Features Articles
As the pandemic becomes endemic, restoring order to the world’s prices and supply chains will take time and won’t be easy.
As we all adjust to the reality that Covid and its derivatives are here to stay, communities around the world are beginning to rebuild economically: returning to work, reviving businesses where possible and making new plans if not.
It is no surprise materials, inventory and shipping are in short supply and are often stuck in the wrong places. In some cases, services that companies used to rely on are no longer available because the suppliers have gone out of business. Workforces are depleted, and some knowhow, skills and experience have been lost. Rebuilding is not as straightforward as opening the factory doors, picking up the tools that were put down at the beginning of 2020 and getting on with it. Even now governments are still mandating measures such as the sudden full lockdown of Shanghai, which has severely impacted road and air transport. We must still expect the unexpected!
There certainly is the opportunity to build back better, but let’s not be simplistic. The world we built was highly sophisticated and interconnected – an ecosystem of ecosystems. It won’t be easy. It will take time. New leaders and innovators need to acquire the skills required to replace those we’ve lost. And we have other challenges too, like protecting the environment and transitioning to more sustainable ways of living. As if that wasn’t enough, further new tensions are adding to the pressure on resources and, as a result, prices.
Review pricing with current and outside suppliers to confirm you are paying the going rate.
“We don’t have the bandwidth to move business.”
That's what a printed circuit board buyer told me recently.
Let’s unpack that because it could be a shortsighted attitude.
When an EMS firm puts a PCB supplier on its AVL, it often asks only for pricing on new projects. When it comes to existing work, the response is often, “We don’t move boards once they are placed,” or, “we don’t have time to rebid those,” or, “it takes too much effort to move to another vendor.”
Even in the face of rising board costs, many buyers and procurement managers resist moving production away from suppliers they’ve used for years.
Will it be able to handle unforeseen events better than its predecessor?
Many are excited and working diligently toward enabling Factory (Industry or Tech) 4.0 to dramatically change their manufacturing and business environment, but maybe we should focus instead on Supply Chain 4.0, as that may change the manufacturing and business environment more – and not in a good way!
Businesses are currently operating within Supply Chain 3.0. Supply Chain 3.0 has taken decades to refine into a highly efficient, cost-effective, global supply chain. We know how we got here. Companies sought lower-cost skilled labor and a cost-friendly operating environment in which to build manufacturing facilities. As manufacturing shifted to these lower-cost areas, governments invested in infrastructure and education to attract ancillary businesses to invest there as well. Shipping and logistics improved thanks to the advent of containerships, larger aircraft, better roads and rail, and countries opening their borders to trade. The result was a global supply chain in which components and parts are made almost everywhere and transported “just in time” to assembly sites, before finished products are shipped to customers.
The proliferation of satellites and the "orbital economy" have exciting implications for Earth – but not without challenges.
An exciting market is developing 300km above Earth. New Space promises to revolutionize the delivery of internet services and create new opportunities for Earth observation that could help us improve crop yields, anticipate natural disasters, and manage our impact on the environment. There are also opportunities for manufacturing in space, taking advantage of microgravity to produce high-purity optical fibers and materials such as graphene, semiconductors, and superconductors. The in-space, or orbital, economy is already being debated.
This commercial development of New Space, which defines low Earth orbits (LEO) in the 300km-2000km altitude range, has become possible through the ongoing democratization of rocket and satellite technology over the last few years. Until recently, space missions were mostly the preserve of government-backed organizations. Today, however, the responsibility for launching satellites, as well as taking people and supplies to the International Space Station, has become substantially outsourced to private enterprises.
The size of satellites themselves is also becoming smaller, while supporting increasingly sophisticated capabilities, allowing greater value at lower cost. Small satellites, or SmallSats, are generally considered to be less than 180kg and, in fact, have been in use since NASA’s pre-Voyager missions of the early 1970s. The category is now more subdivided than ever and contains nanosatellites less than 10kg, picosatellites in the 0.1-1.0kg range, and femtosatellites of 10-100gm, although these limits are not rigidly defined. And, of course, there are CubeSats: the scalable proposal based on a standard 10 x 10 x 10cm basic building block. These are accessible to academic groups, including schools, as well as small commercial organizations.
Buy PCBs with your brain, not your heart.
“Pray for me. I buy circuit boards.”
That was a saying posted on the wall of a prospect I visited some 25 years ago. It’s funny, of course, but it also speaks to an unchanging truth about PCB buying: It’s often an emotional experience, especially when it comes to the bare board.
The PCB is the foundation of your products. It represents a good chunk – about 8 to 12% – of the cost of the bill of materials. While it is the first item needed to begin the assembly, it is usually the last item ordered. That alone can make buying boards stressful.
In my years selling boards and training companies how to buy PCBs, I’ve found it’s not a lack of knowledge about circuit boards that prevents buyers from leveraging their annual spend most efficiently; it’s misplaced loyalty or an aversion to risk.
Strategic conversations are key to sustaining existing business.
The current business environment is creating two significant challenges for mid-tier electronics manufacturing services companies at a strategic planning level. The first is program management workload. Material exceptions have become the norm, and program teams have become highly reactive to respond to changing program variables. Second, material constraints are causing OEMs to keep projects at their current suppliers and push out launch plans on new products. Taken together, planning for account growth beyond what is automatically going in the pipeline based on spikes in existing demand may not be a great use of program management time.
While it is unlikely a significant number of projects will be awarded in the short term, a lot of dynamics in the background make strategically assessing larger accounts an important activity right now. These include:
- The great resignation. While the media may have overhyped it, labor shortages are a reality, and people are moving around as a result. Do you have multiple relationships within each customer’s decision team? If you don’t and your key contact leaves, you will be building a relationship with someone who is viewing your company only from the perspective of the current market.
- Customer chaos. The challenges within OEMs are as great as those within your company. In that environment, they may not be thinking strategically either. Can your company provide services to help address resource shortages within their teams they are unaware of?
- Inaccurate capabilities perception. In a reactionary environment, decisions are made on the fly. In a long-term outsourcing relationship, OEMs can lose sight of the company their EMS provider has become, or assume capabilities are limited to those used in the projects that EMS provider is involved in.
- Growing dissatisfaction. The current market is causing suppliers at all levels to give disappointing news on a regular basis. While experienced supply chain management teams understand what is happening, less experienced personnel may not. If the bulk of program team communication is delivering bad news, or if the ball is regularly getting dropped on issues the EMS provider should be able to control, dissatisfaction levels may be high.
- Cross-company teamwork is high. Many EMS provider and OEM teams are working together closely. The relationships forged offer visibility into opportunities at a higher level than is usually found when team members trust each other.
Given the current workload, the next challenge is determining how this type of analysis can fit into busy schedules. Strategically analyzing larger accounts relative to the dynamics mentioned doesn’t need huge effort.
- Customer contacts. Make a list of the decision-makers you interact with at each key account. If fewer than three, develop a strategy to build a relationship with one to two additional contacts.
- Access what you know about the account. Are there opportunities for increasing the percentage of value-add in the account or growing into other divisions? What are this customer’s pain points? Do they have resource constraints in engineering or production you could help with? Would fulfilling to their end market help free up their team? Is your team doing everything possible to help them with alternate component identification? Has your team failed at anything lately, when they should have performed better, such as in quality, product validation, communication, etc.? Do you have a solution for anything your customer has casually mentioned about new projects or resource constraints? Is the customer aware of your current capabilities? In short, make a list of issues you think would benefit from a focused conversation.
- Address dissatisfaction head on. If your team has fallen down on an aspect of the project they should have been able to control, do an internal review, document the corrective action and present it to the customer as quickly as possible. OEMs forgive issues created by the current market, but they aren’t understanding when they feel internal processes are out of control. The result of this conversation may be improved customer satisfaction, or it may be the realization irreparable damage has been done. Either way, it puts you in a better position to assess next steps with this account in an environment of scarce resources.
- Educate, educate, educate. While it may seem difficult to have a strategic conversation in a reactionary environment, most customers are open to discussions that help solve their problems. An informational or educational approach centered on options for addressing specific pain points is generally welcome. This is also a good way to increase customer knowledge of capabilities or resources. A quarterly business review or similar periodic meeting is one path. If the customer is local, a lunch-and-learn session may be beneficial. If the customer is accessible by travel and open to visitors, a visit with a technical resource may be an option. Ideally, information should open the door to ways your company can better serve the customer and any associated divisions.
When a program manager is prepared, discussions on ways to align solutions more closely with short- and long-term customer needs become easier. Analyzing accounts for opportunities is one way to counter the continuous bad news on the materials front. This type of analysis also helps identify potential vulnerabilities and either address the issue or build the assumption of eventual business loss into the forecast. In the current high-inventory business environment, it is always a good idea to understand which accounts have growth potential and which are quietly planning an exit.
is president of Powell-Mucha Consulting Inc. (powell-muchaconsulting.com), a consulting firm providing strategic planning, training and market positioning support to EMS companies, and author of Find It. Book It. Grow It. A Robust Process for Account Acquisition in Electronics Manufacturing Services; smucha@powell-muchaconsulting.com.
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