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Why Ranking Matters in EMS Provider Selection

What is the best way to assess and compare electronic manufacturing services (EMS) companies?

The industry has always defined the tiering or segmentation of the EMS industry in a convenient way: by revenue. From this perspective there have generally been considered to be four tiers of EMS: over $1 billion, $500 million to $1 billion, $100 million to $500 million, and under $100 million.

In recent years some people have even created a special tier of those EMS firms over $10 billion. While this segmentation method allows for analysis of the industry and creation of many possible micro-tiers for further analysis, it is limited in its insights and excludes those private companies for whom revenue figures are not available.

While providing essentially the same basic services (e.g., PCBA), there are important distinctions among the tiers, beyond financial size and performance, that should influence an OEM’s selection criteria.

Charlie Barnhart & Associates has always preached that a critical element to the success of an outsourced manufacturing relationship is proper FIT (Flexibility, Integration, and Timing) between the OEM and its outsourced manufacturing partner. This FIT must consider, not only revenues, but also scope of manufacturing capabilities and the presence of manufacturing facilities in the proper geographic location(s) to serve the OEM.

This FIT varies based upon the type of services and capabilities required. FIT also has as much to do with an OEM's self-awareness of its own internal costs and capabilities as those of the EMS provider.

Thinking of the EMS industry as different types of monkeys, real and theatrical, can be a useful, and irreverent, way to consider the industry.

From this perspective there are only three sizes that matter — large, medium, and small. This is a sufficiently sophisticated segmentation methodology for OEMs looking for an EMS partner that will be a good FIT for their needs. Let’s identify and consider three types of monkeys and the ecosystems in which they live:

  1. King Kongs control their own environments but can create havoc.
  2. Gorillas are intelligent creatures that carefully manage their groups, but tend to get preyed upon by poachers.
  3. Chimpanzees are active, engaging, and resourceful, but are highly dependent on the food available to them in the jungle in which they live.

Let’s now assess the EMS industry using the monkey analogy.

King Kongs:

  • Revenues greater than $1 billion
  • Manufacturing footprint that spans several continents with many facilities
  • Mostly serve high-volume customers whose products are sold globally
  • Generally build commoditized products in traditional sectors (i.e., computer, communications, and consumer) but with some focus on emerging sectors (e.g., medical, alternative energy) and especially large customers in those sectors
  • Exert dominance in the supply chain
  • Have voracious sales appetites and are constantly competing for business with other liked-sized EMS and ODMs. They pursue large deals, although they have been known to take on smaller contracts during hard times
  • Have ability to ramp programs quickly and can throw many people at your project
  • If you are not a large customer you probably do not get the attention and mind share you deserve

Gorillas:

  • Revenues between $100 million and $1 billion
  • Good-sized manufacturing footprint with facilities on several continents, or focused in Asia
  • Generally medium- to high-volume manufacturing with medium to low mix
  • Serve a variety of customers from multiple industry sectors. Finding one that builds in your product sector is advantageous from a supply chain perspective
  • Powerful in the supply chain with good technical capabilities
  • Can ramp quickly, but do so more cautiously due to commitment of resources required
  • Good customer service capabilities and processes, with greater flexibility than the King Kongs

Chimpanzees:

  • Revenues less than $100M
  • Limited manufacturing footprint; generally on one continent with one to five facilities
  • Generally low volume, high mix
  • Differentiate by focusing on certain industry sectors (e.g., medical, mil/aero, industrial, instrumentation) or specialized service (e.g., prototyping, high complex boards)
  • Least powerful in the supply chain, with heavy dependence on distributors
  • Cannot put too much into them too fast due to limited resources (human and physical)
  • Stickier customer relationships due to flexibility in servicing inconsistent manufacturing needs of customers

Understanding the differences and benefits among these monkeys and then choosing the right-sized one for your business can be a challenge. Many OEMs find the size and perceived benefits of King Kong appealing even if it makes no business sense.

Remember that FIT is all about the OEM: Have a Flexible approach (don't decide before you shop); Integrate your capabilities with those of the supplier (don't throw the requirements over the wall); and Time your solution/implementation rationally (don’t make hasty decisions and then expect perfect execution tomorrow).

The failed cases we see in the industry occur when the FIT is bad and the manufacturing solution and/or relationship fail, causing the OEM to switch to a, hopefully, more appropriate solution. Each monkey requires different handling, so be sure that you have selected the appropriate one for your needs and capabilities.

Like monkeys, EMS providers are not easy creatures to handle, and just as in the monkey house at the zoo, things can get loud and contentious, and sometimes the feces do get flung about.

6 comments on “Why Ranking Matters in EMS Provider Selection

  1. SP
    October 8, 2010

    Its very interesting that analogy has been drawn with Kingkongs,gorillas and chimpanzee. Unique thought and spicy. Dont know how EMS providers would feel to hear this?

  2. bolaji ojo
    October 8, 2010

    The EMS providers may not be happy about the comparison with a family of primates but the description though imperfect is not without reason. Some contract manufacturers are so big–and in cases so much bigger–than their customers that they wield enormous power in the supply chain. Only the biggest OEMs, and only a handful for that matter, can match their contractors pound for pound. When it comes to decision time therefore OEMs have to figure out which company-which size of company-would help them get to market as quickly as they need to at the the right production cost.

  3. Ashu001
    October 10, 2010

    SP,

    My thoughts exactly.

    I thought it was Jungle-Book all over again!!!

    My feeling on ESM Providers is that the smaller they are,the better for everyone concerned-Suppliers,Customers,etc.

    Because the moment they become Massive Billion Dollar Goliaths the service levels become pathetic(primarily because they already have existing long-term contracts) so prefer retaining that to meeting and developing new clients.

    In all my dealings,I prefer the smaller,nimbler companies to the  KingKongs who live almost exclusively on Brand name.

    Regards

    Ashish.

  4. SP
    October 10, 2010

    Exactly. Once they are big enough they just talk and live on processes. And if you go deep inside their process you see its only on paper. Hardly they take much interest in personal touch or customization. They get into the game with their processes and mostly dictate by that. I too feel that as long as they remain in between , not too small and not too big its good for everyone in business.

  5. Ashu001
    October 11, 2010

    SP,

     

    This is nothing very complicated.It is basic Organizational theory.The smaller and leaner a Organization becomes the lesser place there is for non-performers to hide in.

    And since the Government and its various Organizations are the No.1 Employer in most areas;its the main reason why most of the Non-Performers in society land up either on the Dole Queue (on State Benefits) or as Government employees.

    They have the option to hide away from very valid issues like performance and just suck the Hapless Taxpayer dry.

    Good thing is people in America are finally waking up and seeing the error of letting Public Unions (and their officials) run completely all over Taxpayers.   Even in California (The Ultimate Liberal bastion-Taxpayers have rejected Tax rises to pay for overly bloated Union pensions and salaries) and throwing a good number of them in Jail.

    http://www.sodahead.com/united-states/more-union-thuggery-to-taxpayers-legislators-broke-pension-funds-with-changes/blog-347735/

    http://latimesblogs.latimes.com/lanow/2010/09/bell-officials-arrested-as-prosecutors-are-set-to-file-criminal-charges.html

    Regards

    Ashish.

  6. SP
    October 11, 2010

    Hi Ashish,

    I agree. In smaller organizations people are given value and people know each other by faces. Everything has personal touch. Whether its the requirement gathering or customer handling. But as the organizations grows, very few care about the people and when they become tigers actually there are chances that they get eaten away by the big tiger they ride on. I also agree that in many government comapnies and public companies, non performancers increase. people just get in and they think they can just retire from there. I have witnessed some meeting where young engineers bring out loop holes in the processes and management ask their names and rest can be understood. In my opinion as long as there is a 360 degree feedback (and if its real) on each and every body and the size of the organization remains not too big and not too small its very productive.

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