Supply Chain All the Way: Strengthening the Weakest Link

The strength of a chain lies in its weakest link


Picture this: a market concentrated with very high buying power, suffering from elusive product differentiation and competitiveness that erodes profit margins. This is the current scenario in the electronics manufacturing service (EMS) industry. Let's face it: it's not easy being an EMS provider.

In an increasingly competitive and globalizing world, it is not sufficient for EMS providers to merely produce high quality products. With companies adopting similar strategies, the question frequently asked is, "Where lays the weakest link and the resulting competitive differentiator?"

EMS providers require novel strategies to aggressively capture rival market share and ward off the competition. Earlier EMS providers could compete on the basis of the products they offered, however, with changing competitive scenario, they are now forced to compete on the basis of the company's supply chain strategies. The good news is that there is light at the end of the tunnel. EMS providers are now waking up to brand new strategies that feature supply chain optimization at the top of the list.

Market Pulse

Supply chain management, especially the formulation of the next-generation supply chains, is the current buzzword in the EMS providers market. The electronics industry is one of the most aggressive and proactive sectors to have implemented supply chain outsourcing. Increasing complexity of supply chain operations has driven original equipment manufacturers (OEMs) to increase outsourcing. The EMS market grew from $126.00 billion in 2004 to reach $ 158.00 billion in 2005. It is anticipated to grow at a compound annual growth rate (CAGR) of 10.6 percent till 2012.

With increasing demand fluctuations, OEMs are now aware of the benefits of outsourcing supply chain operations to EMS providers. The current trend for OEMs is to achieve better optimization and become "demand-supply chain leaders" by outsourcing their supply chain operations. This enhances order fulfillment performance. EMS providers are capable of providing more efficient cost-saving services, lean manufacturing, just-in-time (JIT) manufacturing and vendor-managed inventory (VMI). EMS providers have knowledge banks and are capable of keeping up-to-date with the rapidly changing technology when compared to the OEMs. They are also better equipped to handle short span product life cycles.

However, as the market grows, the degree of competition grows proportionally. As competition continues to escalate, EMS providers scramble to identify new strategies to differentiate themselves. This is where the dependence on supply chain strategies comes to the forefront, ensuring delivery performance in a highly fluctuating market.

Taking the High Road to Success

Supply chain strategy, in the correct perspective, can act as the essential enabler in achieving competitive advantage for EMS providers. Shared strategies, competencies and trust — the sharing of information — can provide smart EMS providers the edge required to ensure success. Though the EMS industry is pretty good at firefighting, they still need to increase their proactive approach to enhance supply chain operations.

The ultimate success of supply chain strategies comes from forming the "best fit" strategies, which means applying strategies that fit with the whole organizational goals and strategies. It is also essential to focus on the weaker links and strengthen them. They include:

  • Increasing visibility
  • Increasing collaboration
  • Reducing costs by optimizing procurement and logistics

The current focus is on making the supply chains more demand oriented. This means enhancing the organization's forecasting skills and hitting the demand figures accurately. This will reduce the discrepancy between perceived and actual demand. The future will be "on-demand supply chains." With an efficient on-demand supply chain in place, any organization will be able to meet the challenges of fluctuating demands and be able to convert them into opportunities. This will enable EMS providers to hit both the upside and downside of the demand levels.

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