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Dawn of a New Age in Contract Manufacturing

There has been a lot of talk in the electronic manufacturing services (EMS) community about the increasing demand for outsourced manufacturing services in non-traditional markets, such as medical, industrial, military/aero, and renewable energy.

With outsourcing in sectors like solar panels forecast to grow as much as 400 percent by 2014, this movement appears to be the dawn of a new age in contract manufacturing, particularly in the flagging North American and European EMS markets where much of this demand is currently focused. I am optimistic about the tremendous potential this movement holds — however, I urge both OEMs and EMS providers to proceed with caution.

As far as the EMS industry has come over past 30 years, there are still a number of significant business challenges that come with outsourcing manufacturing, including partner selection, maintaining supply chain continuity, protecting IP, increased logistics requirements, and the general difficulty of managing a production program outside your four walls. These challenges are only compounded by the complexities of low volume, high mix (LVHM) niche product manufacturing.

My advice to OEMs looking for an LVHM manufacturing partner is the same as the guidance I gave to customers during the great offshore migration: Do your homework. Let’s face it, high volume, low mix production has been the industry’s bread and butter for more than 30 years. There is no doubt that most players have it down to a science. The problem is that this is not the kind of production this new breed of EMS customer needs. Medical, military/aero, solar all require a partner that can manage frequent customer cycles, a high degree of customization in its operations, wide-ranging materials inventories, as well as an entirely different set of supply chain requirements.

EMS providers in this space must also be able to support the extended life cycles of these products, many of which are meant to be in the market for decades. In these markets, proactive lifecycle management and end-of-life management are as crucial to outsourcing success as is the actual production.

Since OEMs in these niche electronic equipment markets have little or no outsourcing experience, I encourage them to work closely with their distributors and supply chain partners to help identify EMS players with the right capabilities to meet their unique requirements. At Avnet, we have helped many of our non-consumer customers to both formulate and execute successful outsourcing programs.

It’s not an easy transition to make, but the payoff can be significant. For OEMs, there is the promise of decreased product development cycles and rapid, reliable, and on-time product ramp-ups while extending their market reach, while EMS providers have the opportunity to capture market share in a customer base with above average profit potential.

Please contact me if you would like to learn more about this emerging trend.

5 comments on “Dawn of a New Age in Contract Manufacturing

  1. Barbara Jorgensen
    March 4, 2011

    LVHM has so far been a profitable niche for EMS players because it is so complex and requires an entirely different supply chain model. Many of the compnaies that have established themselves in this market have developed deep relationships with the customers. At the same time, many of these products are mission-critical and take a lot more specialized processes. If this market is to expand, EMS companies are going to have to convince OEMs of their superior quality and make a compelling case for outsourcing.

  2. itguyphil
    March 4, 2011

    If EMS is what I think it is in this case, I'm all for whatever changes can be made to POSITIVELY affect the environment.

  3. prabhakar_deosthali
    March 5, 2011

    As against the contract manufacturing for high volume manufacturing where the goal is to outsource the headaches of logistics and process management , the LVHM is like a technology partnership where  the company oursourcing such activity wants to utilise your technical expertise in productionising a specialised component.  Such activity is more of a collaborative effort where the contract manufacturer also partly works as a developer .  The manufactruing process in such cases is not dictated by the outsourcing company to the exact details but is evolved jointly by the contracting company and the contractor.

  4. Eldredge
    March 6, 2011

    Success in this arena requires a partner that has the expertise to handle the procurement and manufatucing nuances associated with the LVHM environment – it is very different from theu LMHV (low mix, igh volume) model.  

  5. Gerry Fay
    March 7, 2011

    Lots of great points from all! As many of you have said, it isnt business as usual and those that create a focused value proposition around HMLV will be the winners.

     

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