2025 could bring demand spikes and component availability tightening. Are you prepared?

Hurricanes Helene and Milton delivered unprecedented damage throughout the Southeast US. Rebuilding efforts will take years in some locations. In western North Carolina, some people lost their homes, their families and their employers. In those cases, it isn’t a matter of just rebuilding a home; they are rebuilding their entire lives. Sadly, while everyone contributes when the disaster is in the news, those contributions stop when the news cycle moves on.

So, before I start my column on the business upside of natural disasters, I encourage everyone to remember the impacted communities. Personally, I’m budgeting to keep giving to charities helping those areas for the next several months. I’m also buying from companies in North Carolina to help local businesses stay in business.

While disasters are devastating for those they impact, there is an upside when rebuilding starts because a lot of things need to be replaced. Utility infrastructure, traffic signals, power management equipment, appliances, vehicles, mobile phones, computers, entertainment systems, production equipment, solar panels, point of sale equipment, security systems, restaurant equipment, industrial refrigeration systems, medical equipment and agricultural equipment are just a few of the products likely to exceed their historical replacement numbers in 2025 as result of these disasters. What does that mean for the EMS industry?

First, while materials availability has improved, there has been some tightening of late and capacity isn’t increasing due to recession fears. A spike in demand is going to tighten availability more. Based on past disasters, some other dynamics are also in play.

• Demand will be driven by insurance and disaster relief reimbursements which may take months. Manufacturers won’t know what demand is until orders come in because not all losses will be reimbursed. Buyers will want products quickly because they’ve already been waiting months while their claims are being processed. EMS providers are the folks at the end of that information stream who must figure out how to build quickly to a changing forecast.
• Manufacturers may opt to temporarily focus on selling lower-priced products to have the widest appeal to people rebuilding. That may change forecasts on configure-to-order builds or temporarily make some component inventory inactive, so just adding some pad to existing forecasts isn’t always the best solution.
• The program management job is going to be a lot more difficult in 2025.

That said, there is a bright side. Manufacturing revenue has been dropping and this will improve it for many EMS providers. Program managers need to approach this proactively:

• Have a serious discussion about 2025 forecasts with your customers. Make sure they know material availability may not be all puppy dogs and unicorns once there are spikes in historical demand.
• Discuss contingency plans relative to product offerings in 2025. Are any factory retooling discussions going on to better shift to the replacement product need? Will that impact the models you are building?
• Identify components for which availability may be tightening. Identify alternates and get them approved. Help customers by providing quarterly updates on changes in materials availability.
• Discuss the results of your forecast conversations with customers internally. Review options for addressing upside surprises in the production schedules. Reconcile any forecast changes against internal plans to draw down inventories. Make sure the supply-chain team is sharing anticipated forecast trend changes with critical suppliers. Also, review whether existing contracts adequately protect against inactive inventory if forecast changes make some models inactive. Internally, discuss whether there should be inventory cost-sharing negotiations if this happens.

Replacement orders will help improve next year’s EMS economic picture. A proactive approach is necessary, however, to ensure this unpredictable demand can be addressed rapidly through normal planning rather than through costly expedites and overtime.

Post-Covid, EMS companies developed strong skills for managing unpredictable demand. Those skills haven’t been needed much this year. It is time to hit the gym and start toning up that skillset because 2025 will likely have the chaotic mix of demand spikes and component availability tightening that requires them.

Susan Mucha 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. She can be reached at smucha@powell-muchaconsulting.com.