ICYMI - Executive Interviews on Material Issues

EMSNOW closely follows the impact of material supply chain disruption on the EMS industry. This is a topic that was discussed at length during the EMSNOW/in4ma European EMS tour conducted earlier this year. Eric and Dieter received a status report on the issue from the EMS executives they met with on-site; in addition, Eric has interviewed executives from distribution, software suppliers working on digitalization, and executives from the Electronic Component Industry Association (ECIA).

Here is an excerpt from the EMSNOW/in4ma European EMS Tour Outline of Findings, posted soon after their return home.

Most companies we visited stated that the material situation in terms of availability and lead times has improved. But this does not mean that the problem has been fixed. The component supply chain challenge is generally seen as the new normal or just part of the fabric of the industry now.

Companies must adjust their approach and reset to this reality.

• Most companies are still waiting for “golden screws” so they can clear out their excessive inventory.

• The most cited missing or problem parts are:• Analog devices • Micro controllers • Micron and TI • Power components • Microchips/ semiconductors• ASICS

High Inventory Levels

Most EMS still have a substantial amount of money tied up in inventory. This serves as a restraint on their ability to make desired and sometimes necessary investments in their ongoing operations.

• According to in4ma’s annual survey, the average for European EMS is 25-35% of annual revenues, with some reporting over 50%.

• This puts severe constraints on the EMS’s activity and ability to invest in other desired equipment, systems and facilities.

Distributors – a love / hate relationship

• The general dissatisfaction with authorized distributors that was so intense last year has abated.

• The distribution channel is doing better and is again the preferred source, especially the authorized channel.

• The largest concern related to purchasing is that many key parts are still unavailable, and these are needed to flush out high inventory levels.

• The authorized or franchised distributors seem to be getting back to fulfilling their traditional role of buying and holding inventory.

• Brokers are still active but doing less business and are actively calling on EMS companies.

• All of the EMS we met reported that their use of Brokers over the last few years was always with their OEM customer’s approval.

• Catalog distributors (i.e., Mouser, DigiKey) are preferred due to the LV type of business done in Europe.

EMS companies are all aware that distributors made large profits while their businesses were stuck with too much inventory. Some EMS we met were in difficult financial condition, mostly due to the high inventory levels they are still holding.

APIs are Great, But….

Most companies stressed the importance of the knowledge and experience of their people over becoming too dependent on digitized purchasing solutions. They like the benefits that APIs provide, but still want people involved working their networks and to make decisions based on their experience.

• Going directly to component manufacturers when possible is desirable.

• NCNR (non-cancellable, non-returnable) terms from material suppliers and passed through by distributors are still seen as undesirable and negatively impacting the industry.

• We heard some discussion that pulling back on these terms is being considered.

Counterfeits: Many EMS shared stories of having caught bad parts at incoming inspection. • Several referenced using testing services like White Horse Labs to screen parts acquired through a broker.