How Integrating a Managed E&O Process Strengthens EMS Providers’ Supply Chain

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 Like many manufacturers, Columbia Tech and Cogmedix, providers of design-through-production manufacturing and worldwide fulfillment services for both the non-medical and medical markets, run a tight supply chain. The two subsidiaries of the Coghlin Companies, headquartered in Westborough, MA, source from a global roster of suppliers to manage costs and maximize selection and flexibility. Both companies practice lean manufacturing techniques and focus on the low to medium volume, high-mix market segments.

As is quite common in the manufacturing industry, Columbia Tech and Cogmedix occasionally end up with more inventory than they need. Customers may over-forecast demand; cancel orders; or upgrade products due to safety or performance resulting in components that become obsolete. Columbia Tech and Cogmedix have integrated Inventory Management Partners (IMP), a provider of inventory management services, into their supply chain. Seth Margadonna, Materials Planning Manager for Columbia Tech and Jim Coghlin, Vice Chairman, Chief Relationship Officer and Principal of the Coghlin Companies Inc., spent some time with EPSNews discussing how IMP helps smooth out inventory spikes and recoup the most value for excess inventory.

What types of business are you in?

Coghlin: Within the Coghlin companies we have two wholly owned subsidiaries, Columbia Tech and Cogmedix. Cogmedix provides engineering and turnkey manufacturing services to a broad range of medical and dental OEMs, while Columbia Tech provides engineering, manufacturing, global fulfillment and field support services to a vast number of markets. We look at ourselves as a “concept to commercialization” company that brings products to market quickly and more cost-effectively than our competition, and in many cases our customers. We can engage at any stage of the commercialization process –from initial product design, to prototype and pilot stage manufacturing, to full scale production and global fulfillment.

While Cogmedix is 100 percent focused on FDA compliant medical devices, Columbia Tech serves a broad range of capital equipment innovators in industries including semiconductor, security and detection, 3D printing, robotics and automation, and alternative energy. Columbia Tech is ISO9001 certified; and both Columbia Tech and Cogmedix are ISO 13485 certified.

What is the geographic mix of your customer and supplier base -- onshore, offshore, mixed?

Coghlin: Our customer and supplier base is global, and we ship finished products all over the world. However, all our manufacturing is done domestically – in seven facilities representing over 300,000 square feet across Worcester, Westborough and Devens MA.

While we do procure all over the world – from the Far East to Europe and Central America — about 80 percent of our material comes from North America & Canada. Seventy-five cents of every dollar spent is on purchased parts. Therefore it’s critical we have the most cost effective and efficient supply chain possible, we see this as a key differentiator and a core reason we remain competitive in the U.S. Having a global supply chain and practicing internal lean manufacturing principles, helps drive down labor hours and the overall manufacturing costs.

Where are your customers located and what are their typical business cycles? How far out can you forecast?

Coghlin: Over the last couple of years we have seen production coming back from China and Mexico due to quality and logistics costs. This has been very positive for our business. In 2017, we expect revenue at the Coghlin Companies to reach in excess of $250 million.

Our customers are located both in the U.S and internationally. Primarily, however, our customer base is U.S. headquartered but we ship directly to their customers all over the world on their behalf.

The typical business cycle depends on the market—we have a nice blend of customers ranging from Fortune 500 to startup companies in their infancy. As far as lifecycle is concerned, for the largest—Fortune 500—they may be able to forecast out a year but anything outside of 6 months is rarely firm. A “firm” forecast is typically 90 days and then it softens from there.

On the startup side, it is very difficult to forecast: the products are so new they don’t know how the market will react once the product is launched.

We typically see customer annual forecasts breaking out in thirds - a third of our customers nail it; a third are light; and a third hit it out of the park.

When you find yourself with excess inventory, is it typically because of over-ordering; customer cancellations, design changes, component obsolescence or other?

Coghlin: All of the above.

We have a golden rule: we do not purchase anything to a forecast or on spec without a customer PO or a letter of authorization. We do not over order -- we only buy what our customer has authorized us to. There are companies that purchase on spec, but that is a cardinal sin here. Customers don’t want to commit and authorize material to be driven early in the process: they tend to wait until last minute then lead time risk comes into play. If the lead times are so long we can’t get the products through franchised distribution, with customer authorization, we’ll then look to the secondary markets for shorter lead times. This is the same process we use for end of life or obsolete components as well.

Margadonna: We can and do use Inventory Management Partners as a sourcing option and as an outlet for E&O inventory. If we are successful in selling the inventory some of the proceeds of the sale may go back to our customers depending on the arrangement. We also put our customers in touch with IMP directly.

We’ll refer them to IMP because we have trust and confidence in them—they treat us very well and they are successful at what they do. We’ll step out of the way if the customer prefers to deal directly with them.

How has your company historically dealt with excess (write-downs/write-offs; return to suppliers; sales to open market, scrap etc.)

Margadonna: We have a formal process we use here. In a perfect world, we have no excess; we buy to the customer PO or to their authorization. However, in manufacturing there are circumstance such as cancelations, engineering change orders, bankruptcies, etc. that lead to excess and obsolete inventories. We have a process in place to identify the E&O inventory; we first work with the suppliers to return what we can and then we look at our overall customer base to see if they use same material. If those scenarios are not an option we’ll work with a party such as IMP. We work to drive inventory down before going back to the customer with the final liability number. At that point they will have all the information to make a decision on how they’d like the inventory dispositioned.

How did you find IMP?

Margadonna: It was before my time, but the relationship broadened when I joined Columbia Tech in October of 2012 and began working with IMP.

How does IMP differentiate itself from other companies you may have dealt with regarding excess inventory?

Margadonna: From my experience, it’s their customer service and capability to assist us with our excess inventory. They provide us with the ability to ship them E&O material and if the conditions change that would now require us to pull something back from them, they are extremely helpful in ensuring that the needed material is returned to Columbia Tech. Our rep, Dan [Pazzanese] is very accessible and is in constant contact with the Supply Chain team. IMP’s customer service is a major differentiating element when compared to other companies in their trade.

From past experience, the return on E&O was probably 10 to 20 percent with other companies like IMP. As I look at our numbers over the past five years IMP is at 50 to 60 percent.

IMPartners has a broad customer reach as quite a few companies are using them to find parts with lead time issues. They are able to sell items that I am not sure other companies could sell, or get a good return on. As for how they are able to do it -- their broad reach worldwide to a lot of different companies and their relationships with those companies is what separates them from the rest.

Coghlin: We feel the same way about the service on the supply side: they obviously have equal success on the sell side in which their customers see them as an asset from a service, material availability and value perspective.

Regarding recovering as much value as possible, can you share how IMP made the case for selecting them?

Margadonna: As far as the customer service experience, IMP has an online site where we can view our inventory at any given time. This feature provides a great level of comfort for our staff since the material is warehoused off-site.

The client dashboard is specific to what Columbia sends them by part number, quantity, date code and package. If we find ourselves in a shortage situation we can speak to Dan and he will let us know what they have and don’t have.

Can you share any metrics that could demonstrate how well the IMP partnership works? (% less inventory; % more value recovered; etc.?)

Coghlin: Turning inventory and elimination of obsolete inventory are core metrics we focus on in our business. Having an outlet like IMP helps us improve our turns and reduce our E&O exposure.

Margadonna: IMP is extremely thorough, they inspect all incoming material and are -- estimating the dollar value they can get in the market. They are methodical as they go through every item, if there are any questions IMP always requests more information, helping us get the best results possible. The processes and procedures that IMP follows ensures the quality of their products.

Coghlin: There are some unscrupulous people in the secondary market, however IMPartners is just the opposite; honest, candid and backs their reputation up with actions. They are an important part of our overall supply chain. We work with manufactures, authorized distributors and secondary market suppliers like IMP—we have to look at all of those sources to provide our customers with that exceptional experience. The whole is truly greater than the sum of its parts and suppliers like Inventory Management Partners help make our supply chain exceptional.