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Vanity metrics and inventory turns in EMS manufacturing

By Mark Zetter

EMS spend on OEM materials and management of MCOGs is a big part of EMS manufacturing but inventory turns is a vanity metric easily manipulated. No EMS provider today is using available technology to identify ‘actual’ turns for optimal customer materials management.

Tier-1 EMS providers Jabil and Flex both claim they have unrivaled insight into managing customer materials and their respective supply chains but neither provider can identify, and effectively track, one OEM customer’s purchase orders against stockroom inventory (consigned v. turnkey), components/WIP on the production floor v. FGI and, assigned and accurate materials overhead costs up to these points in the operations supply chain followed by assigning specific (and accurate) costs charged to that specific customer plus, at least a dozen other EMS materials purchasing and manufacturing operating overhead and carrying costs EMS providers should be able to present to each customer.

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As more EMS providers diversify and position themselves to try to differentiate their EMS offering to combat an increasingly challenging business model inventory turns becomes more important.

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Measuring EMS WIP (as % raw materials)

Few EMS providers are managed effectively and even fewer have customers with easily forecasted markets so getting accurate figure for turns remains a moving target for every EMS provider today.

 

“Technology exists today for any OEM customer to ask their EMS partner what are my inventory turns for program ‘A’, right now, on any given day at any time. Providers should be able to provide accurate info with great detail within minutes but habitual EMS thinking is preventing EMS industry from moving outside its comfort zone.”

— Mark Zetter

 

It is possible for EMS providers to inform every OEM customer what that OEM’s inventory turns are for any given OEM program on a program-by-program basis at any point in time.

But getting there requires technology not familiar to EMS executives and this fear of change and habitual EMS thinking is limiting EMS provider from serving their OEM customers more efficiently and effectively. Think: time savings and cost savings.

Determining accurate inventory turns not only helps EMS providers better serve OEM customers, doing so also frees up EMS working capital and lower EMS provider COGS means better EMS gross margins which translate to higher stock prices for investors and EMS provider companies.




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