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To: Duker who wrote (3555)	10/26/1999 10:41:00 AM
From: Proud_Infidel	Respond to of 5867

Analyst warns tightening supply chain could affect production By Jennifer L. Baljko Electronic Buyers' News (10/26/99, 09:39:40 AM EDT) Rising component prices, last month's earthquake in Taiwan, and strong demand could cause several ripples through the supply chain, according to an analyst report from Merrill Lynch & Co. Based on a survey of 52 OEMs in the automotive, communications, computer, defense, industrial, and medical industries, about 37% of the respondents indicated that a tightening demand for certain components and the impact of the Sept. 21 temblor could modestly reduce near-term production, said Merrill Lynch analyst Jerry Labowitz. The participants represented manufacturing, purchasing and materials sourcing, operations and logistics, finance and investor relations, business management, and supply-chain management departments. The average participant said a shortfall of 7% to 8% could occur in the fourth quarter of 1999 or in the first quarter of 2000, the survey found. Also, 30% of respondents said they have been warned by their contract electronics manufacturers that a components shortage could adversely affect unit production by 5% to 6% in the next several months. Complicating matters is the uncertainty caused by the Y2K situation. While only 8% of those polled said they have concerns about meeting production demands after the calendar flips, about half of them said they were building safety stocks, and some said they are building more than three weeks of inventory in preparation. As in previous cycles, distributor relationships will become a key factor during the anticipated period of shortage, with 79% of the respondents noting that a distributor will help them acquire necessary components to meet production demand. Of those questioned, 89% of the companies already use the distribution channel for some or all of their procurement needs. "A shortage environment reinforces the value-add provided by distributors to OEMs, which we believe could result in improved demand trends for distributors in the future," Labowitz said in the report. "OEMs and EMS [electronics manufacturing services] providers that have developed strong, strategic relationships with distributors are best positioned to weather a potential component shortage." Besides using distributors to soften the blow, OEMs indicated that they will turn to their CEM partners for procurement assistance, provide suppliers with longer range forecasts, pay charges to expedite shipments, utilize bonded inventory programs, develop new supplier relationships, sign written capacity agreements, and increase spot market purchases.