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.
This issue is bad for two reasons. First, it is slowing the natural capacity balancing that would occur if unneeded part orders were flushed out of the system. Second, it makes it harder to bring down existing inventories at EMS providers.
This issue is a symptom of a larger problem. We’ve been in a challenging environment for so long that policies developed to control the chaos have become a normal way of doing business. It’s why people still wear masks in grocery stores. The market is beginning to shift to a more normal state, and it is important to look closely at which policies still make sense for risk mitigation in this transition period and which need to be adjusted. Program managers are in a unique position to help identify these policy changes because they see the demand shifts in their programs and understand what policies are negatively impacting cost or efficiency.
The Covid era has not been without benefits. Some changes make sense to keep. These include:
- Better tools for assessing inventory liability vs. demand
- Increased real-time tools for assessing material availability at suppliers and calculating price changes when converting from quote-to-buy
- Increased use of videoconferencing vs. travel for meetings
- Better computer security and infrastructure for remote work
- Efficiency improvements in production practices designed to add flexibility to chaotic scheduling
- Stronger relationships between program teams and their customers.
Supply-chain capacity continues to be strained in some commodities. Geopolitical turmoil continues to open the door to unplanned supply chain disruptions or spikes in demand. Thus, a complete return to the leaner, more efficient business models of the past isn’t advisable. However, it is time to begin fine-tuning forecasts with customers whose demand is trending down to historical levels and developing plans for reducing higher-than-normal inventories in those situations.
Another area to assess is new product introduction (NPI) capacity. Historically, periods of severe allocation are always followed by high customer turnover as unhappy customers that delayed moves from suppliers decide it is safe to choose a new one. Typically, those decisions happen faster than usual because customer teams want to minimize material availability uncertainty. Given that new customer acquisition slowed during the pandemic and supply-demand imbalance period, NPI teams and associated program managers may be rusty at ramping new customer programs, particularly if there is a greater-than-normal number of new customers in a short period of time.
If there have been breakdowns in customer service over the past two years, customer satisfaction assessment should be another area of focus. Improved material availability translates to greater account vulnerability when customers are dissatisfied.
Just as the past two years have tested program management competency in addressing an unparalleled series of challenges, the next year or so will test the ability of program managers to leverage improved tools and relationships in restoring the business practices normal to the EMS industry.
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; This email address is being protected from spambots. You need JavaScript enabled to view it..
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