EMS Providers: What Could You Do With Extra Working Capital?
EMS providers commonly operate on profit margins in the low single digits. Just to remain competitive, they are often forced to walk a fine line where a few unexpected expenses can mean the difference between profitability and total insolvency. This can be fixed with the help of a Partstat EOL Last Time Buy Solution, which allows EMS providers to seamlessly transfer the obligation of paying for last time buy inventory to their OEM partners. This way, the OEM can take advantage of payment terms as long as 20 years with drastically reduced annual carrying costs, and the EMS provider can instantly improve their cash flow.
But what can an EMS provider do with their newfound working capital? Especially if the provider implements a go-forward strategy where all future last time buys are handled by Partstat, there isn’t as much of a need to preserve working capital to overcome an unexpected obsolescence issue. To date, Partstat has preserved over $150 million in working capital for its customers; that’s a lot of additional money that could be put to work increasing ROI.
Below we have a few suggestions for what an EMS provider might decide to do with their newly freed cash flow:
1. Retain Current Employees, or Hire New Employees
In the throes of the COVID-19 pandemic, where many companies were either forced to furlough or lay off large swaths of their workforce, this might be the first consideration EMS providers have. Also, as a degree of normalcy returns following vaccine distribution, many companies may be soon in the market for new hires at the same time, which will rapidly diminish the labor pool. To consider the best candidates looking for work, an EMS provider should start looking for new talent sooner rather than later.
2. Expand Offerings
Competition for EMS providers remains extremely high, and those who will be in the best position to attract new OEM partners will be those with the widest offerings. Investment into increasing scalability and improving infrastructure would go a long way toward making large-scale OEMs take notice.
3. Automation Investment
According to many experts, EMS industry technology trails OEM technology by approximately 18 to 24 months, and one of the most significant areas they are lagging is in the incorporation of automation into their processeses. An investment into improving on this front would allow an EMS provider to highlight drastically decreased program ramp-up times and exponentially increased product output to potential OEM customers.
Critical to any successful supply chain is a commitment to transparency among all levels. This can only be followed through, however, if the EMS provider has the digital capabilities to integrate with their OEM partners’ systems so that critical information can be viewed and shared. Companies that can demonstrate their ability and willingness to do this are going to have a significant advantage in the marketplace.
5. Wage Increases
It is never a bad idea to re-invest in the team most responsible for a company’s success. Even moderate increases have been proven to help foster a positive workplace culture and increase company loyalty — not to mention increase productivity, according to several recent studies. In times of hardship such as the one currently being experienced, this is no insignificant thing.