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Strategies for the EMS industry in the current crisis

Higher liquidity, shorter order lead times and better on-time delivery: that’s the electronics industry’s dream. To guard against a rude awakening from the current crisis, process optimization is crucial.

by Markus Renner*

Declines in sales of up to 25 percent, empty order books and cancelled orders: the COVID-19 crisis is having a dire impact on many companies in the electronics industry. And that’s on top of sales that were already declining due to allocation and the struggling automotive industry. If you don’t happen to be a supplier in the medical technology industry, you need to cut costs hard. However, you can also see this situation as an opportunity: free your colleagues and employees from the burden of unnecessary work and optimize your processes in both materials management and order processing. Build transparency and a consistent data pool—leaving Excel lists behind you. For if this crisis has taught us anything, it’s to value our time. And to treat our colleagues and our resources with the mindfulness they deserve.

Say no to wasted effort!

How much valuable time is wasted by employees in purchasing looking for missing parts, for bottlenecks in materials management or for the “correct” status of a manufacturing order? How much energy do distribution professionals pour into internal calls just so they can give their customers a halfway reliable delivery date? How much effort does a production manager expend to determine which orders absolutely need to be fulfilled this week—and whether the target can be met? And all of this at a time when short-time work and sick leave are already eating away at organizations’ manpower. The current situation makes it difficult enough to allocate employees in purchasing, manufacturing and distribution effectively so as to accurately fulfill the right orders and deliver them on time.

Courage and transparency in process optimization

As more than 20 years of consulting experience for various companies in the electronics and EMS industries have taught us, it takes a good deal of courage and the will to change to achieve these goals. And absolute transparency in materials management and order processing. Making the effort pays off in many ways: from reduced capital commitment and greater financial freedom to increased customer satisfaction and a positive impact on corporate culture as a whole.

As far as courage and the will to change are concerned, maybe a few facts concerning materials, inventory and order lead times can help: material costs in the EMS industry account for 60 to 80 percent of the manufacturing costs, making them a crucial factor. At the same time, many manufacturers and EMS companies have in the past opted to maintain high inventory levels to ensure availability of rare parts and so to avoid allocation. However, experience shows that high levels of inventory are by no means a guarantee for delivery excellence. In fact, they severely curtail a company’s flexibility. Even worse, especially in these times: if manufacturing orders are cancelled or fail to materialize, the effect increases exponentially. If worst comes to worst, this ties up money needed for purchasing materials for new orders.

Large potential in materials management

The picture we paint might seem gloomy, but don’t despair because the potential for savings is enormous: if manufacturing technologies and employee skills in most of the familiar organizations are advanced enough, there is definite room for improvement in information management and material handling. These are the areas in which companies can use simple tools to boost productivity and liquidity by increasing process efficiency. Process efficiency is the quotient of an order’s processing time and its total lead time—which in electronics manufacturing is often well below 10 percent! The trick is in aligning the scheduling frameworks with the appropriate bottlenecks: instead of starting manufacturing orders with ordering all of the necessary materials, order start dates and purchasing orders for materials should be aligned with the date on which eliminating bottlenecks for critical components becomes possible. The result: shorter lead times and decreased idle times for your orders. This in turn means reduced capital commitment and more productivity by focusing on those manufacturing orders which can realistically be fulfilled. Ultimately, this also leads to greater transparency in delivery dates and consequently better on-time delivery.

Creating more transparency: tools as a factor for success

Keeping an eye on orders, purchasing on time and detecting and eliminating bottlenecks effectively: any optimization in these areas must be based on a transparent, common data pool. This pool needs to be available to purchasing, manufacturing and logistics as well as to distribution and management. Based on years of consulting experience, we have developed the software tool MiG – Materials Management in Balance. MiG is an add-on for existing ERP systems and is designed to analyze and visualize the data contained in those systems. It contains separate views as well as separate analysis and optimization features for the different departments. This reduces hassle in coordinating between the departments and improves collaboration. Because every user has access to the same set of data, there is no room for ambiguity or doubt. The software always uses the most recent data set without making any changes to the data itself. The program can be implemented risk-free at any time, usually within just a few working days. The intuitive browser-based software runs on any device, and from the moment the implementation is complete, it produces results that can be used immediately to optimize processes.

A question of priorities!

MiG is all about setting priorities, highlighting orders with missing parts in the manufacturing overview so that production management and logistics are able to adjust the manufacturing processes accordingly. Simultaneously, purchasing can react in time to ensure that all materials required by the order in question are available when they are needed. Employees continuously monitor material movement, making strategic decisions to optimize the procurement process. Spending hours searching for parts and information is a thing of the past, as is hurriedly ordering missing parts at inflated prices or rescheduling the manufacturing process at short notice.

The advanced edition of MiG includes integration with components distributors. At a glance, purchasing can see inventory levels and prices of needed parts. This makes noticing missing parts and remedying the situation a matter of just a few clicks. MiG is designed for all manufacturing companies working with bills of materials. The software can handle large amounts of different parts, multiple suppliers and flexible delivery times requested by customers.

Focus on people

Introducing a few simple measures can have a noticeable effect on improving materials management and the manufacturing process at contract manufacturers, suppliers and OEMs. Especially in times of economic turmoil such as the current COVID-19 crisis, optimizations like these are often crucial to a company’s survival. At the same time, they create a new way of collaborating within the organization and interacting with the customer—helping employees shift from being mere operators to contributing constructive strategies to further the company’s long-term development. Turn this crisis into an opportunity—the time is now!

*Markus Renner

is co-founder and CEO of the consulting firm Perzeptron GmbH.

www.mig-perzeptron.de | kontakt@mig-perzeptron.de

Images:

Image 1: MiG_Screens-Mockup_FINAL.jpg