In EMS, today’s headlines often become tomorrow’s production schedule.
While it may seem as if there is little rhyme or reason for variations in demand, the reality is that the electronics manufacturing service (EMS) industry’s repeating cycles actually make trends fairly predictable. As I write this, a number of those trends are starting to emerge. By the time it publishes, these trends will be even more evident. Understanding them can be helpful in addressing the issues and exploiting the opportunities that are likely to result.
Three growth drivers will add to your workload this spring:
- Data centers: Data centers are in high growth mode, and as a result, memory availability is starting to tighten up. Start analyzing which customer products are likely to be impacted and work with customers to get longer forecasts. Additionally, explain the need for earlier notification on new designs.
- Multiple snowmageddons and ice storms this winter: These weather events destroy a lot of power transmission/management and telecom infrastructure. If you serve industrial customers in this sector, consider reviewing forecasts to determine if they will have upside.
- Military action in Iran: If your company is building military equipment, avionics or drones, your forecast is likely to change radically as defense contractors will need to resupply everything that has been drawn down. Given that many neighboring Middle Eastern nations also buy US equipment, there will likely be upsides to their orders. If defense is a business segment, it is time to review forecasts with your customers and closely follow raw material availability trends.
Figure 1. Surging data center demand is one of the forces expected to drive new workload and component pressure across the EMS industry this year.
As a combination, these three growth drivers are likely to put more stress on component availability across the board, so identifying vulnerable products and inventory constraint trends is particularly important, even in industries not likely to experience changes in demand. On a positive note, this level of manufacturing upside is beneficial to EMS providers who have seen demand drops in other product areas. In some cases, strong, extended demand may also create the need for additional suppliers in these segments, which opens the door to new customer opportunities. Evaluating which existing customers are growing due to new technology adoption can help focus sales team members on additional companies in that sector that are likely to need additional suppliers. Another less-recognized trend is that when material availability tightens, OEM selection teams tend to make faster decisions. Taking time to translate headlines into likely changes in demand, material constraints or new opportunities can help sales and program managers stay ahead of the issues these events otherwise cause.
It is also important to remember the lessons learned from the pandemic regarding excess inventory. The EMS business model does not support large quantities of just-in-case inventory. Having to own just-in-case inventory is equally unattractive to OEM customers. Consequently, working together on more accurate forecasts and component supplier cooperation in bonded inventory is critical. What systems do you have in place to identify developing shortages? What systems are in place to quantify inactive or excess inventory as early as possible? Do you have manufacturing agreements in place with customers likely to be impacted by material availability issues? While the current trends drive the need to think about just-in-case inventory, the back end of that cycle should be reinforcing the need to think about excess inventory mitigation strategies.
Proactively analyzing potential demand variations, developing a game plan for addressing those variations and working with customers and suppliers to create a mutually agreeable strategy is the best way to work through the challenges created by current trends.
Susan Mucha is president of Powell-Mucha Consulting Inc. (powell-muchaconsulting.com), a consulting firm providing strategic planning, training and market positioning support to EMS companies and author of Find It. Book It. Grow It. A Robust Process for Account Acquisition in Electronics Manufacturing Services. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..
