Right place, right time! I was lucky enough to be among a group of executives in senior roles during a huge and seminal change in the way electronics are manufactured and delivered to the user. While the birth of the electronics manufacturing industry wasn't the simplest and most painless birth, there's a lot to be said for this industry, which has developed to almost half a trillion dollars in size and has one of the most agile and successful supply chains on the planet.
From humble beginnings
When I was a younger man, a few bold operations folks thought it was good idea to offer outsourced manufacturing services to a brand or OEM business. Initially the model was real simple, largely designed to support peaks in demand. Contract manufacturers would take a box of free issued parts, or consigned stock, along with simple build instructions and return some days later with built up printed circuit board assemblies (PCBAs). The model was simple but effective; it was all about volume, taking a lot of business from multiple OEMs, streamlining processes, sharing capital equipment and overhead and driving operational costs as low as possible. That way the EMS was able to make product as cheaply, and often even cheaper, than the OEM themselves. Thus an industry was born.
During the 1980s, this model served the industry well and it grew rapidly and began to offer a more sophisticated service. The EMS industry quickly realized that if it could take over purchasing they could make money on the parts price variation (PPV) as well as the assembly process. They also realized that they could not only take on the demand peaks, they could do a good job of managing a full production run from new product introduction (NIP) through the variable demand peaks, right until the end of a products useful market life.
Beyond this they saw opportunities in box build and extending services along the value chain. Roll forward a decade and we had an industry that has enjoyed explosive growth through building factories and growing service offerings, taking on products for global markets.
The next phase of growth was simple. It was just a matter of convincing OEMs that manufacturing wasn't a core competence. They needed to understand that by outsourcing it, they could focus more on marketing, product development and growing their market share.
The EMS industry did this in two ways. First they understood that the brands had their own facilities and staff, so they acquired them, buying land, factories and equipment and taking over labor contracts. Second they realized they needed to be the most competitive game in town, so they set about building lean operations and agile supply chains, driving as much cost out as they could. This worked surprisingly well and led to more rapid growth through the 1990s, greater operational excellence and, on the flip side, tighter margins.
Stay tuned: Tomorrow, we'll be taking a look at the rise of EMS into being a global presence.