Circuits Assembly - November 2007 - (Page 22)

Focus on Business In the ideal situation, potential excess cost is addressed in the quote and in the manufacturing agreement. Customers can then sign up to liability for excess material that results from procurement practices aligned with their forecasting practices, but wouldn’t have liability for any material purchased outside of the agreed upon forecast windows unless specifically authorized. In the Fawn example, a material authorization agreement is required to be signed by the customer anytime liability exists or increases. There is generally a time limit on how long excess will be carried without reimbursement. This process provides customers with visibility into liability cost potential at all times. Greater visibility often increases the options for inventory liquidation rather than write-off. It is also important to remember the contractor has responsibilities in minimizing liability. Material handling and storage strategies can inadvertently convert material to NCNR because marked or open packages are generally non-returnable. Some material has shelf life or specialized handling requirements. Proper storage and a focus on shelf life requirements help ensure timely consumption or liquidation. Strategies for resolving excess liability. In highermix production, RoHS conversion and engineering change notices (ECNs) drive the biggest excess or obsolete material issues. Other potential drivers of unexpected obsolescence include SMT packaging trends and continuing increases in processing speed. It is important to have an ECN process that captures impact in pipeline, inventory work-inprocess and finished goods. Cost impact as of the ECN cut-in day must be understood early in the planning cycle, as one option for minimizing cost is to cut the ECN in after the remaining older inventory is consumed. Fawn uses an MRP system that shows inventory data and permits “what if ” analysis, both in terms of customer excess on hand and in the pipeline. It will also permit analysis of likelihood that other customers may consume some inventory. This is done by imploding the part number to determine how many assemblies on which it is used. RoHS conversion also drives strong needs for inventory visibility. The company’s business model uses reports that segregate products that are RoHS compliant and leaded, and then lists orders, raw material on order and raw material on hand by assembly. "Tying excess material liability to OEM forecasting is a win-win for the customer and EMS supplier." Focusing on excess inventory liability minimization. Whether identified or not, excess inventory represents a cost in the EMS service model. If not identified, that cost can be larger than anticipated, and if not absorbed by the OEM whose project drove the inventory accumulation, it can become a cost element passed to all customers in increased overhead. The earlier excess inventory is identified and tracked, the more options are available to minimize its accumulation. In addressing excess material, all options should be on the table. The easiest solution is returning material that suppliers will accept back. As mentioned, in some cases, parts can be transferred to other customers. Brokers may also represent a good source, particularly since unplanned obsolescence often generates a market for niche components. One other option that can be considered is buying lower quantities at a higher price. This can often be quoted as an option in the initial estimate. The RoHS arena offers another option. One Fawn customer that converted to RoHS developed a dual production strategy. It now consumes existing leaded inventory in the North American market and ships RoHS-compliant boards to the EU. Serialized part numbers are used to differentiate and segregate the different product categories. If the project includes repair depot operations, using excess inventory to support repair depot activities may be an option. This is an area where co-located production and repair depot services can be very beneficial. Finally, if excess material has been generated as the result of a project transitioning offshore, the likely need for onshore support or even transition back of bad fit assemblies should be carefully evaluated before a write-off of hard-to-liquidate material occurs. Market issues are driving companies to redesign even lower volume, long-life products more often. Even when an EMS provider discusses potential liabilities upfront, there is often a surprise factor when the issue must be resolved. Clear communication throughout the project life on these issues provides the customer with a range of options for minimizing and/or liquidating excess material. It also makes it easier for EMS providers to track and recoup the costs associated with planned excess inventory and contributes to a more financially efficient system that benefits all customers. ■ 22 Circuits Assembly NOVEMBER 2007 circuitsassembly.com http://circuitsassembly.com

Table of Contents Feed for the Digital Edition of Circuits Assembly - November 2007

Circuits Assembly - November 2007 Contents Caveat Lector Industry News Market Watch Talking Heads Focus on Business Global Sourcing On the Forefront Screen Printing Better Manufacturing Pb-Free Manufacturing from a Tier III EMS Perspective ‘Living Documents, Subject to Change’ Creating Ideal Solder Joints An Alternative Drying Process for MSDs ‘Customer Satisfaction is More than a Score’ Optoelectronic Substrates: Will They Happen? Tech Tips Wave Soldering Process Doctor Test and Inspection Getting Lean Materials World Equipment Advances Product Spotlight Assembly Insider Technical Abstracts Ad Index

Circuits Assembly - November 2007

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