Inventory Tug of War Breaks Out Between EMS & OEM Firms

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Westlake Widget
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Stock Keeper
Re: Tug of war
Westlake Widget   11/16/2011 1:50:19 PM

In my job I serve several industries and this is a common problem which has grown worse over the years as demand drops and companies try to keep the doors open. The most successful companies have adopted lean manufacturing from head to toe - not just lip service! These are the companies that build to ship, not build to shelf and pray for an order to ship.

I'm not a lean consultant, but it is an interest of mine. Most manufacturers I know say, "It won't work with our kind of product." I just smile because I'm often selling to their lean competitor. When I probe about their production process they lack even fundamental knowledge of how long it takes to produce their product or the set-up time on a machine. "We make 20 widgets a shift is not the answer to how long to produce." It just tells me what you are accepting.

This lack of knowledge is solved by MRP - carry enough inventory and enough work-in-progress and enough finished goods and you will always be prepared. It's like an overweight marathon runner carrying all they energy they need for the race around their gut!  In the mean time, the lean mean runner replenishes on the go.

MRP drives the buying, stocking craziness most companies are fighting.  For those companies that manufacturer for a living (a rare breed in the US ),  put your money into understanding and streamlining your process and your inventory situation will greatly improve.  Yea, I know.  You tried lean and it doesn’t work with your product mix/company/situation/customer base/whatever.


Barbara Jorgensen
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Tug of war
Barbara Jorgensen   11/16/2011 8:48:12 AM

Great post about a classic situation. Are there other markets in which inventory ownership basically pits suppliers against their customers in a potentially ugly battle? I'm going to think about this--there must be--but it doesn't seem like a great system. Readers?

Then again, I'm not sure I can come up with a better one either.

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Supply Network Guru
Tug of War
saranyatil   11/15/2011 1:36:01 AM

Every one is playing safe at this moment and no one is ready to compromise as you mentioned EMS companies should team up and enforce some rules such that OEM's dont incur loss to EMS companies.

Suppose if thet indent for high quantity and are not buying the stock OEM's need to bare a hig premium for the inventory.

If some rules as such are set in then it would be good for both OEM's and EMS where they will not mess with the inventory budgeting and numbers.

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Supply Network Guru
Jay_Bond   11/14/2011 7:22:44 AM

I think the only way this could work out and benefit both EMS and OEM firms, is to have an across the board change. For the EMS to ask the OEM to pay the extra money for increased inventory, all EMS companies need to do so to prevent OEM's from shopping around and leaving a few companies high and dry. If the EMS firms can't stand together, some will lose serious business while their current customers flock to another EMS.

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Supply Network Guru
TaimoorZ   11/14/2011 6:43:01 AM

I think when OEMs are pushing contract manufacturers to hold more inventory, it makes sense that OEMs pay for the additional cost of storage as well as for the opportunity cost of the capital tied up in stocks. It would be unfair on the part of EMS if OEMs do not take care of these costs, unless this has been agreed in some contract.

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Supply Network Guru
Nemos   11/13/2011 4:28:30 PM

If I get it correctly the OEMs wants to have a big and sufficient stock to serve their consumers but from the other side, the EMSs doesn't want to have a stockpile, and they ask from the OEMs to pay for it.

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