Three Supply Chain Challenges for the EMS Industry and How to Address Them
By Akhil Oltikar, Co-Founder and CEO of Omnics, Inc.
The EMS industry is in some senses the ‘canary in the coal mine’ for supply chain because these companies see the global challenges before the downstream companies and in many cases earlier than their OEM customers. The three challenges that are top of mind for clients these days are:
- Supply Chain Planning in a super-dynamic and digital world: Amazon has made all our personal lives easier, however my clients are facing some challenges when consumers want same-day delivery or can cancel/re-book/shop for best price at click of a button. These clicks create a ripple across all supply chains and EMS companies may experience a big wave (if not a tsunami) by the time this ripple reaches them – forecast changes, inventory shortages, ECOs to name a few.
- Trade Wars and Tariffs: The question I hear nowadays is “What is the trade-off to reshore/near shore my manufacturing for my OEM client’s operations, considering the tariffs?” This question is not only due to the trade wars but also due to wage inflation in China and faster time-to-market using regional manufacturing. The answer is not off-shoring, near-shoring, re-shoring but ‘right’ shoring depending on products and go-to market strategies.
- Supply Chain Security: As supply chain are stretched, security is bound to be on everyone’s mind. This is not only IP security or product flow security but also security around the product build itself. Recent alleged stories about the microchip hack (whether it is proven or not), will play a role in more stringent future supply chain partnerships, audits and security requirements.
There have been all kinds of supply chain challenges in the past, present and new ones in the future so a proactive mitigation strategy is the key to meeting them. This is driven by people, process and tools/technology. For example, let’s take the current situation of tariffs that are impacting global supply chains. EMS companies need to have a framework of processes and tools to quickly analyze the end to end supply chain footprint for their customers, evaluate trade-offs between multiple material sourcing and manufacturing scenarios and proactively engage with their customers on how, when and what should be done to mitigate risks to their product flow. The need for footprint optimization is not only driven by trade wars but also due to changes in end consumer buying patterns and how Amazon has changed the game. Furthermore, new business models, for example, Harry’s in the grooming industry, can change the game in a heartbeat for any industry. Lastly, I truly believe that a company’s culture to accept these challenges and take them head on, with a level of ‘discomfort’ that comes with it, plays a crucial role in the outcome.
But What About Cost?
If we take the prevalent tariffs issues, we all knew back in 2016 that something like this might happen. If an OEM or EMS company had a framework of process, people and tools to analyze such scenarios (not execute but prep for such situations), that company would have a head start in mitigating the risks that we are facing now. Yes, such a framework, would have additional cost associated with it. The question is, would you spend 0.001% of the ‘revenue at risk’ to proactively manage your operations, keep your customers happy and win more market share while others catch up? Some companies have done this well and the costs associated with this have been paid back handsomely.
I think tariffs and trade wars help some and hurt some, but supply chains will move or have to move if the tariffs remain in place. We are also seeing a market shift and higher consumer growth in Asia so this may very well play out to be ‘manufacture in region for that region’ scenario for some industries. However, it cannot be a ‘one size fits all’ solution. You need to deep dive into your upstream material sourcing, how they are impacted due to new tariffs, manufacturing sites locations or alternative locations. Maybe there’s a potential for late-stage postponement closer to end markets that may avoid duties and also help with faster time-to-market.
The New Normal and Newer Technologies
“The only thing that is constant is change”. Supply chains should not be planned and managed with a single-dimensional focus on costs. The best supply chains are agile and adaptable to market changes, customer needs and aligned with all company’s interest. What we are experiencing today is the new normal. Innovation at all levels including product, technology and business model is giving rise to newer business that are challenging the incumbents. In a recent report by Credit Suisse that in 1920s, the average lifespan of a company on S&P 500 was 67 years. That dropped to 25 years in 1980s and 15 years in 2010s. In 2020s, 75% of the companies will be the ones NOT on the index today. Companies and their supply chains need to adapt to such changes or go out of business.
Digital Supply Chain is one of the areas of focus for all companies. In simple terms, digital supply chain is supply chain processes, data, collaboration, and communication between its partners in a paperless environment using web-enabled technologies. The primary aim of digital supply chain is to increase efficiency and produce higher profits for the organization. We live in an era of short product life-cycles, consumers expecting instant delivery with an order size of one and stretched global supply chains. This requires increased efficiencies in planning and managing your supply chains than ever before and hence the next frontier for efficiency gains is digitization of your supply chains, its planning and execution. Few key areas for EMS companies to leverage their operational data within their digital supply chain framework are:
- Automation: Automate the non-value add activities and make your planning team efficient. Let the machine perform those ‘boring’ tasks while your team focuses on the outputs, what-if scenarios and analyzing potential opportunities to improve business performance.
- Unified Data Model: Planning starts with data. The planning logic could be unique or may become unique as business conditions change, however the input data is always more or less the same in supply chain planning. Using a unified data model not only collects the data and reports it but also helps connect the dots between data sets and categories.
- Advanced algorithms and machine learning: It is important to have efficient and effective planning with the resources on hand but extremely important to leverage the historical planning data to make subsequent planning cycles smarter. Machine Learning application in analyzing historical patterns, inputs and resulting outcomes helps you in key areas like forecasting demand/supply, inventory shortages, automated replenishment of raw materials.
Also, we have been hearing a lot about blockchain technology to address some of these issues. I think some use-cases are well-defined and blockchain technology would help e.g. supply chain track & trace, but others that I’m reading about are still in conceptual phase and some in hype phase. We have some way to go before we get to any meaningful and recurrent application of blockchain in this industry.
Having worked on both sides of the table – EMS and OEM, I would like to say that EMS companies are at the center of next-generation supply chain planning and management. The breadth and depth of their reach is their strength and should be leveraged to its maximum potential. Particular focus should be in the following areas, which will have a stellar payback:
- Supply Chain Center of Excellence: As I’ve said above, the key is people, process and tools. Having a “Supply Chain Center of Excellence” or similar framework would go a long way to mitigate risk, bring innovative supply chain solutions to their customers and, most importantly, differentiate their service offering. I’m not talking about a ‘Control Room’ with few dozen LCDs on the wall showing maps, charts and daily news. I’m talking about a focused, dedicated team of supply chain experts with a robust set of business processes – from how to handle strategic supply chain issues to proactively manage the customer supply chains to aggregating and leveraging the huge amount of data coming from the ERP/MES/PLM and other systems – working together with the top management on almost daily basis.
- Planning Tools: With the people and processes in place, the final piece of this puzzle is technology. Always remember that software is the means to an end, not the end. You need a set of tools to address a particular business problem at hand whether its supply chain network design to optimize the landed costs, service, cash or automated supply planning. Few key rules when it comes to software: The software should be aligned and adaptable to the business processes and not vice-versa, focus on its step by step implementation and not on its long list of demo features and lastly your software partner should know a thing or two about supply chain which would greatly benefit you.