OEMs demanding more cradle-to-grave product management from their EMS partners may be leading midtier contractors toward a new wave of supply chain process upgrades.
The scope of the issue is under examination by the National Electronics Manufacturing Initiative Inc. (NEMI), an industry group based in Herndon, Va., that is conducting a survey of OEMs and EMS providers aimed at improving product lifecycle information management (PLIM).
The information will be collected at this week's APEX 2003 show in Anaheim, Calif., and will be featured as part of NEMI's biannual roadmap series, according to NEMI president Jim McElroy.
Gaps in information can become amplified as data traverses the supply chain, leading to problems with component sourcing, product design, and supplier and product portfolio management, all elements of PLIM, McElroy said.
"PLIM is a process issue," said Mike Hegedus, vice president of supply chain management and sourcing at Elcoteq Americas, the Irving, Texas, division of Finnish EMS provider Elcoteq Network Corp. "The two parts of the product lifecycle that are most critical are new-product introduction NPI and the end-of-life phase. Volume production in the middle is fairly straightforward. It's going up the curve and down the curve that are the problem."
Sometimes the information breakdown can be as fundamental as a failure to adequately define products, said Kevin O'Marah, an analyst at AMR Research Corp., Boston.
"What is meant by the bill of materials, or this part number or that part number?" O'Marah asked. "To the extent that electronics manufacturers can get good at communicating clearly about product definition, they can accelerate the supply chain."
Not easy for the midsized
Top-tier contractors like Celestica, Flextronics, Jabil, and Solectron generally have well-developed PLIM programs at their largest customers, according to Randall Sherman, an analyst at New Venture Research Corp., Nevada City, Calif. Rather, it is midsize EMS pro-viders serving a more diversified client base that are more likely to be PLIM challenged, he said.
"Midsize contractors want to be able to offer the whole cycle--NPI, product launches, ramp-up to volume, and end-of-life projects along with maintenance and repair," Sherman said. "PLIM is part of capturing the total manufacturing cost-of-production cycle. Midtier EMS companies that can manage that will increase their value proposition."
In many cases, contract manufacturers receive incorrect information from OEMs regarding products that are nearing end of life, which can hamper PLIM efforts, according to Elcoteq's Hegedus.
"The customer will say, 'On this date, you should have X amount of inventory.' If you run short, you will have customer service problems. If you have too much, the company will be upset that you have excess inventory," Hegedus said. "It's something that really requires a lot of attention."
Talking to one another
The best way midtier EMS providers can minimize PLIM concerns is through constant communication, said Tony Musto, vice president of sales and marketing at Reptron Manufacturing Services, Tampa, Fla.
"Direct meetings with suppliers, our distribution network, and field-applications engineers are very important," Musto said. "We're also in face-to-face contact with our customers every week."
David Hochenbrocht, president of EMS provider Sparton Corp., Jackson, Mich., said his company addressed PLIM concerns three years ago with proprietary software tools.
"We have a new NPI process that all our new customers and contracts go through, which is part of the PLIM process," Hockenbrocht said. "We collect the information through a software protocol that we wrote for our own use. PLIM is a problem for most midtier contractors because they've never developed the process to deal with it."
Elcoteq's Hegedus said midtier EMS companies must better determine which components within the bill of materials are the long-lead parts and the more expensive parts, and then improve their strategies to better secure those materials, particularly for end-of-life products.
"That's harder to do, because you're not getting a forecast," he said. "With spare parts, you have to use data from field failure rates or guess how much inventory you need to hold."
In most instances, midsize contractors can use PLIM to determine how many components to order when a device nears the end of its life.
"If you guess wrong, you'll have to go to a distributor that specializes in hard-to-find parts and pay a premium," Hegedus said. "Those are some of the sticky strategic issues that EMS providers face."
Scott Hudson, an analyst at iSuppli Corp., El Segundo, Calif., said PLIM speaks to the basic need for better communication between OEMs and their EMS partners.
"There's a terrible disconnect between the two groups," Hudson said. "It affects your ability to get the right forecasts and product change orders, which can set off a whole chain of terrible events."