EMS Providers, OEM Partners, and the “Golden Screw” Dilemma
A Supply Chain Defined by Disruption
In today’s global supply chain, the “golden screw” dilemma is becoming increasingly common. This is when a manufacturer has completed between approximately 80% and 99% assembly of a product, but for one reason or another, it cannot acquire one specific, critical part to complete the assembly and ship the product to customers. Such parts can be large, or they can be as small as a single screw— or, smaller still, a semiconductor. In these situations, the manufacturer has little choice but to wait until the part becomes available while the nearly completed build sits in a warehouse or factory, taking up valuable space while tying up huge amounts of working capital.
In industries such as automotive, calling this situation common is an understatement. In fact, factoring in the myriad of supply chain disruptions affecting the global supply chain in 2022, it has become the new normal. However, arguably no single group has been more negatively affected by the golden screw dilemma than EMS providers contracted to complete sub-assemblies on behalf of their OEM partners.
While OEMs can struggle to source critical inventory on their own, EMS providers are especially vulnerable due to their razor-thin profit margins. In some sectors, it is not uncommon for EMS providers to operate around a 2% profit margin in an effort to maintain a threshold in an incredibly competitive marketplace. Therefore, when uncompleted inventory is forced to set for any extended length of time, it is not just an inconvenience but a direct threat to the company’s ability to sustain itself.
Complicating matters even further, there often can be friction between the EMS provider and OEM partner regarding inventory purchasing responsibilities. This is especially true in golden screw situations where the EMS provider often simply does not have the ability to re-enter the marketplace unexpectedly to source critical inventory. In these situations, it will often have to turn to its OEM partner and ask them to take on the responsibility, even if it is struggling with tied up working capital itself waiting for the completed sub-assemblies. At best, this could cause minor confusion regarding who holds what purchasing responsibility in the relationship, but at worst, it can over time strain even the most long-standing OEM/EMS provider relationships.
Partstat offers an Inventory Ownership Solution that acts a perfect correction to this increasingly common dilemma.
A Solution for EMS Providers and OEMs Alike
Here’s how it works. First, Partstat will purchase the sub-assemblies directly off the EMS Provider’s balance sheet, instantly freeing up working capital and making their organization whole. Then, Partstat will work with the OEM partner to develop a solution that will secure the golden screw inventory in a way that costs the OEM nothing in upfront costs. Instead, they will pay for the inventory on a payment plan as long as 10 years. This ends the supply chain bottleneck, allows the EMS provider to complete the assembly of the product, and seamlessly puts the OEM in a position to realize their investments getting their designs to market. In short, everyone gets what they want. So see a real-world example of how our solution plays out, make sure to read our case study.
In many ways, there is no other solution in the supply chain industry that addresses this specific problem, and EMS providers have taken notice. In fact, Partstat has offered this exact solution to some of the largest EMS providers in the world with great success, freeing tens of thousands of dollars of working capital in the process.
If your EMS provider finds itself struggling to find golden screws, contact us to see how we can help. Chances are, we can tailor an Inventory Ownership Solution that is perfect for your needs.