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EMS Providers Face the Same Supply Chain Risks as OEMs

Many electronics OEMs spend considerable time and devote considerable resources identifying and eliminating risks in their supply chains.

Often, they rely on their electronics manufacturer services (EMS) providers to help them reduce risk because EMS providers are in a unique position in the supply chain. They often have dozens of OEM customers and thousands of suppliers. With such a view into the supply chain, EMS providers can see potential supply disruptions developing before their OEM customers do.

Erich Hoch, chief supply officer for EMS provider Jabil Circuit, based in St. Petersburg, Fla., says many EMS providers face the same risks as OEMs. Those risks include continuity of supply driven by geo-political events, sourcing option constraints, leadtimes, quality issues, compliance to environmental and other regulations, and suppliers’ financial instability.

An EMS provider’s risk isn't greater than an OEM, but it is more "complex given the nature of the business as an aggregator" in the supply chain, says Hoch. An EMS provider combines similar component requirements of OEM customers in different industries and buys a wide variety of parts using a large number of suppliers in diverse geographies, he explains.

“The benefits of this aggregation are deeper supply chain knowledge and greater visibility,” says Hoch. “At the end of the day, we should be better than OEMs at risk mitigation.”

“At the end of the day we should be better than OEMs at risk mitigation,” says Eric Hoch, chief supply officer for Jabil Circuit.
He notes that Jabil has dedicated, focused resources that monitor, manage and mitigate risk. The company has developed supply chain software tools that enable it to not only react quickly to disruptions in the supply chain, but also to proactively identify and mitigate potential risks.

To identify risks, Jabil looks at the "different attributes of the supply chain,” including the origin of parts, sourcing options such as whether a part is single or multi-sourced, the status of the supplier (whether the supplier is strategic to Jabil), and part change and leadtime risks.

“Through our tools, we have a systemic, proactive methodology to identify, classify and prioritize risk,” says Hoch.

Everyone’s Business

At EMS provider Sanmina, headquartered in San Jose Calif., “everyone helps manage risk to some extent,” says Troy Hiner, vice president of supply management.

“We have our own extensive market updates, which we build and share with all Sanmina teams. But to help identify risks, we also pull in data from the supply base, from all regions of the world, industry market resources, the news media, our front line procurement teams, our sales teams, and our customers,” he says.

Every risk is unique and can affect a different piece of Sanmina’s business, according to Hiner.

“Some risks pop up quickly, like issues created by natural disasters or transportation strikes, while some concerns are always in the background, like the problems the industry is seeing with North Korea right now,” he says.

Regardless of the type of risk, long-term strategic planning coupled with “the ability to quickly address an unforeseen issue” is imperative to mitigate risk, says Hiner. Strategic planning includes having multiple sources and parts and "regional diversity” of supply, he adds. Hiner notes that contingency plans are crucial in helping to reduce risk and guarantee continuity of supply.

“To identify risks, we pull in data from the supply base, from all regions of the world, industry market resources, the news media, our front line procurement teams, our sales teams, and our customers,” says Troy Hiner, vice president of supply management at Sanmina.
“However, you just can’t plan for everything that could possibly happen,” he says. For instance, an EMS provider may have multiple sources for a semiconductor. However, if the facility of a resin supplier that provides material for the semiconductor package gets damaged by a flood, manufacturing of the package material can shut down and disrupt production of the chip.

“That’s why you need long-term contingency planning, established supply partners, and a team that communicates well and works together closely to come up with a solution to attack an issue the very instant it occurs.”

EMS providers say certain commodities have more risk than others depending on their manufacturing processes and the amount of customization required. Often custom parts have single sources.

“I am very concerned with single source strategy, and therefore those components have a much higher visibility in our company” in terms of risk, says Hoch.

Besides having multiple suppliers for a part, Jabil also diversifies its sourcing locations. The EMS provider tries to make sure crucial components are built in different geographies. So if a disaster strikes one location, the part is available from a facility in a different region.

Jabil also maintains “intelligent safety stock levels and continually sweeps bill of material (BOM) data for multiple pre-selected attributes and then identifies and prioritizes types of risk as well as potential revenue impact to customers and ourselves,” says Hoch. “Our experts develop an action plan and work it proactively.”