Prepare to unravel the complicated web of issues challenging the European EMS industry as we sit down with Michael Velmeden, CEO of CMS Electronics. We're peeling back the layers on everything from the COVID-19 disruption, the component crisis, to the bullwhip effect from inventory buildup. It's not all gloom and doom as we also explore the escalating demand for electronics across diverse industries. We uncover how CMS Electronics is fortifying its operations, ensuring robustness and security amidst these disruptions.
We also discuss the digital transformation sweeping supply chain management. With Michael, we mull over the crucial role of trust and respect in a successful supply chain and how digitalization can be an effective tool in achieving this. We delve into how Artificial Intelligence can reshape supply chain management for the better. We underscore the significance of open collaboration and understanding in leveraging digitalization for formidable supply chain benefits.
Like every episode of EMS@C-Level, this one was sponsored by global inspection leader Koh Young (https://www.kohyoung.com) and Adaptable Automation Specialist Launchpad.build (https://launchpad.build).
You can see video versions of all of the EMS@C-Level pods on our YouTube playlist.
Prepare to unravel the complicated web of issues challenging the European EMS industry as we sit down with Michael Velmeden, CEO of CMS Electronics. We're peeling back the layers on everything from the COVID-19 disruption, the component crisis, to the bullwhip effect from inventory buildup. It's not all gloom and doom as we also explore the escalating demand for electronics across diverse industries. We uncover how CMS Electronics is fortifying its operations, ensuring robustness and security amidst these disruptions.
We also discuss the digital transformation sweeping supply chain management. With Michael, we mull over the crucial role of trust and respect in a successful supply chain and how digitalization can be an effective tool in achieving this. We delve into how Artificial Intelligence can reshape supply chain management for the better. We underscore the significance of open collaboration and understanding in leveraging digitalization for formidable supply chain benefits.
Like every episode of EMS@C-Level, this one was sponsored by global inspection leader Koh Young (https://www.kohyoung.com) and Adaptable Automation Specialist Launchpad.build (https://launchpad.build).
You can see video versions of all of the EMS@C-Level pods on our YouTube playlist.
Hello, I'm Philip Stoten, I'm here at Productronica 2023 and I'm joined by Michael from CMS Electronics. Before we dig into what's going on in the market, michael, give me a brief overview of your company, the scale and the footprint.
Speaker 2:I will do that, but first of all I have to say thank you, to give me a chance to be interweaved by you On the one hand. On the other hand, I would like to thank you especially because you are putting our industry so much in the focus. Thank you very much for that. Cms is a typical European EMS provider. We are founded in 2003 and it was a management by our out of Philip's. It was a small Philips department and then we used the opportunity and the capabilities of our people and started this electronic manufacturing.
Speaker 2:We are headquartered in Austria and, to give you a little bit of flavor, we are, if I say, typical EMS. We have a turnover around about 120 million euros. We have another factory site in Hungary and, as a door opener, small production site in Germany as well. What we are doing with that is we have a small company a new one it was a new situation which we are using for prototyping. It's called PCPVIS and the basic idea behind this that we are providing on an online platform opportunity especially for development guys to order their prototype Pretty much independent, at what time it can be during the night. Behind there is a software with artificial intelligence at least small volumes of that.
Speaker 1:That's really interesting. So interesting footprint One of the things and congratulations on the business, by the way, it sounds like a very interesting business. One of the things you've been through over the last few years is just one disruption after another, one challenge after another. You got through COVID, well done. You got through the component crisis. Now we are seeing some economic issues and some challenges and we are also seeing a bullwhip effect from all that Inventory, from the component crisis come through the supply chain. How is that impacting your business and what are you seeing as the major effects?
Speaker 2:I think the major effect is that we never had a situation like that. We were suffering till summer and we had shortages of material. So, in consequence, we had a very inefficient manufacturing. So it was quite cost-expensive and out of a sudden now orders are short. So we had the people on board, we had the capacities, we invested a lot of money, but we are short on orders.
Speaker 2:So we are jumping from one critical situation into another and it's hard to explain your employees. You are forcing them in the past hey, you have to support us, you must come in during the weekends, we have to serve the customers, we have to take care of the customers. And now you have to tell them hey, we are short on orders. We have at least even laid out some of them, which is quite difficult. I never had a situation like that. At least, normally, in Forehand, you are caning a little bit out of the situation, and this moment in time we didn't cane out of the first situation with a short material, and now we are looking in the second crisis. But what I have to say as well, if you look into the future, I'm quite confident because if you see the mega trends talking about energy saving, talking about digitalization, talking about the environment situation. This is only possible with electronics and I think this is what we can talk about.
Speaker 1:Yeah, I think it's interesting and I think, like you say, the overall trend there is quite a steady positive trend and the real issue is that this inventory hump, if you like, is working its way through the supply chain. So, consequently, I guess your customers have excess inventory. You perhaps have excess inventory that has an impact on cash flow as well as everything else.
Speaker 2:That's what it is. That's the actual operational problem which we are. Well, let's see, these are the obstacles we are fighting in this moment in time. It's obviously that we can not only take, as an EMS partner, the stock levels on our own. We have to go into negotiation with the customers what we did already in the past and figure out what can be done to have a fair share in the whole supply chain. Because in this moment in time that's my impression everyone is fighting for a fine balance sheet especially year-end is coming but overall, we must find solutions to share it. And how can we overcome such a situation which is scutible for both parties?
Speaker 1:And when you look at that, you're kind of in this position in the middle of the supply chain. You've got component suppliers on one side, you've got your customers on the other side. How collaborative are they prepared to be, or do they tend to push the problem in one particular location?
Speaker 2:It's not such an easy question because on one hand I don't want to blame the customers, I don't want to blame the suppliers, but if I just read a little bit, it's much more difficult in this moment in time talking to suppliers If I would say wait it. Yeah, I say the more difficult side is on the supply side, because you know that very well. They try to secure their business. Typically we have NC and R components. They had very long lean times in the past to secure the business as well, and now it is a question how can we handle this? On the customer side, I have to say they are pretty much aware about that. It's more a question of burden sharing, so it's a little bit easier. Even so, ems is a service partner. We are supplying services. So you know what happens People asking for services.
Speaker 1:Yeah, and you have to take some responsibility there. Absolutely. So, when you kind of project this forward and you think about this current disruption, you think about previous disruptions and you kind of temper that with optimism about the future, because we see this constant growth in more and more electronics, in e-mobility, in medical, in EV, in all kinds of different sectors, how does that make you think about how you design your business for the future? How do you design your business to be robust, be secure, but also be agile enough to deal with these issues?
Speaker 2:It's a very good question because to end the year, you have to look a little bit in which segments we are. And we started our business and were concentrating pretty much on automotive Because at that moment in time there was 2003,. Automotive was a real change. There was an electronic components level of maybe 5% of the value of the car and then it was really climbing up. So we did that and then we started quite early to look for other segments as well, especially in the industry.
Speaker 2:Industry we are concentrating on energy efficiency, energy saving, air congestion systems. Everything has to do with infrastructure, which is a good field because this will become more and more of important in the future, thinking in terms of environmental issues. Currently, especially in Europe, it's a very difficult field because of recession, but I think on the long term it will grow. Automotive it's a difficult field because you are pretty much under pressure. You have very low margins, pretty real, demanding market, demanding customers On one hand. On the other hand, you have the advantage it's quite stable. Even so, they are low. You are talking about 5%, not more. And the third segment we are in is medical. In the medical area it's more difficult for us because of our size, it's not so easy to get the right partners on board. We have to concentrate in that field more on startup companies and you know it's not so easy really how to sustain that businesses.
Speaker 1:Yeah, it's difficult to predict what's going on. Last question when you look forward to 2024, with all these different dynamics, how optimistic are you about the year and what do you think you have to do to exploit the opportunities that are there?
Speaker 2:As far as I can see it now and what I heard from the markets, my expectation is that we will have a very big first half of the year.
Speaker 2:In the second half of the year I do expect that the demand levels are coming up again, because we said before discussing the pull-dip effect, so we see that the markets will come up again. Overall, my expectation is that we will be on the same level as this year. The close we had in the past will not be possible. I can't see this. So we have to concentrate and we should use this year to equalize the business a little bit and try to figure out how we can especially overcome the cash flow situation, because we are still pretty much fighting with the cash flow because of the high stock levels. So my expectation is that we will have a relief on the stock level side, especially if we are able to have good negotiations with our suppliers, at least not to cancel all orders, but at least to get some relief and move it into the future. If this will happen, I think it will be a tough, but manageable year.
Speaker 1:I think that's the key, isn't it? I think it's pushing that stock bubble through and getting the best out of that and then using that opportunity to think about the efficiencies and the digital transformation in the business To, you know, to make sure things are moving in the right direction one important issue is always.
Speaker 2:We are talking about digitalization, we are talking about supply chains, we are thinking about how can Artificial intelligence can be used for the supply chain, can be used for the supply chain management, but this will only work if we have a good trust level, if we have respect each other, because it's pretty much depending on the data switch are in the system. So what I expect from to 20 2024 is that we will at least try to come to an Acceptable and better supply chain level again, and this is one of the most important issues.
Speaker 1:Yeah, and that digitalization, if that can, can create greater visibility and that visibility creates more trust, then then you have something that Helps everybody.
Speaker 2:Yes, yeah, absolutely, because if this will not be the case, you can discuss any systems, but they can't be supportive Because the system is can, only it's at the end. You are talking about algorithm, but we need more trust and more understanding in the supply chain for each other, and this was Not the case in the last three years. Everyone was fighting more or less for himself, and I think that's a critical situation. It is not helpful looking into the Supply chain and the different partners in the supply chain as well?
Speaker 1:Yeah, and I was essential that we have that open this and some open collaboration and, as you say, perhaps that open collaboration has been better with customers over the last three or four years than it has been with suppliers. But I think there's hopefully a willingness and all parties to improve that, so hopefully we can look forward to something better in the future.
Speaker 2:Yes, and what I see is, as I pointed out before, if you see really the major trends, ems and the EMS companies are a real partner to make it happen. Yeah, this must, this is for sure, because there will be many companies, which are even not available Themself, that they need electronics in the future. Yeah, to be part In the, to be part and to take part in the business.
Speaker 1:Yeah, and I think that gives us the long-term optimism. So good luck with the short term, good luck with the long term and thank you so much for talking to me. Thank you, thank you, thank you.