Tuesday, August 30, 2016
VOLUME -27 NUMBER 12
Publication Date: 12/1/2012
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ARCHIVE >  December 2012 Issue >  Electronic Mfg. Services > 

EMS and OEM Relationships: the Next 10 Years
Hand assembly is no longer a viable option for profitability, except in products with special needs, such as military and medical.

What's ahead for EMS providers and their OEM customers? In the last decade, both sides of the supplier-customer relationship have experienced squeezed profits and increasing demands from customers and competitors.? Hopes have been high for regional manufacturing strategies, yet we see? continued migration of manufacturing offshore.? What are future strategies for both the EMS and OEM working together so that each runs a successful business in a tough marketplace?

Looking forward to the next 10 years, we're highlighting the vision and strategic solutions developed at a recent innovative, thought-leadership event in Silicon Valley. The brainstorming event, held on October 9, 2012, brought together 25 electronics-industry executives, evenly split among OEMs, EMS providers, and suppliers. Their task: to creatively address five tough challenges facing the entire electronics industry today.

The event was called "The Executive Think Tank on Supply Chain," and EMS executives participating included companies as large as Celestica, Jabil, and Sanmina-SCI, as well as mid-sized and smaller companies such as Benchmark, Whizz Systems, and Digicom Electronics. There were five challenges discussed, along with some important insights from the executives in this full-day problem-solving think-tank event.

Challenge No 1. Increasing shareholder value by reducing manufacturing costs and improving efficiencies, while still benefiting customers and communities.

The single most effective strategy for increasing profits through decreasing manufacturing costs and at the same time making customers happy is to deliver competitive solutions to customer problems with minimal hardware. The Think Tank executives called it "product virtualization." Advantages from manufacturing fewer and smaller products are lower costs for materials, assembly, packaging, shipping, storage, and power consumption. The product or service also focuses on the customer's true needs, rather than just providing more "stuff" that doesn't serve society. You can see that minimizing hardware also reduces environmental impact: less to mine, fabricate, assemble, package, ship, store, power, and recycle. This model will reduce the amount of hardware that the EMS provides to the OEM, so to maintain and increase sales, the EMS will need to generate revenue through services and other means.

Other strategies include creating "virtual organizations," in which the OEM and EMS employ very few people, and instead draw on experts for each new product or process on a contract basis. Imagine that instead of a fixed-workforce OEM working with a fixed-workforce EMS company, a very small core of employees at the OEM and at the EMS come together around a product and each choose the designers, product managers, supply-chain and manufacturing folks, and other experts who are the best in the world for that type of product. Overhead would be greatly reduced and access to flexible and motivated experts maximized.

Challenge No. 2: Making distant manufacturing work better, and achieving profitable regional manufacturing.

The OEM executives recognize that choosing distant manufacturing suppliers in countries with less intellectual-property (IP) protections can put their designs at risk. Therefore, the Think Tank executives recommend that OEMs align their sourcing strategies with the degree of their products' IP risk. For example, one OEM's hardware product may be "vanilla" — with the true competitively IP being in their software; in that case the OEM could feel more comfortable outsourcing the hardware manufacturing to China, for example. Conversely, and OEM whose hardware has competitive advantage would be wise to choose manufacturers whose IP protection they absolutely trust — perhaps nearby regionally.

As for making regional manufacturing most profitable, it's important to remove costs without necessitating low labor rates or large volumes. To do this, the Think Tank executives said we should leverage the most efficient manufacturing techniques and automation for manufacturers for all of their customers' regions — even deploying 3D printing technologies for very low volumes — anywhere in the world.

Challenge No. 3: Leveraging EMS and ODM companies but without compromising the OEM's intellectual property.

OEM executives are watching their IP migrate out of their hands to component manufacturers and ODMs with reference designs, while ODMs' margins erode in part from OEM customers' increasing demands, and the huge EMS houses like Foxconn continue to leverage returns to scale, and grabbing other advantages making it more difficult for other EMS providers to profit from value-added services.

For these challenges, the Think Tank executives addressed how to change the dialog among multi-tiered suppliers — to promote win-win supply-chain relationships and interactions. For example, OEMs should be honest about what they do best and outsource the rest — without micromanagement. Trustworthy pairings of OEMs and EMSs can jointly go after strategic customers — sharing costs, risks, IP ownership, and profits.

Challenge No. 4: Developing needed technologies for society's future needs, even if doing so is disruptive of current practices.

The Think Tank executives used abundant technology innovations to solve our tech-industry problems. Ideas included developing power sources other than the traditional ones; creating ulta-low voltage products for regions without legacy electricity; using 3D printing for single units anywhere in the world, using biological processes as alternatives to electron sources; and having smart phones be so "smart" that they serve nearly all the needs of society (health, safety, entertainment, productivity, nutrition, production).

It should be noted that some regions of high productivity, especially China, have abundant supplies of coal and use this as a primary energy source, creating enormous amounts of particulate matter in the atmosphere, which migrates around the planet. The Think Tank executives spoke seriously about ecological responsibility, and feel that competitive forces are driving them to locate manufacturing in areas that are not optimal.? They called for industry-wide support for encouraging regional manufacturing.

Challenge No. 5: Racing to create responsible designs and supply chains given customers' rapidly increasing concerns over energy efficiency, worker safety, and a healthy environment.

Some OEMs and EMSs struggle to comply with the proliferating environmental and social requirements from customers, standards, and governments around the world. The Think Tank executives decided that it's far better to design products to a uniform set of forward-thinking requirements — such as global standards, and coveted awards that emphasize all of the above strategies for better products, profits, people protection, and the planet. The DfE Online training program, gets OEM and EMS product teams on the same page for reducing costs and meeting customers' true needs through minimizing hardware mass, hazardous substances, assembly time, failures, transportation, disassembly time, and e-waste.

Finally, OEM-EMS relationships of the future are going to demand goal alignment. With insufficient communication, EMS and their OEM customers have worked at cross-purposes with each other. It's essential that supply-chain partners align their corporate goals. It's really very simple: goal alignment helps everyone. This will be increasingly important to the successful EMS and OEM relationships over the next 10 years.

Contact: Technology Forecasters, Inc., 2000 Santa Clara Ave., Alameda, CA 94501 510-479-3478 Web:
http://www.techforecasters.com

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