The Future of EMS Supply Chain Rests on APIs
July's "Scratching the Surface Mount" webinar discusses what is an API and how can APIs improve the EMS supply chain.
DAVID: Ok. It looks like people can hear us. We are going to go ahead and kick off the webinar. My name is David Paschall. I am the VP of Sales at CalcuQuote, which is a quote management system for electronics manufacturers. Today as part of our 'Scratching the Surface Mount' Webinar Series, we are going to talk about the electronics supply chain and how a technology called APIs can help with that. I'm not going to be the person explaining to you what all of that is and how it's going to accelerate technology. I am going to leave that up to Chintan Sutaria. He is the Founder and President of CalcuQuote. He is going to be explaining how APIs can help the electronics supply chain. Chintan, maybe you could introduce yourself and talk about your background in the electronics industry.
CHINTAN: Absolutely. Thank you very much for the introduction. As David mentioned, we are going to be talking about APIs and how they apply to the EMS industry. A quick background on myself: I grew up in the EMS industry and have quite a bit of experience in dealing with the supply chain processes relating to EMS, especially with procuring direct materials. I also started CalcuQuote, which is basically an EMS quoting system that helps with the RQ process. We help EMS companies improve the speed and accuracy of their RQ process so that they can quote things faster.
We are talking about APIs today because we have gained quite a bit of experience working with both EMS companies and component distributors to implement integrations between the two companies so they can have improved transparency and faster response times for ultimately their end customers.
- Typical Supply Chain Example Before APIs
Without further ado, I am going to get into talking about APIs. To start us off with that I would like to talk to you about the EMS supply chain as it has existed for the past 10 or 15 years.
Here I have a timeline exhibiting a normal process from when a customer requests an RFQ, all the way to them accepting the quote, placing a purchase order and then you placing the parts on order, getting the PO acknowledgement and receiving the parts. I am going to walk you through that and talk to you about how much time each of these steps take when done manually through emails and spreadsheets and things like that. Then we are going to get into how APIs can be applied to improve this so that it saves a significant amount of time and the other advantages that come with APIs.
Let's start with a customer requesting the RFQ. That's the top left where it says "Customer requests RFQ". Typically they send it to you via email through an EMS company and say, "Tell me how much this thing is going to PC assembly from". You get it and the next day you pick it up. That is what that "1" represents. It is day 1 now. You send the [bomb?] out for pricing. Before that you probably had to go through and scrub it, put it into an excel file with the proper template for example. You send it out to your supply chain. To get responses from everybody in your supply chain with some being faster and more responsive than others.
What we find with companies that we have worked with up to this point is they will say it can take about 5 days to get pricing back from their vendors. If you consider emailing out a spreadsheet, if that's your average, then you are looking at half the time it's more than that. Half the time it's less than you are analyzing your options. During this analysis, we understand that there are exceptions to this and you might expedite it or it might take longer because it is more complex, but if you have a quote with multiple quantities, and multiple stakeholders involved, it can take quite a bit of time to analyze that as well. You might have to go back to the suppliers and say, "Wait. I misunderstood this", and that can take a little bit longer.
Going the straight path, you get the quote back from your suppliers, you analyze it, combine it all and you decide where you are going to source these parts from. Now you have a final quote ready for approval. You prepare this quote and you send it out to the customer. Now it has been about a week. The customer has expected this timeline and maybe they are OK with it. Sometimes they are not and want to push you a bit faster and want a quick turn which by exception you can deliver. But, in order to be consistently fast, it is very difficult to do that with this process of communicating via email.
The customer comes back to you now. It was a 'hurry up and wait situation'. What happens now is the customer says, "Great. Give me some time to review my options and I will get back to you". That's what happens. So, you are looking at that number 23 over there on the top right. So now you are 23 days in and the customer says, "Now I am ready to place the order with you".
Now you have a customer willing to place a purchase order with you. You receive it and acknowledge it. By the next day you send an acknowledgement back to your customer. Now your team takes over. They are creating a sales order, reviewing the contract, making sure that the [bomb?] is in good shape and they are putting it into your MRP system so that your MRP can run on it and you can have a demand list. Or they are netting it out against existing inventory to give purchasing a list of parts that they need to buy. Purchasing turns it drafted", and they send it out.
Now the POs are sent out. What happens is that the supply chain is always changing. So you have some components that are available and some that are not. Maybe they are out of stock now when they were in stock a couple of weeks ago. So things could change. Again, not all the time, but sometimes. Now you have to research an alternative and reissue the PO. Keep in mind that during this time, the EMS company is sourcing one assembly for one customer. But in parallel, there could be a bunch of other customers.
On the distribution side, they could be getting the same bomb from multiple EMS companies that the customer has gone to for quotes. They are basically responding to the same pricing request multiple times for the same bill of material when ultimately this could just turn into one order. You research alternatives, reissue the PO. The supplier comes back to you, acknowledges the PO and then you document they acknowledged the PO so you are not following up with them. You might have a tracking number or something like that so that you have an anticipated delivery date.
Two days after that, you receive the part. Altogether, this process could take you anywhere from a few weeks to a few months depending on what this process looks like and how many exceptions you encounter. Most of you can imagine and have experienced that this is an extremely painful process to be going through all the time.
That is where APIs come in.
- What is an API?
For those of you who are not familiar with APIs, I want to start by defining what an API is. I am going to do that by giving you a very basic example. If you have an iPhone then you probably would have played around with Siri at some point. With the iPhone, you have this voice command system where you can ask all kinds of questions and it will give you a response. Most people look at that and say, "Great. I can ask what's the score of the game?', and it gives an answer. What you don't know is that it is APIs doing that behind the scenes. Your iPhone does not know the score of every single game in the world at any given point. They are sourcing that information from other places, whether it is ESPN or Yahoo in this case. Your iPhone is actually using an API to the internet and saying, "Yahoo. Tell me what is the score of the Devils' game", and they come back to you and present the information to you in this way. The two systems are talking to each other, making it a seamless experience for you as a user.
What is exactly happening here? Well, what you are seeing is that you are using APIs without necessarily realizing it. This is just one example. There are many other examples just like this. Whether you are searching for flights or booking a hotel, you are using APIs. Whether you are controlling your home or using home automation and other things, that is also using APIs. So if you have a nest thermostat or IOT light bulbs that you can turn on and off with your phone, that is also using APIs to connect over Wi-Fi. You can also use it in the example that we just gave to get answers. So you can search on your iPhone or use Google Voice. You can ask for directions which pulls in Google Maps. There are all kinds of ways that APIs are being leveraged to connect systems and data sources to work seamlessly together. So as a user, your experience is very fluid.
I gave you some examples. Let's now talk about the definition of an API. This is a formal definition. API stand for application programming interface. It is a set of routines, protocols, and tools for building software applications. For most of the people on this webinar right now, that probably does not mean a whole lot and it doesn't have to. The short of it is that what an API does is that it lets two things talk to each other. I am going to demonstrate that with a quick example. Imagine two pieces of land. If you want to get something from one side to another, you would have to build a bridge. In order to build that bridge, you will need some tool to allow the two land masses to connect. That is what an API does. It connects two separate things into one. Instead of the two island pictures that I just showed you, imagine two software applications. To get them to talk together, you have to have an API. What is more interesting is that integration between software has been a thing for a really long time. What is more interesting about APIs is that it is not just limited to this one-to-one connection. You can set up an API and have anybody in the world who wants to tie into it be able to access it. Think of Google Maps for example. There are so many software that use Google Maps and it is because they have opened up an API and say that anybody who wants to find directions or look up where they are or find satellite imagery or anything like that can do so, as long as they follow the structure of the API. That is what an API is by definition.
- How can EMS Supply Chain Use APIs?
Let us get into what APIs look like for the EMS supply chain. That is the purpose here. While there is a lot of consumer facing uses for APIs, it gets really interesting when you talk about the B-to-B value of it. The business-to-business value of APIs is enormous and we have already seen a lot of industries adopt some of these things. For example, if you are doing online shopping, that is using APIs.
Let us go through some of these examples here. So if you are searching for electronic components, you could use APIs. A lot of the distributors were very forward thinking and have started to make APIs available. So there are search engines out there that can make you know where components are available and what they cost. You can also use APIs to actually purchase parts. You can check out and buy from multiple suppliers at once on one site or on one application without having to go to every single place individually or go into another system to actually place the purchase order. That is the second use. The third use is tracking delivery. So if a supplier acknowledges a purchase order from you and gives you a tracking number, a UPS number or something, you can actually track that by using APIs that tie into UPS, Federal Express, US Postal System. Any of those places can give you an API and you can track when it is scheduled to arrive, if there has been any interruptions in the delivery and that kind of thing.
You can also use APIs to look up parts. So there a lot of companies out there that will not only give you the ability to search for component prices and availability, but to search for component details. So, technical details. If you wanted to define a package for an SMT program, or if you wanted to look up the life cycle of a part or anything like that, there are APIs out there that will give you that kind of information as well.
You can use API in supply chain to link to other systems. For example, you might have one system that does procurement and another system that does inventory management or accounting or shop floor control. To get those systems to talk to each other, APIs are important to ensure real-time communication and that everything stays in sync without getting the data different between different systems.
Finally, you can also use APIs to respond to operations. A good example is this. Imagine if a SMT operator with a line shortage could just push a button to re-order a reel of a common part. That is exactly what APIs can enable. You can respond to operations much faster so you have less down time on machines. The machines can actually alert you when they use up too much scrap or something like that so purchasing is in the know as it relates to the current inventory balance in case there is going to be a line shortage.
Those are just some of the examples of how APIs can be used. It is by no means a comprehensive list. There are a lot of possibilities out there. I want to emphasize that the industry is evolving in that direction. There is a future state that looks much more efficient and interesting and clearer for the entire supply chain to be able to use APIs to make that whole process transparent.
- EMS Supply Chain Example with APIs
Let us go back to the story that we started out with. So we were looking at this slide in the beginning and we were talking about what a typical process looks like from when a customer requests and RFQ to getting the order and receiving the part. We said that it takes a very long period of time in a typical situation to get this entire process to happen. You are looking at almost two months which can start to feel like a stretch, especially given today's trends of faster demand. With APIs, let me paint a different picture for you. Going through the same steps, imagine if a customer can come to your website or come to you and say, "I am really interested in getting this PCB assembly purchased. I don't know where to buy it from. Can you tell me if I should buy it from you?' Imagine if on your website, or to you in person they can say, "Here is my bill of material". You could load it into your system and get pricing and availability back instantly. You could say, "This is the cost. I have a formula that calculates the labor based on the details of the parts. So here is your final price that I am going to charge you to build this assembly. Do you want to buy it or not".
The customer could decide right then and there. Consider it the equivalent to online shopping. You don't go to bestbuy.com or fries.com or amazon.com to say that you need a quote to buy some dry erase markers. You just say that you need to buy some dry erase markers and you decide right then and there. That is what you can enable with the use of good APIs in the supply chain process.
In addition to that, if the customer decides that they want to buy this now, you can automate that entire process as well. So you can actually send the purchase orders, have the supplier system acknowledge that purchase order, tell you when the parts are going to be delivered, and the parts will show up at your door two days later. That is the efficiency of the API process. It takes you from a couple of months to a couple of days.
- Impact of APIs on EMS Supply Chain
Let's talk about the impact. The one that is most obvious that we just finished talking about is the accelerated timeline. But there is a lot of other things that come with using APIs as well. One example is that if you can accelerate the timeline, it also gives you the ability to scale up and down as needed because you are not forecasting into the future, you are saying, "here is what I need now". If you can reduce the amount of time then you really do not have the need to forecast as far into the future. You can also reduce the cost of holding inventory. If I can know that at any given point I can have parts delivered to me in a couple of days versus a couple of weeks, then I do not have to hold a bunch of inventory. I just need to hold two days’ worth of inventory. That really makes it easier for me to hold less inventory without risk of having shortages.
You can also reduce transaction costs. Think of it this way. If I want to buy a part and it takes me 5 minutes per part, and I have to buy 5000 parts that is 5000 minutes. You are looking at hundreds of hours at that point when you start buying large numbers of parts. With APIs you can automate so much of that that you don't have to spend so much time. The transaction costs becomes minimal for both the person who is buying and the person who is selling.
There is also less risk of errors. Some of these part numbers are weird combinations of hyphens, dashes, spaces, letters and numbers, and they are hard to type. We see this all the time where customers will let us know in CalcuQuote that the part number isn't found. It may be because there is a mis-typed part number in there. That is something that is very common across the industry. With APIs talking to each other, fortunately, they do not make those kinds of mistakes. To them, a part number is a part number and it stays as that part number. There is less risk of errors. There is less risk of placing the wrong part number or keying in an extra zero or something because it is all systematically automated.
There is also better visibility into lead-time and availability. For example, you can look up a part and see where it is available in the supply chain. So if there is one supplier that has that part and another one does not, then you can switch your sourcing option and get it from the supplier that has it.
Finally, it enable better decision making. If you can see up and down the supply chain, if you can identify your risks, if you can make less mistakes, if you can see all of your information in one spot like this, then you can really make good decisions about how to best serve your customers. So if your customers are interested in you getting the parts tomorrow, buy the parts that way. If your customers are more interested in reducing the overall costs for their program that is going to run for three years, then buy the parts that way. The idea is that you can make better decisions based on your customers' requirements rather than the lack of transparency in the supply chain process.
- The EMS Industry is Ready for APIs
Now let us talk about why the EMS industry is ready. The reason we timed the webinar the way we did is because the EMS industry is really ripe for this kind of change. We started CalcuQuote two-and-a-half /three years ago. When we started, this was still something that people were just starting to talk about. It wasn't something that was as front of mind for a lot of people. Now, most of the major players in the industry are on board with this idea. People are starting to understand and talk about data integration and the relationship between software systems. Data is becoming more and more integral to how EMS companies operate.
Let us talk about each of these individually. The first thing is that there is a need for simplicity in the EMS industry. If you look at any bill of material you are looking at so many data points. Aside from how many line items there are, each line item comes with its own complications. You have a description that can be varied depending on who wrote the description. You have part numbers, packaging types, supplier part numbers, internal part numbers, quantities and all kinds of information which can be too much for a normal human to process.
The second thing is that the data is usually structured uniformly. This means that even though the description may be different, there is a description in most cases. If there is not, there is a manufacturer or part number. And there is a line item number. So there is some basic standards that the industry has come together on regarding some basic things that we need to have in our data sets.
The third thing is that the technology is available. If this was some far-fetched future idea, then we would not be talking about it today. The reality is that most people in the industry have already started on these types of initiatives to make sure that they can use APIs to streamline their supply chain. So if you are not familiar with it, you will definitely see more and more of it in the coming months and years.
The fourth point is that the product value is oftentimes less than the value of the transaction cost. The example I like to use here is if you had a customer come to you with a high mix, low volume type order, and they wanted it right away, a resistor on that bill of material might only cost $2 or something. But if your buyer is spending 5-10 minutes sourcing that part because it is a little bit hard to find, you just spent more money sourcing the part, placing the order and acknowledging the PO, than the value of the part. And that's just on your side. That's where APIs can really add value. This is the type of situation that APIs were designed for. Situations where it is not worth a human being's time to even go through this process manually. It just needs to be automated.
There is a trend towards faster delivery requirements. It used to be that customers were ok with a two week turn time on quotes and a 6 week turn time on assembly. That is getting shrunken every day. There is a higher standard of expectation in terms of when they want their deliveries, and what even their definition of on time is. People are expecting more and more. If you are an EMS company your customers are possibly pressuring you to say that you can't take 8 weeks to build their product, they need it tomorrow.
Finally, transparency does add a lot of value. For the same customer who says they need it tomorrow, they are also usually interested and they usually value transparency in their supply chain. So they want to know if there is going to be any interruption or if there is going to be any issue with the delivery, or delays because a part was lost on a truck somewhere. You can streamline that whole process of delivering transparency to your customer. That is something that is very valuable in this industry.
Overall, we talked about what an API is, the impact on the supply chain for EMS companies, and why they EMS industry is ready. I want to say thank you for joining. If there are any comments or questions, you can reach out to us. Our contact information is here. Anything David?
DAVID: No. If you have any questions regarding what we discussed today about APIs or if you would like to talk about ways to improve your EMS quote process, please reach out to us at our email address there. If you look at the bottom of our screen you will see that there is firstname.lastname@example.org as well as our office line. We are going to send a recording of this webinar to all the attendees today and all the registrants if you were not able to attend. If you would like to watch again, you will have it in your inbox before too long. Thanks so much. We are going to go ahead and conclude the call now.