EBN@C-Level: Manufacturing as a Service Creates Buyers Boon

The electronic supply chain is about to be disrupted by new players offering a simplified frictionless user experience for buyers and access to unlimited, ‘elastic’ and competitive manufacturing capacity. These marketplace platforms, or Manufacturing as a Service (MaaS) providers are winning more than hearts and minds of engineers and buyers, they are exciting the investment community raising tens of millions to build out their interface and artificial intelligence (AI)-assisted back end.

Image by Oberholster Venita from Pixabay

We caught up with one such company, MacroFab, based in Houston, and interviewed CEO Misha Govshteyn. He has long experience with the as-a-service world and how it is evolving. We wanted to find out more about trends in this area. We also wanted to ask him about some of the trends we are seeing that are impacting electronics OEMs, including tariffs and product shortages 

EBN:  Manufacturing marketplaces like MacroFab have the potential to disrupt the supply chain for electronics.  How fast is this trend moving and what does it mean for supply chain managers and purchasers?

Misha Govshteyn

Misha Govshteyn

Govshteyn: Manufacturing marketplaces are gaining momentum and there are numerous examples of customers building significant products with much more agility than traditional manufacturing approaches allow. But as Jeff Bezos often noted in the first ten years of Amazon's existence – we're still in day one of marketplace evolution. The overall market for electronics manufacturing is over half a trillion dollars, and we're just now seeing marketplaces reaching tens of millions of dollars with several breaking the $100M barrier in Gross Merchandize Volume (GMV) by the end of 2019. By all objective measures, these are volumes handled by mid-tier manufacturers, but the rates of growth are significantly higher. Expect these numbers to be in the billions in the next three to five years. 

EBN:  The trade war between the US and China is causing its own challenges for companies looking to move manufacturing around the world, does this play into your hands?

Govshteyn: The trade war definitely increases volatility of the manufacturing market, but this is just the acceleration of the trends we were seeing before tariff escalation began. The fact is that emerging economies began to apply pressure on China and significant amount of capacity was re-balancing to other low cost manufacturing regions. Marketplaces not only benefit from a volatile trade market, but enable companies to insulate themselves from any specific country or even specific companies or factories. One of the essential functions of digital marketplaces is virtualization of the manufacturing workload – in a sense, the MacroFab platform captures all the tribal knowledge which lives on the factory floor and turns it into a digital asset.

Once the manufacturing job can be placed on the floor of many factories, the same capability allows OEMs to withstand any volatility – whether the risk comes from trade wars, unstable governments or simply more competition between manufacturers. What we're trying to create in the electronics manufacturing market is liquidity and virtualization – an ability to produce product in the best possible factory, every time. It's worth noting that this doesn't mean that manufacturers are inherently at risk of losing control over their revenue. It just means that they can focus on better outcomes for customers. 

What all this turmoil tells us is that agility is essential. This model creates more agility than the traditional outsourcing model of the past.

EBN:  Many customers have Approved Vendor Lists (AVL). How do they approve all the forty or so factories accessible through your platform?

Govshteyn: It depends on the type of job we're performing. For most mid-volume jobs, MacroFab is placed on the customer AVL, and our platform intelligently routes the customer jobs to factories certified by MacroFab. MacroFab owns the component sourcing, quality control and final delivery. Our process for quality control and vetting of factories is incredibly rigorous – we have the quality history and specific equipment lists at these factories in our database, allowing us to place jobs in the right factory for each job. The marketplace mechanism allows best factories to rise to the top, giving both sides of the marketplace a better outcome. This works very well for mid-volume projects, but our largest customers need even more control over their manufacturing choices, so they vet our partner factories just as they do any others. Once these factories are authorized by customers, we can place their jobs in any factory they have pre-approved and visited, so the most critical projects work within the guidelines of the customer's AVL and certification requirements. 

EBN:  While the model might make sense for prototypes, how will you help customers as their volumes increase?

Govshteyn: We have already advanced well beyond prototypes. In fact, only 30% of our manufacturing volume is focused on prototypes today. We already handle customers with hundreds of thousands of units in production. MacroFab is focused on mid-volume production, which is a $80 billion market in North America alone. These aren't projects which go to high volume Tier 1 or Tier 2 manufacturers. These are production runs of $5M or less per year, and there is a huge number of them out there. Our view is that our digital procurement platform allows these projects to be executed faster, with less friction and overhead. Customers benefit from being able to place their demand in multiple factories – something we call ‘Elastic Manufacturing Capacity’.

We routinely break up production runs between multiple factories, allowing customers to gain lead times they can't achieve by being tightly coupled to a single factory. Combine this with our ability to execute any mid-volume order from hundreds to thousands of units, even if customer design changes rapidly, and you have a level of agility not possible before MacroFab came along. Companies that embrace this digital procurement approach have a significant competitive advantage. Their orders never get bumped and they are using the power of the network, rather than a handful of suppliers. 

EBN: How do you ensure your component supply chain, particularly given recent shortages?

Govshteyn: There is no silver bullet to supply chain challenges today, and since we source all components for each build we largely operate like a very well run contract manufacturer and provide forecasts to our supply chain partners. Long terms and at much higher scale, marketplaces like MacroFab become big-data driven forecasting engines, which gives the supply chain much better demand forecasting than is possible today. One of the most popular functions we offer in our platform is real-time inventory visibility, allowing customers to choose substitutes of components as they place their orders to ensure they don't run into delays. Under the hood, however, we look like vertically focused Google search for components, which gives us a really good indicator of customer intent. So, someday we'll be able to predict which components our customers will need six to nine months from now, allowing the supply chain to be much more efficient. 

What’s interesting is many of these questions relate to the challenges of volatility in the market and we see that as something that the current EMS model will struggle with. It is after all a very rigid and inflexible business model. We firmly believe volatility is the new normal. That’s why we think this new version of outsourcing is so compelling. We call it EMS 2.0. It is much more agile and delivers a user experience fit for 2020 and beyond.

3 comments on “EBN@C-Level: Manufacturing as a Service Creates Buyers Boon

  1. EdwardThirlwall
    July 18, 2019

    IS it really very surprising that there are people out there in the world that have a desire to manufacture something of their own? We're not just talking about replicating the components that are available out there in the industry, but about people innovating and being entrepreneurial about it! Who knows what kind of devices and hardware that these people can come up with that might just be the next big thing!

  2. Losi
    July 18, 2019

    I like content

  3. UdyRegan
    July 31, 2019

    Evolution takes place in every industry and this isn't something that is unpredictable. Manufacturers need to always be rapidly progressing in order to adopt and adapt alongside advances that come their way. Such a business pattern would ensure that customers' preferences are met so as to attract an even bigger circle. This process works in a chain and businesses need to be on top of it.

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