EMS firm focuses on customers, flexibility in its buying

David Hannon -- Purchasing, 4/20/2006

Flexibility and customer focus are a big part of the electronics manufacturing services (EMS) industry. But at a midmarket EMS, flexibility and customer focus need to be at the core of everything it does-especially procurement.

Surface Mount Technology (SMT) is just such a midmarket EMS company. The 130-employee firm in Appleton, Wis. was founded in 1997 by Christopher C. Sumnicht with the midmarket customer in mind. After working in the EMS industry for a number of years, Sumnicht felt that only the largest manufacturers were receiving the best contract manufacturing from the largest EMS players-he wanted to start a company that could bring those services to companies of all sizes.

Today, Red Fleiner is the materials manager at SMT, which builds board-level components and subsystems for a wide variety of industries-from consumer electronics to industrial controls. As the top buyer, Fleiner says the company's purchasing is very project-based and needs to be flexible enough to meet customers' demand fluctuations both in volume and product design.

"Our business is very much low-volume, high mix," says Fleiner, who reports to the director of operations. "Some materials we buy are delivered only once each quarter and others come in the thousands of units per week. Our customers cannot put in firm commitments far out, so we can't buy volumes too far out."

To ensure the SMT's purchasing organization is customer-focused, Fleiner says the company's five buyers are not aligned by commodity or spend area, but rather by customer. Each buyer is responsible for a series of customers and their products/projects, which includes buying any and all materials required for those projects. In this organizational model, the buyer has a sense of what procurement decisions will help not only the product being built, but also meet the long-term needs and requirements of the customer it's being built for.

Ron Prellwitz, purchasing and materials specialist at SMT, says buyers typically spend the majority of their time focused on sourcing the high-end materials and buy most of the low-end parts through distributors. In fact, SMT buys up to 70% of its parts from distributors.

"Because we're so customer-focused, we need to be flexible and buying through distribution usually provides that flexibility-distributors should be able to deal with our fluctuations," says Prellwitz.

But not always, especially in times of increased demand. Recently, SMT has had problems getting the volumes it needs from distributors when they were needed.

"One of our largest distributors was just not focused on carrying adequate inventory," Fleiner says. "When we have stock-outs we have to devote more of our resources to the issue. In this case, we had to work with this distributor for six months to make sure they were carrying enough inventory to support us."

To streamline the flow of materials it buys regularly, SMT instituted an MRP share program with three of its biggest suppliers five years ago, including the top three distributors. With this program, suppliers can see any changes or fluctuations in SMT's demand and schedules and adapt as needed.

One of the major advantages to any midmarket company is its ability to agile and respond more quickly to customer demand. And that holds especially true in the customer-intensive EMS industry.

To make sure the top managers at SMT are on the same page, Fleiner meets weekly with the company's president, vice president of sales and the director of operations. "We discuss various issues, including but not limited to purchasing issues," he says. "We also publish to the same group a monthly purchasing performance report detailing purchase price variance, supplier performance, job completion performance, as well as other pertinent materials measurements. On a quarterly basis or more often if needed, we publish and hold discussions regarding electronic component market updates."

Karen Walenski, a buyer at SMT, says more customers are coming to SMT for finished products, rather than just board-level components. While this is a good thing for SMT's overall business, it means buyers need to find a broader range of suppliers to make those products.

Walenski and Prellwitz have also spearheaded a project at SMT that demonstrates the flexibility required by buyers at a midmarket EMS firm. They analyzed the company's materials use and storage and found that for some very low-cost parts, it was more cost-effective to keep a small inventory bin on the manufacturing floor, rather than in a stockroom. It was simply not cost-effective to have a highly-trained technician spend the time to walk across a floor to sign out and pick a part that costs 1¢.

"[Having parts on the floor] eliminates filling out forms and transactions and handling," says Prellwitz. "We have been doing that for a quarter and eliminated close to 2,000 forms that would have been required. The time it takes to pick jobs and put materials in kits has been reduced by the amount of inventory we now put in the production area. That's a real value. And because she's a buyer, Karen understands the value of parts and can make the most cost-effective decision."

Like many other procurement organizations today, the purchasing team at SMT is working more closely with engineering to ensure its designs and products meet customer needs in the most timely and cost-effective way.

"For example recently, a member of our engineering team came to talk to me about changing an assembly to be RoHS-compliant," Prellwitz says. "Engineering wanted to know which component suppliers would work best in that design and I worked with them to provide that information up front," which undoubtedly saved a lot of potential headaches down the road.

Benchmarking best practices at a midmarket company is always a challenge-is it better to take the best practices of a larger company and try to apply them to a midmarket firm, or look for companies of similar size with cutting-edge strategies?

"We typically look at companies the same size or slightly larger than us for best practices in procurement," say Fleiner. "What works for a huge company often won't work for us. We have to be more agile than the larger companies."