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Tracing the Rise of the Global EMS Supply Chain

The emergence of the electronics manufacturing services (EMS) sector has been wonderful to watch. The bigger impact, though, has been on the supply chain as these business trends have created what I see as one of the best supply chains in the world.

The electronics manufacturing services (EMS) industry took globalization and ran with it.  The largest EMS companies built massive campus facilities in Asia, chasing low labour costs and rationalizing the supply chain as they went.  Asia wasn't the only destination for lower cost manufacturing: Mexico, Brazil and Eastern Europe with their large pools of skilled labor and proximity to the world's largest consumer markets were also the targets for development.

The next major influence on the EMS was a negative one. During the tech-wreck (aka the dotcom boom and bust of 2000) and subsequent downturns, the EMS industry was in a position of substantial over capacity and when the supply and demand pendulum swings heavily against you the only way to survive is to be the best you can be, the most competitive you can be and the most reliable you can be.  This turmoil in the market toughened the industry beyond recognition, improving systems and controls and forcing yet more soul searching into how they could simply do things better.  Better than before, but more importantly better than everyone else 

The line between cooperation & competition

Competition is a wonderful thing and doubtless if you live in a big city you know that the area with the most restaurants is generally the area with the best restaurants.  The EMS industry not only developed itself into a very sophisticated industry with many global multi billion dollar players, but it also built a quite superb supply chain around it.

One of the most notable impacts I saw in my career was when the industry entered new geographies.  I remember some of the early campuses being built in Asia, Mexico, Poland, Hungary and Romania and the impact they had.  One of the largest projects I was lucky enough to be involved in was shaping the campus in Guadalajara, Mexico, for Flextronics (now called Flex). When we arrived, SCI  (now called Sanmina) had been there for sometime, but there was little critical mass in the supply chain.  In the time we arrived, several other large contract manufacturers, such as Jabil and Solectron (now a part of Flex), also invested heavily in the city and the whole process taught me so much about how an industry can develop. The arrival of three of four largest contract manufacturers in the world in the summer of 1996 changed Guadalajara and its supply chain forever, with suppliers beating a path to our door. 

EMS companies cannot survive in isolation and by recognizing that we needed a strong vendor community we were able to grow in the region more rapidly than if we tried to do everything ourselves.  Rather than build factories, we built a campus with a strip mall of units that could be rented out to the vendors that we and other EMS companies needed around us, including sheet metalwork companies, moulders, and shipping companies.  We worked with the local suppliers to turn them into the vendors we needed.  In addition, we built the infrastructure the area needed to be a serious manufacturing region.

When the EMS industry comes to town there's a lot to be gained for the local suppliers of sheet metal and plastic moulding, the logistics industry, and even the basics services like catering, cleaning, and housing.  And I don't think the local tequila industry suffered much either. 

The standards of global brands come with the industry that supplies it, and those that embraced it rode a wave of business growth and development rarely witnessed.  More importantly, smart EMS companies worked with the local incumbent vendors to make them the best they could be, sharing experience, and knowledge and helping install systems and traceability.

I firmly believe we made the industry in the area more efficient, more skilled, more compliant, more creative, and more profitable.  This level of cooperation between competitors to build the right supply chain was possible because we never thought about how to slice the pie, to us it was always about how many pies can we can collectively bake!

At Riverwood, we spend a lot of time with vendors up and down the supply chain and it doesn't take long to learn that there's more to be gained in making a vendor better than switching every time you see something you don't like.  Our founder Ron Keith often says “EMS suppliers are like wives, if you've had more than three or four, it's probably you.”

The upshot is that during my short thirty years in the industry, I believe I witnessed the EMS sector has built the sort of supply chain that should be the envy of all.

The EMS industry has never been shy and retiring, growth has always been its goal.  Running huge complex businesses with global workforces and complex supply chains is bread and butter to the larger players, and there are clearly industries adjacent to EMS that could, and probably will, benefit from the supply chain and operational excellence on show.

An obvious example is the textile or apparel industry, which, with the advent of wearable, is bumping into EMS more frequently than ever.  They can learn plenty from the EMS industry and I suspect that given the EMS companies' desire for growth and dominance of this sector they will be the subject of JVs, mergers and acquisition in the coming months and years.

Other industries too, such as food, construction and infrastructure can learn from the experiences of the EMS sector.  Lessons around sourcing, manufacturing excellence, traceability, compliance, corporate and social responsibility, environmental impact, globalization and internationalism, mass industrialization, integrated supply chains, vendor development, skills and workforce development have all been learned from successes, failures, perspiration and occasionally inspiration. 

The EMS industry isn't done developing; the next challenge is automation and Internet of Manufacturing (IoM).  Big data will not only change the way we buy and receive products but also the way it's manufactured and fulfilled.

The industry isn't perfect, and it's only thirty or forty years old, but I'm proud of it and when it comes to taking a product idea, no matter how complicated, and delivering it to millions of people in dozens of countries, nobody does it better.

1 comment on “Tracing the Rise of the Global EMS Supply Chain

  1. OEM_BigDog
    October 5, 2015

    I agree that there are people that change EMS providers like they change pants, and generally these people have no idea what they are doing.

    But not all EMS providers perform equally.  Some are very adept and responsive, while some have as their core competence deeply institutionalized processes for extracting additional monies from OEM customers even when their performance is bad.

    The big tied of EMS has lifted many boats, but there are a few left that need to sink to the bottom.  Maybe Riverwood can point out the differences sometime for the little guys who haven't already learned the hardway.

    OBD

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