practices more aligned with your currentconditions or are they still in firefighting mode?
The final area to review is quality. While production qualityis a given at most EMS companies, is there equal focus ontransaction quality? How much time gets wasted on adm-inistrative errors, inefficient processes or customer-drivenchanges that create uncompensated cost? Do employeesconsider the cost of inefficiency in their activities? If theanswer is no, that may be an area with opportunities forImprovement.
New Account Acquisition
Material allocation issues made customers afraid to changeEMS providers.mprovements in material availability arenow encouraging companies dissatisfied with their currentEMS providers to shop for alternatives. New product dev-elopment is also coming off the back burner.
Consequently, it’s important that your company is easy tofind and your sales team is tapping their relationships toidentify companies that are looking. Increase educationalcontent on blog5.Highlight innovative processes, capabilities or solutions in industry magazines. Exhibit at tradeshows that have been relevant in the past and walk targetindustry trade shows aren’t a great traffic fit for exhibiting.
Trade shows improve when there is economic uncertaintybecause people see benefit in networking,lf budgets allowconsider advertising. While most ads don’t generate trackable leads, they are the most efficient way to create brandawareness when the publication’s audiences and targetdecision-making audiences are aligned.
Suppliers can also be a good source of information onwhich companies are shopping. They’e likely sharing thatinformation with every EMS company that asks, however.
This year will bring a different set of challenges, but it willalso have better opportunities. Good planning will putyou in the best position to mitigate challenges with newopportunities.