Issue link: https://iconnect007.uberflip.com/i/1477844
18 SMT007 MAGAZINE I SEPTEMBER 2022 Johnson: Cash flow becomes an issue. When you have to buy inventory and hold onto it, you tie up cash you might otherwise need for other operating expenses. How does an EMS company handle that right now? What's the best strategy for them? DuBravac: I think it's vital that EMS compa- nies—really all manufacturers—have very good relationships with their banks and that they understand their lending channels well. EMS companies that I've spoken with tend to have very good relationships with their banks. ey're typically grabbing that line of credit to pay for the inventory, which turns into prod- uct. ey don't typically get paid for it imme- diately but rather they get paid on terms which are oen, plus-30, plus-60, plus-90, or perhaps something else entirely. ere is this period where they need to bridge the finance. is was a big problem in 2006– 09, during that recession when banks were fac- ing much stricter asset and deposit require- ments. I heard from manufacturers during that time that companies were making all their pay- ments and doing everything the way they were supposed to but suddenly not getting their bal- loon loans renewed on their warehouses or their facilities because the banks were not in a position to do it. ey were forced to either sell it or find some other way to finance. ose financial channels are very important. My read on that environment is that we aren't anywhere near the type of situation that we were back then. But EMS companies should communicate frequently with their bank and understand the strains their banks might be under. Diversifying your lending and banking is a wise strategy as well. Johnson: We're learning all about resilience everywhere, aren't we? DuBravac: Just as much as ever. Dual sourcing is the holy grail that's oen unachievable for any number of reasons. It's oen hard to do that, but many seek it. ere's probably an equiva- lent when it comes to banking. It's dual finance, not relying on a single financial channel, but having a multitude of channels, even if it's just two regional banks or two local banks that you can turn to for credit when you need it that will bridge the gap between paying for your com- ponents and then shipping out your product. at line of finance is extremely important. Yes, the cash flow is extremely important. EMS companies are probably facing or will face higher rates because of the rate increases. I think EMS companies must ensure they fac- tor the higher operating costs into their quotes to make sure that they are pricing in a higher operating cost. It's showing up everywhere. is is something they're all facing. Orders are good, demand still looks good. It's holding up for the most part in many sectors. It's slow- ing, but we're not seeing it drop off a cliff. At the same time, though, labor and finance costs are rising. Companies need to adjust, or they'll find themselves in a situation where orders are good, but profitability isn't. at's the catch. Johnson: Shawn, as ever, thank you. DuBravac: Always happy to chat. SMT007