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Electronics Production | April 10, 2008

OEM & EMS have different<br>distribution requirements

Electronic distributors have to accommodate different needs of OEM and EMS companies.
OEM companies mostly look for design services, components and supply chain design. EMS providers on the other hand are much more price conscious and look for rebates or extended payment terms. However, what both have in common is the need for high-quality, flexibility and on-time delivery.

OEM might move their production to Asia, but they will have a margin to accommodate for distributors to retain their demand creation margins. They also need more design services.

EMS providers will need inventory management, as this is vital to their profitability and customer service. Most customers will have different requirements, which makes inventory management a challenge. This is where distributors come in. The more customers an EMS manufacturing location has to serve, the more support do they need in inventory management.

OEM companies have multiply product families, each with a different forecast. The production is mostly outsourced to EMS-providers. EMS companies now will have to deal with different customers, different products and different forecasts.

As they are removed from the consumer, they will have to react quickly when a forecast is wrong (in either way). If the demand proves higher that the forecast predicted, EMS has to rely on distributors for inventory management. If it is less than predicted, the distributor has to hold inventory for a certain time.

As many OEM companies outsource production the need for inventory management is marginal, although most of them like to control supply chain management. They might have a number of EMS-providers and want to store critical components in a central storage facility. Distributors will take on the role of central storage and inventory management will be a lot easier.

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November 20 2018 6:51 pm V11.9.5-1