The global electronics market is enjoying a buoyant year, posting sales figures that are between 15% and 20% up from this time twelve months ago. This headline statement may make for good reading for those in the industry. For many original equipment manufacturers and contract electronic manufacturers, however, this increase in both sales and revenue is causing problems.
Sales figures are not simply rising because more people are buying components and electronic. In recent months, we have seen that lead times are on the rise and, in some cases, popular product lines have been placed entirely on allocation.
Numerous news outlets have also reported that Apple is suffering from supply constraints and could delay the release of its iPhone 8 because of this.
These concerns highlight the need for Contract Electronic Manufacturers (CEMs) to have a flexible approach to supply chain management. And for Original Equipment Manufacturers (OEMs) looking to outsource, it is important that you consider the full service being offered by a prospective electronic manufacturing service provider (EMS).
With Northern Manufacturing on the horizon, you have the perfect opportunity to get out and about and meet a number of potential new suppliers. During this process, don’t forget to ask these important questions to get a good measure on whether or not they can add value to your supply chain.
What distribution channels does the CEM use?
Any CEM worth its salt will have an established network of suppliers that they use. Many CEMs will primarily work with franchised distributors. This can either be a conscious internal decision or at the behest of their customers. Some will work with independent distributors, though if the CEM does go away from authorised channels this should be communicated clearly.
There are benefits of going through independent suppliers to secure stock. Firstly, they can often help their customers circumnavigate common issues in the component marketplace, such as shortages, obsolescence and extended lead times.
For example, DJ Assembly’s unique position in the industry will give you a competitive advantage when it comes to purchasing stock.
As part of the Cyclops Group, we rely on their purchasing power to extract cost savings and preferential pricing that is passed straight on to our customers.
In addition to this, we can make use of Cyclops’ specialist purchasing department, when the situation arises, to locate quantities of component materials that are classified as being hard-to-find, due to shortages, allocation or obsolescence.
Such relationships can be extremely beneficial and be the difference between meeting or missing pre-existing production deadlines.
Is there a technical buying team?
And can you make use of their expertise?
Prior to formalising production plans, the CEM should review your Bill of Materials (BoM) and accompanying Gerber files. As part of this process, a smart CEM will allow their technical purchasing team to evaluate these files and propose alternatives.
It is often to find that multiple semiconductor manufacturers produce parts that perform the same function and have the same characteristics. A technical buying team will be able to isolate these and see if any cost reductions can be made by switching manufacturer or working with an alternative part number.
Of course, any changes will have to be authorised by yourself, but this process is often overlooked during the pre-production stage, and can often produce an immediate saving.
Another benefit of this process is that by keeping a list of substitute parts, the CEM will be able to help guide you through unfavourable market conditions. With lead times rising across the board and prices increasing, it might be beneficial to begin working off the reserve list to secure stock quicker, and at a cheaper cost to yourself.
Are they willing to hold stock?
Stock in this sense can mean one of two things: The component pieces used during the production process and the end product, be it a PCB assembly or a completed box build.
Stockholding of parts
The clear benefit of this is that by holding the stock for you at their premises, the CEM can remove warehousing costs from your balance sheets. As obvious as this may be, this can often be overlooked.
Some companies may wish to manage their entire supply chain, or the procurement of a handful of components, themselves. In principle, free issuing the parts is not a problem for CEMs, however, the practice may not be the most economical.
Handing over your entire supply chain to a CEM is a big move, especially if you are outsourcing for the first time. If this is the case, make sure that you allow for regular meetings with company representatives and allow for the necessary trust to build up over time. Whether outsourcing for the first or the hundredth time, communication between the two parties will be vital in creating and maintaining the business relationship.
Most CEMs should be able to hold the necessary components and materials for your production run. However, it is worth asking about what additional procedures they have in place.
Do they, for example, make a habit of purchasing additional quantities to act as a buffer in case there are unforeseen problems?
Make sure you ask what procedures do they have when the market is in a state of flux, as it is today?
Stockholding of end products
An agile manufacturing partner could also work with you to create a tailored delivery schedule that can again help to cut down outlays on storage. This comes from them being able to hold assembled boards on call, ready for shipment.
At DJ Assembly, we work with all our clients to offer individual call-off arrangements. By having buffer stock in place that can be scheduled for delivery with twenty-four hours’ notice, we can meet the needs of our customers, even when there is a spike in demand.
This call-off service can be extended to include payment options, which removes the need for companies to tie up capital at the beginning of the production cycle. Our customers then can use this freed-up capital in other areas.
These are just some of the questions that you should ask a CEM about supply chain management.
DJ Assembly will once again be exhibiting at Northern Manufacturing (Stand D37, for those interested). Held at EventCity in Manchester, the two-day exhibition is a must for anybody looking for a new electronic manufacturing partner. We hope to see you there and if you’d like to pre-book an appointment with one of our representatives, you can do so here.