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Excess inventory is a ubiquitous issue in the electronics manufacturing services (EMS) industry and is made worse by the complexity and volatility of the modern supply chain. Considered an unavoidable cost of doing business, unchecked inventory cost has wreaked havoc on manufacturers without strict controls in place to keep their businesses safe. Excess inventory is not only costly for manufacturers themselves, but also for their end customers. Unwillingly, manufacturers are sometimes forced to eat this cost to avoid disrupting relationships with their customers and with the hope of making up the losses in next year’s orders from the customer.
The other end of the inventory position is also a serious problem. While excess inventory can tie up much-needed capital, a lack of necessary inventory can prevent an EMS company from shipping assemblies to their customers. In fact, missing just one part can have a significant impact on the amount of capital tied up in partial kits waiting to be released to the production floor, or in incomplete work orders. The adage, “The most expensive part on the BOM is the part you don’t have,” became popular during the MLCC shortage of 2018 and has continued to ring true during the latest round of supply chain constraints.
Supply chains and markets experience normal fluctuations, so this type of excess and shortage situation is not necessarily unique. But the impact on OEMs and EMS companies seems to be much more extreme than the normal ebbs and flows of a market. This is because even when the market in aggregate has sufficient supply, the right components aren’t in the right places at the right times.
Continue reading this article in the November 2022 issue of SMT007 Magazine.