A couple of red flags electronic OEMs should look for when outsource contract manufacturing and sourcing EMS (electronics manufacturing services).
EMS manufacturer explanations for rising receivables are usually inadequate. Its typically bad for electronics EMS providers if receivables are rising faster than sales (relative % for each).
Possibilities for fast-rising receivables might include: OEM customers are paying EMS manufacturer too slowly, which can make it difficult for EMS manufacturers to sustain operations. EMS providers could also be ‘channel stuffing’ or, increasing EMS shipments to customers at quarter-end to help make the EMS provider’s quarter numbers — essentially, stealing from the following quarter could be talking place.
Another red flag for OEMs to look for is high EMS inventories.
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High inventories at the contract EMS manufacturer could mean the quality of product manufactured by the EMS manufacturer has slipped or, EMS competition is building a better-quality product for same OEM customer or, some of the EMS providers’ customers are financially strapped (and EMS production costs are out of line at the contract manufacturer) and the EMS provider is no longer price competitive.
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