The materials cost of goods sold (MCOGs) is between 75 percent and 85 percent for the average electronics product. There’s no doubt best practices in procurement and tight inventory turns helps electronics hardware companies compete in the marketplace, especially with launching non-unique devices (think: white box ODM cloud servers) where price and features/functionality drive purchase decisions over brand awareness.
No doubt, effective enterprise resource planning (ERP) is important.
Below I highlight some industry best practices for specific materials-focused functional groups within EMS providers, along with key responsibilities (and some of the challenges these groups face), which can have a direct impact on effective materials management in a fast-paced outsourced electronics manufacturing environment.
Procurement and materials management performed by an EMS provider is different from purchasing and managing components performed by most process-intensive OEMs. To highlight this difference, let’s compare an EMS provider to, say, a chemical manufacturer.
It’s not uncommon for providers to source 2,000 different components to produce 500 printed circuit board assemblies. Whereas, the chemical manufacturer may source only six to ten elements to produce hundreds, or even thousands, of different chemicals. There is a big difference in the number of required components v. elements.
Let’s look at the triggers in the EMS provider that helps drive the sourcing decisions and related activities enabling providers to produce those 500 PCB assemblies. (Read: How to drive costs out of your EMS manufacturing program)
The EMS provider team is made of the following personnel and site functions, including; a master scheduler, planning, materials and component buyers in the purchasing department; warehouse receiving; stock room, backflushing / kitting, cycle counting, a materials review board (MRB) and materials scrapping. (See also: Tips and articles about planning and purchasing strategy)
Examining some of the responsibilities above help form a wider scope of understanding how various materials-based groups work together to move an OEM’s program through this portion of the supply chain. (Providers: Submit your company in our EMS Resources Directory Marketplace)
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The master scheduler
Incoming (arrival of) the OEM customer order is considered the de-coupling point for active materials management in the scope of the greater OEM-EMS relationship.
EMS providers, in turn, use materials requirements from OEM orders as the tipping point that nudges the EMS provider master scheduler into action.
Some questions the master scheduler needs answers to include: Where do I start ‘pushing’ materials and, where do I start ‘pulling’ materials?
Where:
Pushing = Inputting the OEM forecast to drive [OEM] material requirements
Pulling = Putting in the purchase order (PO) to drive EMS material responsibility while minimizing business and materials risk at the provider.
To understand the role of the EMS provider master schedule, see below for purchase order demand being placed into the system.
Role of the EMS buyer
EMS buyers then make commitments to the OEM program’s supply chain. Some questions EMS buyers need answers to include: What do I run the risk on (when buying) and, what do I have actual purchase orders in-hand against?
This is where the approved vendors list (AVL) comes into play. In larger, vertically integrated EMS providers the supply chain management team may put together the AVL. Whereas, in smaller providers the customer usually puts together the AVL (mainly because there is little to no reward for small EMS providers to put in this type of effort)
In your search results you can further target other Industries and/or Services plus, you can add more geographies to your search.
Purchasing and the role of procurement in EMS providers
EMS purchasing then places the materials orders in-line with enterprise resources planning (ERP) and works against the desired quantity of materials needed, along with the dates and other deliverables required.
SEE ALSO
How to reduce costs from your EMS manufacturing programs
Best practices for EMS manufacturing RFQ quotes
EMS Manufacturer internal cost vs OEM quoted fees vs OEM target price
Receiving (warehouse)
The EMS warehouse manages its own set of books (receiving and recording) on items received. The warehouse typically targets full completion of receiving transactions within 24 hours of the materials’ arrival. But as with a lot of things in life, things can go wrong.
To help manage this, receiving must work to actively manage an area in the warehouse that some providers refer to as the ‘challenge shelf’’, a specified warehouse location, typically a shelf, where materials with unresolved issue(s) are stored, such as:
- No PO in the system
- Part number (P/N) does not match PO
- Greater quantity v. quantity identified on the packing slip
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