ESCC2006 – drilling down into the supply chain

Yesterday in Cologne we were treated to an excellent day of presentations that really opened up the EMS business model to those attending.

It is rare that so many high quality presenters can be seen in one event speaking so specifically about subjects so topical and relevant within the EMS industry.  Following an excellent keynote from the top of the supply chain, that outlined the issues in outsourcing from an OEM perspective, we were treated to an excellent session exploring contract manufacturing models.  Read about the keynote presentation at http://www.emsnow.com/npps/story.cfm?ID=22222]

The first presenter was Bruce Rayner, of Technology Forecasters Inc., Bruce is TFI's Director of Research and was formerly Editor of Electronic Manufacture and Supply.  He gave an excellent presentation that outlined the current position and the future projections for the EMS and ODM industries.  Bruce's presentation included graphs showing the TAM (Total Available Market) reaching $1Trillion in 2007, with a steady 7-8% growth over coming years.  This, coupled with an increase in outsourcing from 22% to 24% of the TAM gives a compound growth projection for the EMS/ODM industry of 11-12%.

Bruce went on to explore different regions and their significance in the market as well as explaining some of the high level influences on the EMS and ODM industry.  He also broke down a lot of the numbers into business segments, explaining where higher growth was, but also, and perhaps more importantly, where better value opportunities exist and can benefit Europe in particular.

Growth, but what about profit?
Among many fascinating slides, the one concerning revenue growth and profitability in the higher tiers of the EMS industry was most interesting.  It seems that from 2004 to 2005 the EMS industry experienced modest growth of 4% whilst ODM had growth of almost 22%.  The most striking thing to note is that the EMS industry on a combined basis did not make enough money to buy a cup of coffee last year.  That is more than $100Billion of turnover and more than one million people not making any money.

The ODMs did a little better, returning a profit of 4%, but this has been reduced due to market pressures and the business models continue to get closer in terms of their financials.  As the day went on and again this morning, it became clear that much of the EMS industry was talking about turnover growth, but nobody seemed to mention profit.  So, what is the function of the EMS industry? – from an OEM standpoint, they have been excellent in reducing costs and mitigating risk.

Following Bruce's presentation, Jürgen Siebert of Sanmina-SCI described his company's model for Europe.  Jürgen Siebert is Senior Director of Business Development Central Europe at Sanmina SCI.  His paper outlined Sanmina-SCI's gateway process that allows the benefits of local support and engineering to be blended with an integrated global supply chain.

Social Responsibility
One of the high value sessions of the day was the last one in the afternoon, in which two presenters talked about the issues and the process of developing a socially responsibly supply chain.  Sari Sarin, Senior Manager, Corporate Responsibility and Environment at Elcoteq, explained how "a global business with 23,000 people working all around the world with different cultures and languages" defines his company's social responsibility.  Elcoteq split this into three overlapping areas: Economic; Social and Environmental.

Sari explained the need to produce profit to provide prosperity in the region it employs.  Add to this proper reporting of processes and practices and the need to take into account the whole of the product life and you can see the importance of taking a holistic approach to this issue.  Elcoteq applies the SA8000 standard as well as applying the codes of conduct provided to it by its customers.

The second speaker in this session, Mark Messow of Celestica, explained that Celestica works in a similar way, but differs in the use of standards.  Celestica applies EICC (electronic industry code of conduct) which is a standard developed with OEMs and EMS companies.  Those signed up include many OEMs such as HP, Dell and Apple, as well as most of the top ten EMS companies.

Both agreed that a serious approach to this subject was essential and provided the opportunity to provide an OEM with a competitive edge, and a better brand experience, as well as being an important factor in attracting and retaining good staff.  This is supported by Mike McNamara's recent comment on the importance of people in the EMS industry and his desire to brand Flextronics as an "employer of choice".  [See Michael McNamara talks about the keys to growth in the EMS industry at http://www.emsnow.com/npps/story.cfm?ID=22088]

There is no doubt that this is a crucial topic and for it to be on the agenda at an event like this is very important.  I have no doubt that Corporate Responsibility and the attached HR (Human Resource) issues will have a major impact on this industry in the coming year.

Tomorrow we will wrap up what has been an excellent conference here in Cologne...