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EMS Challenge: Innovate or Wither

Having spent the last decade focusing on reducing cost and increasing efficiency, the global electronics supply chain is entering a new phase where innovation in products and processes will drive industry activity, requiring electronics manufacturing services (EMS) providers to focus their investments on helping customers produce improved products and processes.

Jim Brown, president of software research and consulting firm Tech-Clarity, recently spoke about how innovation is driving companies to create better products. Speaking at the IHS Design & Supply Chain Global Summit in San Jose, Calif., in June, Brown said the technology industry now is moving past the phase of reductive innovation, i.e., the era when cost cutting and increased efficiency were the major driving forces in the business. He noted that the business now is moving into a period when product/process innovation will drive the development of the market.

This new phase is exemplified by the rise of Apple Inc.'s iPad, a product whose success is built upon innovation. Rising sales of the iPad and other tablets are cutting into the market for PCs, which are commodity market products wherein differentiation is achieved through cost reduction, and competitive advantage is attained via superior supply chain efficiency.

For EMS providers, the process of reductive innovation has served as a huge tailwind, driving revenue growth as customers engaged in outsourced/asset-light manufacturing strategies as one major part of their reductive innovation strategies. IHS believes that tailwind still has plenty of life in it, with the latest five-year EMS industry revenue forecast calling for nearly 10 percent yearly growth on average.

However, the change in focus suggested by Brown means the EMS industry must now reexamine what it is doing in order to help customers fulfill their product and process innovation goals. This means that EMS providers must engage in proactive partnerships with their clients. When approaching the issue of helping customers innovate, EMS companies would be wise to embrace the Japanese philosophy and process of Kaizen, or continuous improvement, IHS believes.

EMS companies also must constantly question how early in the design cycle they are engaging with customers. Moreover, they must always ask what moves are being made on the production floor to help them meet customers' needs for better, faster, and cheaper products. Most importantly, EMS providers must repeatedly investigate their willingness to make the required investments in front-end process technologies that will allow them to benefit on the back end.

The EMS industry has come a long way during the past several decades in its capability to help customers meet their reductive innovation goals. Now as customers look to product/process innovation to drive business, the EMS industry should commit to investments for meeting that challenge.

— Thomas Dinges is the EMS and ODM analyst at IHS. For more information on the contract manufacturing market, see the IHS report, “Solid Revenue Momentum, but Profit Trends Still Challenging.” For media inquiries on this report, contact Jonathan Cassell, editorial director and manager of public relations, at jonathan.casell@ihs.com. For non-media inquiries, please contact .

4 comments on “EMS Challenge: Innovate or Wither

  1. Ariella
    July 5, 2011

    EMS companies also must constantly question how early in the design cycle they are engaging with customers. 

    Do you have a general guideline to answer that?

  2. jbond
    July 6, 2011

    You have brought up a good point in this article. The way the industry has shifted, if you can't adapt to the needs of customers, you're going to wither away. It will be interesting to see how many companies make this change. It would seem that without the change taking place, they will become candidates for going out of business or being bought by a competitor.

  3. stochastic excursion
    July 7, 2011

    As consumer electronics reach higher bandwidths and data rates, coupled with the drive for miniaturization, low design tolerances are more of a challenge for manufacturing.  Manufacturers who have expertise to draw on, and can work effectively with the customer to dial in their process, will be ahead of the game.

  4. itguyphil
    July 7, 2011

    This is the truth as in all business. We all know the saying “If you can't take the heat, get out the kitchen!” Same goes for business, if you can't do it, someone else will AND take your place doing it.

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