@Ken--I was also pleasantly surprised at how inexpensive electroncis items were this season. LCD TVs have been around awhile, but even so, the discounts were much higher this year. Foxconn has maintained a limited vertical integration for some time now, and perhaps other EMS compnaies are following suit. Worth watching in 2012
Ken, Happy New Year. If vertical integration is making a quiet comeback, what does this mean for the wave of changes that broke down the electronics industry's vertical manufacturing structure over the last two decades? Does this mean the companies that sold off operating divisions (semi, manufacturing) to focus on "core competencies" might have made a major mistake? Or would it be correct to assume that the "vertical integration" you mentioned in the blog is somehow different in its structure and implementation than the old system?
Bolaji, The wave of changes that broke down the electronics industry's vertical manufacturing structure over the last two decades happened mostly with western companies and, as such, vertical integration didn't breakdown in the electronics industry, just in the western managed part of it.I believe these companies have thrown out the baby with the bathwater. Here, the baby is the key strategic bit that gives competitive advantage and the bathwater is the rest of the factory. I don't see any competitive advantage in assembling, for example, surface mount boards but I do see it in high end silicon, displays and other unique technologies. Manufacturing of these more differentiating technologies may not be important in itself unless the manufacturing enables underlying technology development in process or product.
To list a few things that I think are critical in product success, I would choose technology choices, vendor selection, test and product verification. I admit this list is biased towards technology companies and technology products and I would have a different list for markets like cosmetics (marketing) or publishing. What's important about my list is that the elements are based on knowledge, not ownership unless ownership somehow creates knowledge and often it does.
I will use my Nortel Networks (a technology company) expedience to illustrate the point. Every successful product that Nortel ever made had at its core a differentiating semiconductor technology. Whether it is the early adoption of customer silicon and software in its PBX (1970s), the filter-codecs enabling digital switching (1980s) or jitter free lasers allowing high speed optical networks (1990s), all of these products had market leading positions. Their wireless (2000s) products did not have such differentiation. This I feel is one often overlooked reason why the company is no longer with us.
I think it would it be correct to assume that the "vertical integration" in the blog is somehow different in its structure and implementation than the old system. It is knowledge vertical integration. What we need to figure out is how we get it with or without the factory.
Ken, I like the idea of "knowledge vertical integration." And you were right, Western companies gave up on vertical integration but many other companies in the electronics industry didn't. The big Japanese OEMs have been reorganizing and restructuring operations for years but many of them still have a vertical structure in place. I am not sure if this has helped them or not but it would be a shock if Korea's Samsung were to give up manufacturing chips, for instance.
I see an example of "knowledge vertical integration" at play at Apple, which has been involved in designing chips for its products and recently reportedly acquired Anobit, a flash memory vendor in Israel. Anobit was already a supplier of flash memory to Apple. The report has not been confirmed by Apple but it is indicative of what you were pointing out.
Bolaji, the idea of "knowledge integration" is definitely key to sustaining a product and product road map of successive roll-outs. I believe vertical integration does not necessarily foster this though.
When a supply chain is made up of separate entities in many cases, companies are forced to maintain visibility for their products up the chain using applications engineers and sales engineers. Often these professionals work closely with designers to bring about product improvement. A top-down organization may not be as conducive to collaboration between internal suppliers and assembly designers.
The basic ideas behind low cost devices are capturing the market at the earliest. If it’s from reputed brands then the process becomes much easier also.
Jacob, I have a different view on low cost supply chains.While fast time to market correlates with market share, it does not address cost.This "Time to Market" relationship was shown many years ago by Synopsys in their diagram of three different sized, isosceles triangles, each enclosed within the larger ones and right side and bottom aligned where the bottom axis represents time and the apex represents the relative market share for each company represented by the triangles.You don't want high market share with high cost or you are dead.Every company must try to be the low cost producer in the market space where they play.Low cost comes from good supply chain design and good supply chain design supports fast time to market and cost effectiveness over a products lifecycle.Barbara's comments about LCD TV being old technology and low priced illustrates the point.These companies captured market share early and deliver low cost throughout their lifecycle.
Bolaji, you get it.Love your comments and examples.I don't think we want to copy the Asians; we must design a better way.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
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.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
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.
To save this item to your list of favorite EBN content so you can find it later in your Profile page, click the "Save It" button next to the item.
If you found this interesting or useful, please use the links to the services below to share it with other readers. You will need a free account with each service to share an item via that service.
Tweet This
