Issue link: https://iconnect007.uberflip.com/i/1493797
MARCH 2023 I SMT007 MAGAZINE 15 that have been willing to provide cash depos- its to offset the excess inventory. While this is a short-term fix, it is not clear whether it's a long-term solution and it may diminish the perceived value of EMS companies. How do I continue to maintain and grow my customer relationships in a sustainable manner? Many customer relationships have been under strain as they experience a level of ongo- ing "participation" which they thought they were largely removing with the decision to find an EMS partner in the first place. As already discussed, over the past few years customers have been regularly asked to approve the pur- chase of components due to NCNR contracts, approve both costs and risks on very short notice where broker parts are necessary, pay for inventory at their EMS partners well ahead of receiving finished products, and to rede- sign at least portions of existing products on an unplanned basis. Fortunately, many OEMs understand the electronics industry dynamics, view their EMS partners as long-term partners, and success- fully work with them to find "what's fair." At the same time, all these items create a "sur- prise" at the OEM, leaving both EMS compa- nies and OEMs wondering whether traditional business models are still appropriate. Views regarding long range forecasting, associated commitments to the extended supply chain, and overall inventory management and finan- cial ownership will likely need to evolve in a similar fashion to supply chain strategies. What impact will the economy have on me and how do I mitigate the risks? It may not be obvious, but the EMS industry is just as vulnerable to swings in demand that are upward as they are to downward, maybe even more so. Clearly, when demand drops, EMS companies need to adjust their com- ponent orders quickly to prevent inventory buildup. Unfortunately, inventory will still grow even with a fast reaction as it is extremely difficult to hard stop orders even in the absence of the NCNR situation that has already been discussed. Similarly, when demand increases, one delayed component in the supply chain will have the same impact. In some ways, it is worse. Upward orders mean increasing component commitments. In many cases, EMS companies may also be adding staff or equipment to sup- port increases. All these can tie up operating cash when there is no ability to complete and ship the product to the customer without the final components. EMS companies do their best to understand where the economy is headed and try to take pre-emptive actions when possible. As to cus- tomer demand, they really do need to plan and execute specific to what they receive orders for. While they may suspect that orders are too high or too low, it is very risky to try to out- plan their customers. At the same time, they may certainly choose to delay or ramp up peo- 5 4 Mark Wolfe