Midmarket EMS provider partners with distributors
By James Carbone -- Purchasing, 6/12/2008 2:00:00 AM
• Microboard Processing Inc.
Size: $30 million • Business: Electronics manufacturing services provider offering board assembly, prototype builds, systems assembly • Employees: 165
CEO Craig Hoekenga has bold plans to grow Microboard Processing Inc.'s (MPI) revenue from about $30 million to more than $80 million in two years. If he succeeds, some of the credit will have to go to MPI's sourcing strategy that focuses on distributors.
Use of distributors has helped the company reduce its inventory levels. Distributors hold inventory for MPI, an electronics manufacturing services provider. MPI buys much of its production materials from distributors, says Stacy Howard, vice president of supply chain. In 2007 that amounted to about $20 million. Distributors provide bonded inventory for MPI and hold the inventory until MPI gets an order to build a system, he says.
MPI, based in Seymour, Conn., builds boards and systems for military, aerospace and medical equipment companies. Among the systems it builds are communication systems for the Air Force and jamming devices that thwart radio-controlled improvised explosive devices (IEDs).
"We have about 23 customers, but only about eight or nine active ones," says Hoekenga. Customers include Telephonics, Syracuse Research, Difibtech and Pitney Bowes.
It recently received a $40 million defense contract and is also looking to grow its customer base.
MPI will also scale up because some large EMS providers have closed factories that were servicing customers that had revenue of "$20 million or less and that is our sweet spot."
He says because of consolidation "a lot of our competitors are gone. There is a good opportunity now to grow the business."
MPI plans to go after more commercial business. "We don't want to be too heavy in any one area," Hoekenga says.
MPI also hopes to capture some business that is coming back to North America from low-cost Asian countries. Some U.S. manufacturers are returning to the U.S. because of total cost of ownership and logistics issues involved in building in China.
While labor costs are still cheaper in Asia, some companies don't want to deal with higher transportation costs and the language barrier in China, he says.
Hoekenga says as his company grows, it will continue to purchase from distributors because they have been very supportive. When MPI went from a repair business to a manufacturing model about 15 years ago, the company could not get a line of credit from financial institutions.
"Distributors financed us," he says. "We told them who our customers were and what we needed and they financed us. Because of that we told them we would always honor our relationship."
Hoekenga says that does not mean MPI doesn't negotiate hard on price with distributors. "But we let them do what they do well and we don't have to carry a lot of inventory."
Howard says MPI uses large distributors including Avnet, Arrow, TTI, Future and Digi-Key.
"We try to focus the majority of our buys through distribution unless the volume is significant enough to go direct," he says.
Distributors provide bonded inventory to MPI and forecast its requirements by using MPI's purchasing history. "Avnet has a local warehouse where they store parts and they can deliver daily to us or multiple times daily," says Howard.
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