Focus on Business

Tips for adjusting to changing customer forecasts.

The EMS industry is running true to a cycle no one likes: big drops in demand following a period of inventory buildup. The drivers for inventory buildup were material constraints and unpredictable spikes in demand following the Covid lockdown period. OEMs increased both raw materials and finished goods in their desire to stay ahead of parts shortages and customer spending sprees. Unfortunately, our heated economy is finally slowing. While consumer spending has remained strong, they are tightening their belts on big purchases and purchasing fewer discretionary items.

As a result, electronics manufacturing services (EMS) providers are seeing a different set of issues than they have been dealing with the past two years. Material inventories are still high and forecasts are dropping as customers slow down new orders to burn off existing finished goods inventories. How do you counter these challenging trends? There should be three areas of focus:

Read more: Addressing New Challenges in 2024

Are your internal processes or actions creating bad word of mouth?

Years ago, I went to a communications conference in Chicago where a Japanese quality executive discussed the reason behind Japanese companies' relentless pursuit of quality. He said it all boiled down to word of mouth. Japan's cities are densely populated. Residents use mass transit and live in apartment complexes. This executive said their studies had found that when a domestic consumer had a bad experience, they were likely to tell at least 10 people on their way home from work. Having lived in Japan, I agree with that assessment and that imagery remains in the back of my mind.

The internet has exacerbated this phenomenon. Recently, I had a client who was looking for lead database options. Other clients had said good things about a database they were using, so I did a search and came up with two options: the one with positive word of mouth and a much cheaper option with good online reviews. The first vendor I contacted required watching a demo to obtain pricing and details. Their salesperson ultimately discounted the annual price based on the low volume lead search needs of my client.

The second vendor shared pricing info and service descriptions on its website, no demo required.

Read more: Spreading the Word

Are you tapping all the opportunities in your labor market?

For US electronics manufacturing services (EMS) providers, the only thing in shorter supply than long lead-time components is labor. Decades of manufacturing job losses translate to a generation of workers who don't consider manufacturing jobs because they don't know anyone in manufacturing. EMS companies are addressing this in multiple ways including job enlargement for existing workers, greater use of automation and closer ties with community colleges. Flexible work schedules better aligned with college student or single-parent schedule preferences have also been successful tactics. In areas with large retired populations, flexible work schedules may also appeal to retirees who are feeling inflationary pressures to re-enter the workforce and want better compensation than found in retail.

Read more: Pride in the Workforce

Adapting Covid-era processes to a more rational demand level.

I frequently say that program management is the most challenging job in the electronics manufacturing services (EMS) industry because program managers are expected to keep programs on schedule with little control over the variables that need to align for them to be successful in their jobs. Supply-demand imbalances in both the supply chain and with customers have made that job even harder. And, just like those late night informercials that tease “but wait, there’s more,” the chaos of the past two years is about to get worse.

The new challenge program managers are starting to see this year is a return to historical demand in many customer industries. Material availability is starting to improve in some areas, but not all part manufacturers are relaxing the draconian noncancellable, non-returnable (NCNR) policies put in place during the supply-demand imbalance. That basically means that even if customer demand is coming down, in some cases, orders scheduled for delivery several quarters from now can’t be adjusted with some suppliers because extended NCNR terms put in place when chipmaking capacity was at a premium are still present.

Read more: Post-Pandemic Program Management

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