How the global supply chain crisis built closer OEM-EMS relationships

Crisis. Bottlenecks. Chaos. These are the results if you dare to Google ‘global supply chain’. And it’s all true. Thanks to broken supply chains, countries across the globe seem to have suffered shortages of what they hold most beloved—maple syrup in Canada, diesel in Australia, and alcohol in the UK.

Neil Sharp

The most optimistic predictions claim that things will improve after the Chinese New Year and the bleakest forecast that the world will suffer from supply chain torment for the next two years.

Regardless of how long it is until we fix it, there has been an unintended beneficial consequence of the chaos that no one seems to be talking about: OEMs and EMS (Original Equipment Manufacturers – Electronics Manufacturing Services) have become closer.

A closer OEM-EMS partnership

Regardless of how good the OEM-EMS fit was, pre-Covid the relationship was a far more distant one. A good EMS will, quite rightly, try to take all the stress away from the OEM by doing end-to-end electronics manufacturing: assisting with design, manufacturing, and process so the OEM is free to focus on its vision, ideas, and drive.

But while the central idea behind this remains true, the pandemic has encouraged OEM-EMS to work closer together on all areas of the relationship.

Why? Because of the supply chain crisis. In the good times, perhaps OEMs weren’t worried about asking too many questions, and EMS providers weren’t concerned with communicating what was going well. But the stress of not knowing if supplies were going to arrive on time or if your product was going to be stuck 100 miles off California for two months forced communication. And communication improves relationships, turning them into partnerships.

Two years ago, perhaps OEM and EMS providers held a long quarterly call; however, nowadays, communication is more spontaneous and frequent. For example, to try and ensure supply chain security, EMS are attempting to identify patterns in their customers’ behaviour. Suppose they recognise their OMS partner is consistently ordering particular parts. In that case, it is far more common for the EMS provider to communicate this and recommend making a long-term order to guarantee timely delivery.

This type of communication was not usual pre-Covid, primarily because of the hands-off and ‘just in time’ culture. However, this has been replaced with the ‘just in case’ culture, resulting in more communication and a closer partnership.

Being (literally) closer to customers: regionalisation

Pre-Covid, the global economy was heavily dependent on China. In some industries, telecommunications equipment, for example, China’s share of global trade exceeded 50%. Companies looked to China after it was accepted into the World Trade Organisation in 2001 to produce their products and as a market for them, but the pandemic appears to be reversing this wave of globalisation.

It is now widely accepted across multiple industries that overreliance on one country is negative. Increasingly higher labour costs in China, draconian lockdowns, and power cuts due to a lack of coal are just three reasons that have made companies reconsider China as their sole manufacturer.

In reconsidering and diversifying their supply chain, many OEMs have already considered alternative options in Asia—Malaysia is a popular option. Also, Mexico is now a boon for many North American companies as they realise the benefits of being geographically close to their EMS partners.

OEMs are looking for EMS with resilient and quasi-independent supply chains in closer countries—being physically, culturally, and logistically closer has certain advantages. A manufacturer with a footprint in the UK and Europe is now seen by many OEMs as more desirable than an EMS provider that solely manufactures in China. An additional footprint in Asia is also a huge bonus in hedging against future supply chain shocks.

In an attempt to build supply chain security, EMS providers have opened factories in different countries—which helps meet the needs of local markets. The OEM-EMS relationship is becoming more regional and less global due to the current perception that shorter supply chains are better.

The idea of short supply chains and proximity to the customer is nothing new; it came from the first industrial revolution. However, the pandemic has highlighted how OEM-EMS relationships can benefit from this idea. A short supply chain—from either Industry 1.0 or Industry 5.0—has the same benefits for the manufacturer and the customer:

• Visibility across supply chains
• Increased velocity and agility of supply chains
• Improved response rates to ‘market changes’
• Improved consumer expectations and demand

A renewed focus on customer satisfaction

While it is true that business generally is running more smoothly than it was a year ago, logistical bottlenecks continue to affect manufacturers’ relationships with their customers.

During the past two years, large companies and high-value customers’ superior purchasing power led manufacturers to prioritise them over smaller ones. This negatively affected business and further strained the situation that had already been affected by steep price increases.

Manufacturers cannot influence global commodity prices; however, the situation they were forced into means they are currently doing everything in their power to improve customer satisfaction and get closer to them. Other than better communication strategies and being nearer customers, the most efficient way manufacturers can achieve this is through increasing supply chain resilience by fully subscribing to digital transformation.

For example, the IoT will likely be instrumental in creating smart warehouses and fleets. It will be used to improve warehouse management, fleet tracking, inventory control, and technological and mechanical maintenance, which will lead to increased supply chain efficiency.

Conclusion

Supply chain chaos has hit OEMs and their EMS partners hard. But it is not all doom and gloom—the pandemic has also brought some unintended positive effects. The relationship has become closer and turned into a collaborative partnership. OEMs and EMS are communicating more frequently and spontaneously, there is a trend towards being situated closer geographically, and there is a real focus on customer satisfaction. When we get over the current supply chain hurdles, OEMs and EMS providers can look forward to even stronger relationships.