Barbara, Your article hits a home run with me. OEMs have handed over too much control to the EMS companies but this was not by choice; more by necessity.

Adopting the EMS model was a necessary step for OEMs because it helped them respond to financial pressures. It took a huge portion of fixed, undifferentiated cost (the factory) and made it variable. It brought other advantages like better inventory turns, improved cash, and access to the latest manufacturing technology without R&D investment. It also provided cost reduction.

Continuous competitive pressures on OEMS have forced them to keep overheads thin as any overworked supply chain professional can attest. The result has been that the EMS relationship has not had the detailed attention that is required. Add to this the lack of transparency in electronic component pricing, undetected data errors and demand volatility and you get the situation you describe.

Lytica's business is essentially to untangle this and help OEMs get cost reduction. We do this with our consulting, cost reduction services and software tools like freebenchmarking.com. As a third party, we do this without increasing the fixed costs of the OEM to fill the void that has been created. Companies feel the impact of this void with higher product costs and inventory charges. Like with many illnesses, many companies are sicker than they realize.

Given the situation, here are some recommendations that help address the issue:

1.       Make sure you operate with your EMS provider using a price book the clearly identifies each component price and the level of inventory by component. Price books should be updated at least quarterly.

2.       With each price book release,

a.       Make sure that the change in inventory levels is consistent with the demand that you have been driving

b.      Mitigate all price increases. Verify with the component manufacturer that there has been an increase in price at the level reflected in the price book. Act on the findings

3.       Benchmark your material pricing regularly to identify out of line priced components. Negotiate with the manufacturer to get better pricing on these out of line devices and make sure these new prices are used in the price book.

The steps to getting this under control are simple; doing it with too little resource makes it hard.