EMS@C-LEVEL

Electronica 24: Supplyframe's Richard Barnett on Navigating Challenges and Opportunities in Supply Chains

• Philip Spagnoli Stoten

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What happens when speed, agility, and digital transformation collide in the vibrant world of electronics supply chains? Join me, Philip Stoten, alongside Richard Barnett, CMO and SaaS Sales Lead at  Supplyframe, as we explore the energy and optimism at Electronica 2024. Despite political uncertainties and market challenges, the electronics supply chain is buzzing with possibilities. Richard shares his expertise on the industry's need for proactive strategies, including customer program reviews and strategic inventory management. Through our  discussion, we emphasize the transformative power of transparent relationships and digital advancements in enhancing communication between demand and supply signals, paving the way for sustainable margin growth.

Venture into the evolving mindset of modern supply chain management, where AI is not just a buzzword but a catalyst for change. By drawing intriguing parallels with fast fashion’s nimble approach, we explore how AI can revolutionize the electronics industry’s data analytics and predictive capabilities. Our conversation reveals how a value-driven strategy that starts with customer needs can harness AI's potential to create meaningful outcomes across the value chain. With a personal touch, we even share anecdotes that illustrate AI’s impact on communication, offering insights into its broader implications for business processes. 

This episode promises to illuminate the path toward a more collaborative, AI-enhanced future in supply chain management.

EMS@C-Level at electronica 2024 was hosted by IPC (https://www.ipc.org/)

Like every episode of EMS@C-Level, this one was sponsored by global inspection leader Koh Young (https://www.kohyoung.com).

You can see video versions of all of the EMS@C-Level pods on our YouTube playlist.

Philip Stoten:

Hello, I'm Philip Stokes and I am at Electronica 2024 on the final day. I'm joined by Richard from SupplyChamp. Richard, thanks so much for joining me. Great to be here. Like me, you must be exhausted.

Richard Barnett:

I am, but it's been an exciting, you know, action-packed few days. We've had, you know, incredible engagement across EMS, our key OEM customers, our whole media, e-commerce network, all the distributors. So it really is interesting to see everything come together in one place.

Philip Stoten:

And it's back. Baby Electronica really feels like the city is packed. It's really hard to get a hotel room.

Richard Barnett:

Yeah, I think we were so uncertain two years ago, just coming out of COVID what was it going to be like? And I thought one of the things we saw was there was a real desire and hunger to get back in person, to really get engaged. This year we're also seeing more international participation. It seems that, you know, there's a general sense of, you know, new energy optimism on a global scale, even though the dark region locally feels incredibly depressing. It's like this kind of tale of two cities in some ways.

Philip Stoten:

Yeah, no, it's curious and I understand what's going on in the market. We've had a lot of uncertainty around politics, we've had high interest rates, but we've also had this very painful inventory bubble working its way through and, much as the EMS guys have done a great job of reducing their inventory, their customers now have it.

Philip Stoten:

So orders have declined. I think a lot of people have talked about uptake the back end of this year. Now they're talking about the back end of next year, which I think in the middle of next year back end is more realistic. I think we've got that political uncertainty out of the way which is good news In a lot of ways, yeah.

Philip Stoten:

Yeah, we're seeing a little bit more of a protectionist vibe as a result of that, but I think that was inevitable, whichever part of the way. I agree. So what are you seeing when you talk to EMS guys? What are they looking to you for Right? What are they looking for you to solve?

Richard Barnett:

Well, I mean, I think from a market perspective there is this shift shift, like you talked about, around the inventory rebalance and, like you said, most of the larger EMSs that we worked with and some of the smaller ones got ahead of the inventory liability negotiation. I think now what's now up to bat is a healthy tension on new customer program discussions. So what we're seeing with our EMS leaders across the board is trying to find a way to proactively review those customer programs, identify potential risks, lean in on the conversation on value-added design, make recommendations for alternates based on many different issues around resilience, around source of origin, all those factors and work through the identification of where there's going to be strategic inventory and actually get ahead of the conversation instead of behind it. What we've seen is that speed and agility are the foundation to actual competitive advantage in this market, and it sounds kind of boring and a basic point, but it's. But there's so much more to it, right, well, the physics of speed and response in the market, because of market dynamics and their design cycle, changes. They're becoming more frequent, more compressed. You know these new product introductions or ramps to volume. If the response time is more than a week on a significant net change, say on a new program review.

Richard Barnett:

We're seeing a lot of our customers struggling with somewhere between four to six weeks, you know, and solving that end-to-end problem. You know we've done a lot of optimization around how we buy. You know sourcing. You know leveraging long-term agreements, understanding our mix. We've been very responsive and creative around throwing in a lot of value-added services just to go win that new customer program. But the front end and the back end are not tied together. What holds them together oftentimes are spreadsheets just flying around, very complex spreadsheets with thousands of lines. So what we see is that if you can both increase the speed and agility to insight, to recommendation, to cost assumptions, but more than that, not just get the cost expectations right but actually identify where there's value-add around a negotiated change, that's actually the key to long-term sustainable margin growth, improvement and large and small. We see the performance out there where everyone's getting a little bit better. Some are making some breakthroughs, but we're not where we need to be.

Philip Stoten:

No, there's a lot that needs to be done, and what you were saying about leaning into value, I think, is hugely important when we look at the crisis we've had. The relationship with the EMS and the supply chain has had a lot of tension and we need to think about that from both sides and understand where each other's value equation lives.

Philip Stoten:

We're in this strange world where we're between a consumer and an OEM at one end and at the other end we've got the chip manufacturers. We're trying to turn on a dime, we're asking you to turn on the dime, and the chip manufacturers do not turn on the dime. They are super tankers that take a little time to turn.

Richard Barnett:

Locked and loaded. Yeah, absolutely Locked and loaded.

Philip Stoten:

So we blame you for what goes on down here, you blame the MS industry for what goes on out there. So we need to repair those relationships. But leaning in on value, I think, is one, and you talked about that. I think that's really important. Leaning in on transparency, digital transformation through that supply chain, is another.

Richard Barnett:

Is that?

Philip Stoten:

something you hear. They really want to figure out how we can get demand signals all the way through the supply chain and get supply signals coming back up.

Richard Barnett:

Well, I think there's different, really interesting major transformational levers in that whole. Let's reduce the bull effect, right. So, first of that's reducing demand variability. It's also reducing the response time to any net change in supplier demand. Those are first principles from a supply chain perspective.

Richard Barnett:

If you look at this value chain, though, the MSs are oftentimes not put in a position where they can, like I said, either make recommendations or make adjustments that actually are smoother, developing more optionality so you can buffer those changes and or the inventory liability decisions. Right, We've got a forward buy because there's a major change in the market and you know so. Speed and agility and the ability to have optionality is kind of like a key North Star to think through that end-to-end when you're looking at your processes to a view where, like you said on transparency, if some of our largest EMS partners are managing 50, 300, 400 in-market programs in each of those end markets, there's a different type of problem and challenge with forecast variability. Trust me, in automotive it's been that pretty accurate on a six-day schedule, horribly inaccurate on their forecast vehicle volumes. They're sort of outlook for six months to 18 months, and then that just keeps rippling through. And so right now, and particularly because of that uncertainty, there's a sense of almost being frozen, it's not having a read. So what do you do in that situation? Number one is, yeah, if you can get pass-through on long-term agreements that the OEMs are managing. But you're having that visibility and you're actually orchestrating any net change on forecast demand, as you're pulling that through, linking long-term contract structures that are flex agreements, long-term agreements combined with short-term just-in-time sourcing events on the mix of everything that's being actively managed as well as then looking at, you know how do we have transparency on the net change?

Richard Barnett:

One of the things that we're doing is taking our CPQ or Configure Price Quote solution that's been used by multiple distributors, components, suppliers etc. And digitally enabling that to, for example, be the intelligent front-end supplier portal for an EMS where you can isolate the in-customer demand and you can have those pre-defined agreements already in place so you get instant responses on updates to cost, lead time etc. For, say, 80% of your spending. You're only focusing on managing highly negotiated 20% spend. If you get that digital pass-through, the compression in cycle time is just dramatic and you get more intelligent and reliable and you reduce a lot of non-value-added stuff.

Richard Barnett:

I mean we were having these philosophical conversations with Jabil because we announced this major initiative to work with their key tier one distributors and look at their component supply base. And one of their kind of philosophical questions is what is a quote? Is it actually serving its purpose? Do we even need to do this? Why are we sending thousands of lines and updates on that change, even though it might be, uh, double bookings from a distributor and ems? You know it might be just uh, validation checks there.

Richard Barnett:

But of course, for the trees, if you can't isolate what's the really strategic need or what's the, you know, area of major value creation, if you're a supplier to an emMS and you don't have visibility to the OEM customer, you're never going to get an optimal answer. So if we can just reduce a lot of that waste and that process, make it more intelligent and expand the scope of the intelligence. So the other thing that we're seeing is let's get out of just thinking narrowly around a cost transaction lead time conversation. Let's look around. You know an update to lifecycle lead time or allocations, you know at a product class family from the supplier, so it's visible and kind of always being updated. And then let's share those insights that we have, predictive insights with the OEM customers. So you're setting conversations around. You're saying you're going to grow 38%. I'm seeing the market overall.

Philip Stoten:

You know demand go down 10% or not even hit that I'm seeing.

Richard Barnett:

This is where our biggest strategic commodity risks are. But there's some price movement opportunities. Hey, let's align on what your committed volumes are for the next six months so we can ride that wave together you know what I mean and release new margin. That's where the job, because the game of purchase price variance, locking, squeeze, play on the MS. I mean, this is when the industry was first getting started right and you could understand it.

Philip Stoten:

This is a 90s strategy 2025,.

Richard Barnett:

Folks is where we are. Have we moved an inch on this mindset? It's unfair. But a lot of it is an internal transformation, thinking of an EMS saying you know when I'm doing special services for inventory programs et cetera. It's not non-recurring engineering, it's a services line. I have expertise in value-add. It's trying to reset the expectation with those customers and it's not easy, I mean because everyone's been trained.

Richard Barnett:

This is the game we play, but I see breakthroughs. I see an openness to actually shift the conversation to value-add and that, I think, is critical for everybody. It's not just one EMS doing it smarter, a little bit better, getting the 0.6% margin. No, everyone benefits from that shift in thinking.

Philip Stoten:

Yeah, no, I absolutely agree, and I think that openness and that honesty in the supply chain also the openness and honesty in terms of where value is added throughout the value chain. That's essential and I think you being able to communicate where you add the most value is important. A show like this is very important to do it, but other communication channels are important. Everybody wants to see digital transformation. Everybody's talking about applying AI to it.

Philip Stoten:

I was talking to an AI expert the other day and they were talking about the way AI is used in fast fashion. And that supply chain is bad.

Richard Barnett:

It turns on a dime.

Philip Stoten:

They're not making semiconductors that take 22 weeks. They're just buying rolls of fabric.

Richard Barnett:

Right, so it's very different yeah.

Philip Stoten:

But you know, we can learn from how they recognize demand signals in the market Yep and do different things. Absolutely, I think there are interesting areas there and I think the use of AI is perhaps even if it's not a big game changer. It's part of what will take us the next step of that transformation journey 100%.

Richard Barnett:

I mean, I think we're at kind of peak AI awareness, you know, and I've seen this in kind of the broader supply chain market and electronics industry broadly. It's a bit frustrating for me because if you've been around the block long enough, you sort of understand where you have these sort of hype cycles. Yeah, it's a bit frustrating for me because if you've been around the block long enough, you sort of understand where you have these sort of hype cycles. And I came out of supply chain planning, optimization, genetic algorithms, simulated annealing I mean we had PhDs building these algorithms and we're just in a class library that you can download for free, right. But when we talk about AI, we're talking about generative AI, we're talking about use cases for large language models or we're talking about just simply multiple applied AI methods that are purpose-built for solving a specific problem.

Richard Barnett:

Okay, great yeah the stuff that feels the consumer awareness is the, you know the, the consumer you know experiences. I just got married in in Spain three weeks ago thank you.

Richard Barnett:

my wife is Hungarian and we're bringing the families together for the first time and her brothers and her mom and dad don't speak English Right, and I had met her dad and we had done Google Translate the year before and it was awful. He's a talker, I'm a talker. Paragraphs go by. We're barely. You know, it's all broken. My wife is on. No, no, no. We get everyone together for three days. Three in the morning. Everyone's on the phone just laughing, going back and forth, and my wedding literally couldn't happen if it wasn't for that chat gpt.

Richard Barnett:

so I deeply am grateful for this crazy world that we're in right now. But when I look at it from a business transformation process perspective, I think what's interesting is it's a bit of a catalyst and shift in thinking of we can do do short, quick projects focused on a specific. Let's change the customer experience.

Richard Barnett:

Let's do some new data analytics, let's train a model, maybe in a narrow way that's solving a very specific pattern we haven't been able to figure out, and then that's actually linking to a mindset of change and innovation that says, oh wait a minute, if we can do that in that, area let's look at the entire what I call Siemens can do that in that area let's look at the entire kind of what I call. You know, siemens calls it the digital threat.

Richard Barnett:

Let's get out of spreadsheets you know, because you can't use these AI models train them et cetera, if everyone's got their isolated bits of data spread around.

Richard Barnett:

So I'm seeing you know what we're providing is market intelligence in, so we're seeing a lot of power in AI to get to more precise predictive insights. They're happening at a product class level, not just commodity level. We're able to now pull in and pulse risk signals et cetera in context that we've never been able to look at before. This complements the digital journey with all the enterprise data and information process workflows. There's automation opportunities. There's change in the customer experience completely. There's a lot of opportunities for, just simply, efficiency gains. It makes everyone a lot smarter, so it's impacting at every level. It's not just a chat GPT Gen AI experience of look at my new website, where it's got something sexy and cool going on or doing your PowerPoint presentation or whatever else.

Philip Stoten:

I think it's fascinating. And I think what you say about kind of we know we've got data, we know we've got AI. We don't just need to throw them together and see what comes out. We need to start at what value can we deliver to our customers. And if we do that and then we utilize AI, we start with value, we look at insight and then we look at the data we need for that insight.

Richard Barnett:

Then we can deliver real value, and I think that's the way we need to think about it. Thanks for talking to me. Thank you so much. Congratulations so much on your wedding. I deeply appreciate it and we'll talk again soon. Thank you, bye-bye.