Real-time Strategies to Offset Soaring Expenses

Estimated reading time: 2 minutes

Supply chain, distribution, and price inflation are headline news topics these days. To better understand how EMS companies do—or could—respond to pricing pressure from input costs, we asked both EMS industry company representatives and EMS equipment manufacturers to comment on how the industry can respond to current pressures.

Q: How is your company adjusting to the pricing changes you see on your input costs? Are you still absorbing any price increases or passing them along to customers now? What other adjustments are you making?

Charlie Capers, vice president and general manager at Zentech, an EMS provider located in Dallas, Texas, shares that, as an EMS provider, “Prices are changing by the hour these days and what you quoted a week ago has probably changed. Since we are the manufacturing extension for our customer, we typically must pass the additional costs along to them. Margins are razor thin these days, so if the PPV is ±1% then we possibly will want to re-quote to capture the additional cost.”

MEC/Screaming Circuits is based in Milwaukie, Wisconsin, with Duane Benson leading the marketing out of the company’s Portland, Oregon office. He shares a similar perspective, saying, “We absorbed prices where we could and for as long as we could. We have had to pass along direct materials cost increases for a while now, but until recently we absorbed most cost increases related to indirect sources. At some point, though, the expectation is that we all will share in the impact. We've found that the best approach is to keep our level of service up where we want it and support a solid long-term relationship with our customers.

“Entering into this market trend, then, with margins so tight to begin with, it seems there wasn’t much room to absorb the costs. So, we turned the questioning to upstream suppliers to see what’s happening with pricing incoming from suppliers.”

As a manufacturer of equipment for EMS assembly, Manncorp President Henry Mann faces a different set of challenges, sharing with us, “As Manncorp has faced pricing changes, we have not passed the increases onto our customers directly. Each year, we update our pricing after evaluating the big picture. Our products (SMT equipment) are of a more stable nature than many products on the market, and this allows us to issue price changes only when absolutely necessary.”

Q: How have your upstream suppliers adjusted to pricing changes? For example, are they still absorbing the costs, or passing them along to you? What other adjustments are they making?

“Typically, when we issue a purchase order using our quoted cost, the supplier may make slight adjustments based on the current market price,” Capers says. “We adjust our purchase order accordingly. If the PPV is negligible, then we may choose to absorb the additional cost. The main issue we are dealing with now is lead times. Pricing on some items has remained fairly steady, but lead times are extending 52-plus weeks on certain component types.”

To read this entire conversation, which appeared in the February 2022 issue of SMT007 Magazine, click here.