Issue link: https://iconnect007.uberflip.com/i/1392944
60 PCB007 MAGAZINE I JULY 2021 projections and shied them to the right, now people are coming back and wanting their 2020 quantities, which were pushed to the right, but they also want to increase those quantities by 20 to 25%. We use forward contract purchases to try to get that pricing. ere may be an increase, but we let our supply base know our 2022 fore- casts, that we'll be buying these components again, and that we need a fair rate. ere will be the market increase, but you're not going to get what I call the "spot buys." e pressure on the CM now is to add ei- ther more people or more capacity to their lines. Each industry is doing it a little bit differ- ently, but each CM or OEM is trying to meet that pressure with some level of cautiousness; they don't want to overcapitalize and put in too many lines or put in too many people only to find out they overestimated where the new equilibrium ends up. ere will be this new balance of how long I keep my current design before doing an en- hanced design. I believe that design teams used the pandemic to think about new prod- ucts, but not necessarily launch them. Now comes the decision on how long to keep run- ning with my current design before I do my new enhanced one. In addition, we're finding OEMs trying to do both: bring the alternate to market, plus bring in their future designs earlier. OEMs approach it differently depending on what that impact looks like to them. Small companies develop- ing products for niche markets are the ones struggling the most; others with an ongoing line of product may well defer design updates to the right so they can burn through their in- ventory. It's a pretty interesting dynamic and it's a multi-variable problem. Johnson: Mark, do you see this as an opportu- nity for process improvement and optimiza- tion in internal operations? With all this vola- tility that threatens your margins, one place a contract manufacturer can have full control is in the efficiency of the processes. Is that some- thing you pay attention to? McMeen: Yes. We view adding labor as one of the last things we want to do. We want to make our labor pool more efficient by giving them capital equipment that makes them more effi- cient and more effective at meeting the yields. We try not to throw people at the surges and changes, but rather spend the time to increase our yield capability by adding capital equip- ment that makes them more efficient or more effective at increasing their yield output. We are looking for ways to increase our yield by adding equipment that aids the production line but also aids the laborer or the technicians, and the skilled support staff and production engineering to make them more efficient to in- crease their yields, which makes them more valuable to the company, but also more effec- tive at being able to handle our surges. We are using design and industrial engineers to give us better yield efficiencies. And because of the lag in getting materials, for our long pro- duction orders, those particular lines are not impacted as much as are the orders we build once every few months. We pass the price in- crease to the smaller operations with a small- er order procurement because we're not doing long forward contracts with them. It really depends on the type of customer, their volume, and what their product life cycle looks like over a multi-year period. Prices are going up, but exactly how depends upon who the customer is and what their product life cy- cle looks like. If you've got a smaller customer that's doing quarterly or monthly buys, those particular guys are seeing a much larger spike because we're not buying as far into the future. It's interesting to watch this; we are seeing for the first time a big effort to redesign to the parts that are available. What used to be rare is becoming common practice. Design engineers are in a constant state of evaluating alternates and redesigning to keep their build cycles on some type of consistency.