Forecasts, fires and false hopes: Are you ignoring the heat?

What do you do when your train is on fire?

Imagine you are at a train stop. The train you want to board pulls up and it is on fire. What do you do?

Despite early warnings and smoke in the air, some electronics manufacturing services (EMS) companies seem to ignore the looming train fire. The results can be disastrous.

What are some of those early train fire signals?

1. Riding the topline wave of revenue when you were able to demand fully scheduled POs out as far as 24 months. Now, the normalization of 3-6 months of firm POs has dropped your revenue and you took no sales steps to remedy this during your bookings’ “high tide.”
2. A few of your top five customers are disengaging, or their demand has decreased. You still forecast massive growth year-over-year, taking no proactive cost-cutting steps. The business may be hurt even worse by any failure to bake in the normal churn that occurs every year as programs decrease, or new products don’t ramp as expected or are lost by your customer.
3. Walking away from a solid offer to purchase your business because the buyer would not value forecasted (downstream) growth. If you are so confident about the future, did you consider some level of an earnout? The view that we are worth more tomorrow than we are today has significant risks; history shows that is not always the case.
4. Forecasting extensive future expansion without ensuring 1) access to capital that drives material to support that growth, 2) the ability to ramp test and inspection for both WIP and finished goods or 3) the ability to ramp both human capital and very expensive capital equipment capacity.
5. A continued failure to recognize who your best customers are through a “by SKU” red, yellow, green profitability analysis, and understanding what made them good (or bad) customers. Bad quoting, lack of material discipline, designs that can’t be built with high yields, egregious contracts/ terms, OEMs throwing their problems over the fence to you, poor payments, lumpy revenue streams, too many SKUs to be built, no test and so forth.
6. Failing to identify new prospects that are a good fit for your business and chasing every customer who can fog a mirror.
7. A lack of real KPIs, which you should visit regularly to factually verify the level of customer satisfaction of, say, 80% of your business. These KPIs are your proverbial canary in the coal mine, offering an early warning system that everything might not be well with a relationship you value. This process allows proactive actions before things get out of hand and irreparable damage is done.

Figure 1. If your business is igniting, put out the fire.

If you saw a train fire, you would not board that train. If the train you are on is burning, you can try to put it out or get off. If you decide to try to extinguish the fire, seek help from a person who has successfully fought that type of fire.

All aboard!

Jake Kulp is founder of JHK Technical Solutions, where he assists OEMs and EMS companies with optimizing demand creation offerings and deciding when and where to outsource manufacturing. He previously spent nearly 40 years in executive roles in sales and business development at MC Assembly, Suntron, FlexTek, EMS, and AMP Inc. He can be reached at jkulp@cox.net.

• Next