After two decades of concentrating on capacity, the focus of the electronics manufacturing services (EMS) industry now is shifting to capability, with competencies including manufacturing skills and supply chain management gaining in importance, according to IHS iSuppli EMS & ODM Market Research at information and analytics provider IHS Inc.
Over the past two decades, the EMS industry has grown by a combination of organic growth and acquisitions. Industry revenues increased as original equipment manufacturers (OEMs) outsourced production to EMS providers across myriad industries. At the same time, EMS companies acquired numerous manufacturing assets from many of those same customers.
As this trend has progressed during the last two decades, the end markets for EMS products have shifted somewhat. The decade of the 1990s was focused on enterprise-class products, while the stress during the 2000s fell on consumer-oriented electronics. These acquisitions brought, not only capacity, but more importantly, capabilities that IHS believes are in many cases just now starting to earn substantial returns for many companies across the industry.
So far this decade, IHS research shows the product mix has shifted slightly as more industrial products have started to flow through the industry. In parallel with this shift, there has been a rise in focus on enhancing capabilities.
Capabilities previously honed for the production of high-reliability, enterprise-class products can be adapted to industrial products. At the same time, the lessons learned in terms of cost control and meeting extremely tight deadlines for the consumer products sector can also be adapted to other products that are new to outsourcing.
Such need for improved capability could take many forms. Already, EMS companies have been observed to expand into capabilities that were previously considered non-core, such as in-house mechanical fabrication or aftermarket service. Furthermore, EMS providers are placing greater emphasis on end-to-end supply chain management.
These and many more capabilities are likely to be the largest drivers of growth for the industry.
Given the concerns for much weaker global growth than currently expected, IHS remains quite cautious on its 2012 EMS industry growth outlook, but companies that enhance their capabilities are more likely to capture a larger share of the market over the next decade.
@nimantha: it certainly blurs the lines between what is an EMS, ODM and OEM. However, if customers continue to demand higher levels of capability, EMS companies must deliver. But I think the OEM continues to cede too much to its partners.
Adding the new capabilities and inturn adding value to the customer will be the crucial matra of success for all EMS providers in the coming years. One example may be like they would certainly develop inhouse team for developing ATE for the OEM products. Is there anyone from EMS or OEM who can actually provide a list of desired capabilities?
The decision to add capability at EMS providers over capacity is tied to the fact these companies already achieved their initial goals. By adding capacity over the last couple of years, they gained the attention and patronage of the OEMs. I believe they even had to buy the capacity from the OEMs as part of new contract engagements.
Today, OEMs don't have as much capacity floating around so EMS providers can't gain new contracts on that basis. To win new contracts they must add value and it helps in jacking up margins too. Good deal for EMS providers.
EMS is changing to adapt to the market and respond to the new trends. Capabity developement is one good sign that the EMS industry is growing, and it now needs to sharpen a new strategic focus.
As the industry continues to get more competitive, it makes sense that the leading companies are seekng ways to add value. Additional capability is a good way to accomplish that end.
Improved inventory velocity was a key theme for the outsourced manufacturing industry in 2012. Fast forward 12 months, and the hoped-for improvement has not really materialized.
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Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
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Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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