EMS Providers Seen Investing in Supply Chain Technology to Remain Competitive

Electronics manufacturing service providers must put in place collaboration and visibility tools to remain competitive, Frost & Sullivan asserts

Electronics manufacturing service providers must put in place collaboration and visibility tools to remain competitive, Frost & Sullivan asserts

Palo Alto, CA — November 30, 2005 — The market for electronic manufacturing services (EMS) is set to continue its upward trend, doubling in volume by 2012, but EMS providers must continue to invest in supply chain technologies, particularly tools for collaboration, visibility and planning, according to a new analysis from consulting company Frost & Sullivan.

In its report "World EMS Supply Chain Markets." Frost & Sullivan reports that the EMS industry earned revenue of $158 billion in 2005, a figure the consultancy estimates will reach $320.5 billion in 2012.

Many factors are driving increased OEM reliance on EMS providers, including European environmental legislation such as the Restriction of Hazardous Substances (RoHS) Directive, set to come into effect in July 2006. As part of this legislation, companies must ensure that the consumption of the leaded components is done on time and that new components are compliant with the directive, and these requirements are pushing many OEMs to hand over these responsibilities to third-party service providers.

EMS Providers Gearing Up

As a result, EMS providers are already gearing up their manufacturing processes to meet the directive and to ensure that the transition to the lead-free parts happens in such a way as to avoid excess and wastage of noncompliant components in the supply chain.

In addition, the EMS providers are looking to optimize their supply chain operations to remain competitive in the marketplace, and both these factors will push them to make further investments in supply chain technology, according to Frost & Sullivan.

"The electronics industry is prone to fast-paced technology changes," said Frost & Sullivan Research Analyst Lavanya Ram Mohan. "EMS providers have to invest a lot of money to remain within the competition and sometimes to merely stay in the race."

Focus on Collaboration, Visibility

Much of the investment, the consultancy said, will focus on technologies to enhance collaboration, forecasting and visibility within the supply chain, along with planning systems like enterprise resource planning (ERP) systems. EMS providers need to hit both the upside and downside of demand, Frost & Sullivan assert, while at the same time ensuring optimum inventory levels — although the consultancy notes that this is a challenge all the players in the supply chain will have to face, irrespective of their position in the chain as well as the time factor.

EMS providers will need to determine what inventory level strategies they would require to meet the customer demands. Some OEMs will demand 95 percent, 98 percent or even 99 percent on time delivery. With the right tools and processes in place, EMS providers can have more hits than misses on their demand forecasts, but the key will be to identify what inventory strategy is required to satisfy the OEMs' requirements while remaining competitive.

"Change is a constant struggle for EMS providers," concluded Ram Mohan. "Poor forecasting can prove to be disastrous for EMS providers and their partners, as [we saw] during the downturn of 2001."

Additional Articles of Interest

— Looking to outsource your supply chain? For five success factors for your outsourcing project Read "Rising to the Challenge of the Outsourced Supply Chain," cover story in the October/November 2005 issue of Supply and Demand Chain Executive.

— For an in-depth review of a conceptual technology model for a supply chain visibility hub, read "The Case for Supply Chain Visibility" on SDCExec.com.

— Increased opportunities for customer interaction create new operational challenges for Sales, Marketing and Service — the Demand Chain. Organizations must look beyond technology to the true foundation of creating and managing demand. For more information, read the SCDExec.com exclusive "Trends in the Demand Chain."