A Practical Guide to Managing Material Cost Impact

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When you ask the EMS management team about the material impact on their business, they typically respond by adding up the number of people who work in the stockroom, and those involved in kitting and material stock return, plus shipping and receiving.

For so many years we did not pay attention to, or totally understand, the business impact of the material acquisition and handling costs. The more EMS providers get squeezed out of their profits from the vise grips of distributors and end customers, the more imperative it is that the industry totally focuses its attention, not only on the supply chain, but also on how material is delivered, handled, and managed in the operation. It is time to send in the armies of black belt, Lean Six Sigma ninjas to work, and provide the Western Hemisphere EMS providers with more hope to compete globally. When bottlenecks are removed and automation is fully implemented, locally manufactured product is most cost effective.


Many years ago, I was running a high-mix, low- to mid-volume EMS business, and like everyone else was experiencing at the time surprise shortages that were driving the million dollar SMT lines to screeching halts. It was often that the sound of “cha-ching” would stop, and everyone, and I mean everyone, was dealing with trying to find the part that was supposed to be in the factory, but was nowhere to be found. The program managers, material staff, purchasing, production staff and I would get hourly calls from the customer who wanted to know the status of their desperately needed job. We would look everywhere, and no one seemed to have the answer as to where the part was placed. My purchasing manager would raise her right hand and swear that she brought the part in. All this would take place while the SMT line was shut down waiting for us to find the penny part. This is so common that the EMS industry added a phrase to our lexicon: surprise shortages.

In one instance, when we finally found the part it was placed on top of a shelf because the part needed to go directly to the floor when it arrived, and there was no specific bin assigned for the part. Sound familiar? Also, by the time we found the missing part, reordered it, and paid for an overnight shipment, we were now late on the demanding customer order, and overtime was in place to get the assemblies out ASAP. And then to top it off, my management team was meeting with a high-speed SMT equipment manufacturer to order another line, so that we could meet customer demands! It dawned on me then, “What if we never had surprise shortages? What if we could pull the kits instantly and accurately? What if the feeder set-up crew could find parts in seconds?” It was an endless series of “What ifs.”

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Editor's Note: This article originally appeared in the March 2016 issue of SMT Magazine.


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