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EBN@C-Level: The Changing World of Supply Chain & Contract Manufacturing

Companies both large and small turn to contract manufacturers to help build the products that they’ve created to get them to market more quickly and affordably. That means that the leaders in this space have their fingers on the pulse of the supply chain and all the shifts that are going on.

In fact, today worldwide electronics manufacturing services (EMS) account for 40% of all assembly, a market valued at $1.4 trillion in 2016 that will grow to $1.7 trillion by 2021, according the research by Research and Markets.   While the rate of growth for outsourcing has slowed, it still represents the most desired manufacturing model for the assembly of advanced electronics products available to OEM companies,” the analyst said. “The EMS industry declined approximately 1.1% in 2016 as a result of the slowing of sales for PCs (desktop, notebook and ultra).” The industry subset of contract manufacturing, meanwhile, is experiencing robust growth. It will grow from $425 billion in 2016 to $551 billion in 2021, approximately at a 5.3% compound annual growth rate (CAGR), according to Research and Markets.

Meredith Kovarik

Meredith Kovarik

We sat down with Meredith Kovarik, a business unit director at Jabil, and previously the director, supply chain for the contract manufacturer to talk about what she sees happening in the supply chain industry in general and the contract manufacturing area specifically.  We talked about the newest technologies that the company is leveraging, from artificial intelligence (AI) to 3D printing (additive manufacturing), as well as the hottest supply chain topics including the digital supply chain and environmental responsibility.Jabil, a product solutions company, provides comprehensive electronics design, production, and product management services, as well as complete product supply chain management from facilities in 28 countries.

EBN: How have the services/support that OEMs are looking for from contract manufacturing partners evolved in the last few years? Where do you see it going?

Kovarik : First and foremost, one of the major changes is the pace of change itself.  OEMs are being influenced by technology factors that move their value add further up the “stack” into software, services, and consulting.  This has diverted resources, both capital and human, away from traditional core businesses like hardware, leaving a gap that they look to their manufacturing partners to fill for them.  Manufacturing partners are having to expand beyond pure manufacturing into providing value-add services such as platform engineering, post-sales support, and more than any other area supply chain… Today’s manufacturing partners look more like supply chain consultancies, solving how platforms are delivered seamlessly, and cost effectively, often directly to the end user. 

That’s quite a leap for many contract manufacturing companies, both in terms of where and how they invest, not to mentions cultural challenges. These new supply chain centric business models have different investment requirements and risk profiles, and so leadership need to understand the best way forward.  Traditional capital-intensive investment models simply aren’t a good solution, even though they may be the most understood.  The bridge, and where I see contract manufacturers moving in the future, is investment in digital solutions to empower the market. 

EBN: What do you see as the biggest trends in terms of adoption/implementation of the digital supply chain? What are the biggest misperceptions or stumbling blocks?

Kovarik : It seems like these days every manufacturing partner is standing up their own UPS-like delivery tracking and notification system and calling it supply chain analytics or control tower.  But in the digital supply chain of the future, this is table stakes, and the ability to track and monitor delivery outcome is just the starting point.  Real value comes from not only tracking a specific delivery but looking at how the supply chain is flowing, in real time, and over time.  Creating outcome-based scenario planning that is both predictive, proactive and actionable.  Deliveries are discrete, but supply chains are not.  They are a perfect example of a continuous flow process, and the application of the same process control standards as those used on the manufacturing floor in discrete processes will not yield the same benefit.  The partners of the future will employ supply chain professionals that will have degrees in process engineering, mathematics and data science, not in business or supply chain. 

EBN: What do you see as the biggest trends in terms of adoption/implementation of the digital supply chain? What are the biggest misperceptions or stumbling blocks?

Kovarik :  It seems like these days every manufacturing partner is standing up their own UPS-like delivery tracking and notification system and calling it supply chain analytics or control tower.  But in the digital supply chain of the future, this is table stakes, and the ability to track and monitor delivery outcome is just the starting point.  Real value comes from not only tracking a specific delivery but looking at how the supply chain is flowing, in real time, and over time.  Creating outcome-based scenario planning that is both predictive, proactive and actionable.  Deliveries are discrete, but supply chains are not.  They are a perfect example of a continuous flow process, and the application of the same process control standards as those used on the manufacturing floor in discrete processes will not yield the same benefit.  The partners of the future will employ supply chain professionals that will have degrees in process engineering, mathematics and data science, not in business or supply chain. 

EBN: What technologies are likely to be most important to the supply chain going forward?

Kovarik :  As I see it there are three.  The first has to do with the physical manufacturing process, which is additive manufacturing technologies.  I see a future where the vast majority of products, including electronics, can be printed on demand, anywhere in the world by downloading a file.  And I don’t mean only parts of the product, I think we will see 3D printers and other manufacturing nodes that can print in multiple materials, even printing the active and passive electrical components within the same run.  This takes us down to single-piece, highly customizable, highly distributed manufacturing environments. 

This leads to the next impactful technology, blockchain.  In this new distributed future, we will be increasingly dependent on technology that provides us with an “institutional record” of everything in the value stream to deliver the product, to develop advanced actionable analytics.  For example, when you think about product tracking and quality, an open Blockchain where every supplier can contribute information about the material content, source, manufacture, process about components and ultimately until the final product allows a much richer environment to understand how a product not only might perform in deployment, but tie back issues to common sources, as well as understand how that product impacts the environment.

On top of that institutional record I believe we will see the development of AI-based meta-bots that can scan, analyze, report, and action that robust data in coordination with their human supply chain counterparts.  None of these technologies are “far-future”, all of them have roots in current technology. 

EBN: Social and environmental responsibility/compliance are increasingly top of mind for electronics OEMs. How would you advise organizations to find the sweet spot between good business and good corporate citizenship? 

Kovarik :  I live in San Francisco, so social and environmental responsibility (SER) is constantly discussed.  It seems every day there is another start-up that has socially responsible as part of its brand.  For larger corporations SER is made more difficult by the existing installed asset base.  In existing models isn’t always financially feasible or meet the ROI requirements, where shareholder value is top of mind. 

There is a sweet spot in migrating the operational base into the same additive manufacturing technologies that drive supply chain digitization.  When you think about a future where a product can be manufactured on demand, near the customer, it is inherently “greener” and also more margin-friendly.  It lowers the cost of logistics by placing manufacturing closer to the customer, which in turn lowers fuel consumption.  This new future also reduces scrap and waste, which would also reduces the use of minerals and other non-earth friendly materials.  Additive manufacturing uses the material you need, where traditional subtractive methods, like milling, remove the material you don’t.

Lastly, additive manufacturing takes manufacturing to a new, greener level where we would are no longer tied into discrete machinery that can only handle single processes and materials.

EBN: The political scene both domestically and abroad is threatening to make sweeping changes to the supply chain and trade/taxes/tariffs and more. What advice do you have for organizations about how to mitigate the risk and find opportunities in the changing landscape?

Kovarik :  While I hope that we soon see the end to protectionist policies and calming down in political dialogue, this is unfortunately the world we live in today… Political instability breeds corporate insecurity.  As policies and players change, manufacturing agility will be key for partners to stay ahead of this curve, both for themselves and their customers.  The basis for agility is going to be digital manufacturing and intelligent supply chains that can model and adapt in real time. 

EBN: Custom manufacturing seems to be a holy grail recently. How do you see this trend evolving over the next few years?

Kovarik :  There is a balance I see around customization versus standardization.  Custom manufacturing is definitely front of mind for consumer products.  For example, I love Rothy’s shoes.  They are amazing ballet flats that are made from recycled water bottles (environmentally responsible), come in fun amazing colors, and are the most comfortable shoes ever!  They literally check every box for me.  I love them so much that if they had a custom color or pattern option I’d probably buy a new pair for every major event or season.  And over the next few years I see a world where I can tell Alexa, who also reads me the specific news I want every morning, to order me a new pair to match the outfit I just bought online based on visual search and recognition.  She’ll also ideally manage the delivery so that they arrive at the same time as the outfit, in time for the event I have planned, which is on my schedule with Alexa.

— Hailey Lynne McKeefry, Editor in Chief, EBN Circle me on Google+  Follow me on Twitter Visit my LinkedIn page Friend me on Facebook

1 comment on “EBN@C-Level: The Changing World of Supply Chain & Contract Manufacturing

  1. markgrogan
    October 1, 2018

    Customers are always demanding that they get their things faster and faster these days, so obviously it's the responsibility and prerogative to give the customers what they want right? We just need to make sure that we're all focusing on the best way to do it. It really helps when we're able to integrate technology into the mix because automating everything really seems to be the way to go!

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