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The success of an organization often rests on the performance of its supply chains, especially the bonds between a chain’s nodes. In the electronics industry, a company’s relationship with its electronics manufacturing services (EMS) provider can be the deciding factor in its success.
EMS firms or contract manufacturers are the keystone of the industry. They make decisions on behalf of customers, have detailed insights into their extended electronics supply chains, and contribute significantly to the quality and performance of a customer’s products. EMS companies are a crucial node in the electronics supply chain and just one example of how an organization’s relationship with its trading partners can impact success.
When the Chips Are Down
Events of the past two years have clearly demonstrated the value of strong trading relationships. When materials become constrained, as in the recent microchip shortage or any of the pandemic-driven supply chain snafus, the companies that have those materials have a choice to make. Which customers will be put at the front of the line, and which will be placed at the rear?
Too often, company executives assume that since they are a large buyer, they automatically will be prioritized when supplies are constrained. Research has shown that this is not always the case, and that assumption can leave a company in a weakened position.
One such study is the work of Dr. Steven Melnyk, professor of operations and supply chain management at Michigan State University. His work on “earned preferential treatment” showed that “buyers receive perks and benefits not earned by large volume purchases or by paying on time, but rather by being a good customer.”
In the case of EMS companies, being perceived as a good customer may come from sharing accurate demand forecasts, greater collaboration on production scheduling, involvement in the development of innovations and more. The key is having an ongoing dialog with trading partners to understand what is important to them and how both companies can better work together. There are plenty of examples where an EMS company has bent over backward to help customers that weren’t necessarily their largest one.
Seeing the Forest and the Trees
As the keystone of the electronics supply chain, EMS companies have significant industry and supply chain insights that their upstream customers quite often do not. In most cases, a large customer like the Department of Defense (DoD) will buy from a defense prime contractor, which buys from a third-tier supplier that then buys from an EMS company.
When the buyer (at whatever tier) turns over the bill of materials (BOM), it often identifies several authorized suppliers of the various components, ranging from printed circuit boards (PCB) to passive and active electronic components. The decision on which of those authorized suppliers will be used is up to the EMS company, and that information is often not shared with the customer. In many cases, there is not a list of authorized suppliers, and the EMS company has even greater discretion on where the components are purchased.
To read this entire article, which appeared in the August 2022 issue of SMT007 Magazine, click here.