Last Time Buys: The Offering EMS Providers Need

The last decade has seen a drastic increase in the responsibilities taken by EMS providers. In addition to final assemblies, they often play a vital role in finalizing the OEM product’s design, sourcing cost-effective parts and processes that may be more beneficial to their customer’s bottom line. In some cases, they can even use their experienced engineering staff to recommend improvements that can enhance functionality and efficiency. With such synergy, one could even argue that the line between EMS provider and OEM is increasingly blurring; the more responsibilities are shared, the more they function together as one inseparable unit.

There is one aspect of the EMS provider-OEM relationship, however, that has not remained in line with the rigorous demands of today’s manufacturing industry: the handling of last time buys.

As lifecyles of OEM products continue to lengthen, the more strain manufacturers feel in acquiring the components necessary to complete them. And with the current OEM market demanding smaller, more powerful, and more efficient electronics in their designs, component manufacturers are continually shortening the lifecycles of their offerings. As a result, last time buys have quickly gone from being a worst-case scenario to a way of life.

With so many shared responsibilities between OEMs and EMS providers, deciding who is responsible for carrying out last time buys often can be a point of contention. EMS providers, due to their proximity to suppliers in the supply chain, are usually the first point of contact when a component is approaching end-of-life. Such developments are unexpected, and often they even come with an immediate last time buy date.

The highly competitive nature of the industry has not been kind to EMS providers from a financial standpoint. In order to attract and maintain working relationships with OEMs, the market dictates that they operate on extremely slim profit margins, often as low as five-to-six percent. This makes unexpected last time buys, especially sizable ones, extremely difficult for EMS providers to afford without risking their company’s financial well-being.

When such a situation arises, the EMS provider is left at a crossroads. On one hand, they can choose to put the last time buy on their own books; on the other, they can inform their OEM partner that a last time buy is necessary and request they make the purchase. While profit margins are larger for OEMs, the component shortages currently plaguing the market are making working capital reserves an equal concern for them. Too often, the debate over who ultimately should make the last time buy is tense, and not only can it fracture even the most long-standing partnerships, but once the matter is resolved, it may already be too late. Should a last time buy date pass without action, the only option left for all parties is to either commit to a product redesign, or prematurely discontinue the product entirely. Both options come with consequences that have the potential to be disastrous — for consumers, for OEMs, and for EMS providers.

In today’s market, EMS providers need to adapt by offering comprehensive last time buy strategies that will retain OEM customers across multiple products without harming their own long-term goals for expansion and profitability. Such offerings are rare among EMS providers, and the sooner they are implemented as a standard service, the more they will work to help them stand out from the competition. OEMs realize what a disruption a delayed last time buy can cause, and as soon as they realize what can be done for them, their choice of which company will help make their next design a reality becomes that much simpler.