The June TFI Quarterly Forum - held on the Microsoft campus in Seattle

While it may seem odd that a forum generally focused on hardware manufacturing would be held at the world's largest software company, one has to recognize that Microsoft has had greater than $2B of Xbox sales alone and has an extensive contract manufacturing program, with Flextronics and Wistron being the largest participants. 

As always the forum was well attended with a cross section of players from EMS, OEM, ODM, and other related service and supply companies.  The contacts and networking opportunities afforded by this diverse group were highly valuable, as were the presentations themselves. 

The theme for this forum was "Question your Current Practices".  As businesses evolve, one needs to question if practices exist that conflict with business goals.  Practices closest to the root of your business also have the most impact and are a good place to start.

Drive Manufacturing Performance at the Point of Action
The first presentation was from Duncan Klett, Executive Vice President at Kinaxis.   How a company deals with change, in all parts of the supply chain, can be a significant differentiator between successful and failure.  On a daily basis you need to deal with changes that may come from supply of components, end product demand, production capacity, and product changes.  Very often more than one of these are happening simultaneously.  The old ways of dealing with this included things like safety stock, maintaining excess capacity, expediting on a regular basis, and lots of rework and overtime.  The thin margins of today make these approaches unfeasible.

The best companies will have real-time tools and processes to manage all this.  The key is to drive collaborative decisions when you need them.  The myriad of personal Excel spreadsheets and multi-day what-ifs are too slow, inaccurate, and not dynamic enough for the multi-location complex supply chain.  Taking several days to make a decision likely means your decision cycle is slower than the pace of change of the actual conditions.   Real-time Response Management requires the right tools and processes.  Without the right planning tools, it seems unlikely that you'll end up with the right plans. 

Real-Time Response Management - What's in it for you?
-- Harnesses the human capital in an organization
-- Simultaneously and immediately determines the impact on the business of changes in supply, demand, capacity or product
-- Increases customer service and improves business performance with reduced inventory
-- Establishes a competitive advantage essential in today's market

The Future of Manufacturing: Profiting from Global Regulations and Industry Trends
Harvey Stone, Managing Director of the GoodBye Chain Group, gave a spirited presentation about the trends of environmental regulations, some of the unique methods being developed, and how all this can spell business opportunity as the trend towards diminishing environmental impacts clearly is here to stay.

Awareness and regulation has come along way.  We've moved from the "do nothing" time up though most of the 20th Century, to the "do something" period started in the 1970's, to the "do everything" period we seem to be entering now.  This is including the types of materials that may, or may not, be used as well as an extension of the life-cycle management to the disposal stage. 

There was an interesting discussion around product development by humans vs. 'product development' by nature.  Nature is incredibly efficient at integrating materials in creating plants, animals, etc. and then breaking them down again and separating the integrated items.  By product from one is the catalyst for another.  Humans on the other hand are great at integrating materials but have not focused on the breakdown stage.  Consequently our stuff stays around long after it's useful life thereby not releasing the materials for use by something else.  This is changing and some design philosophies advocate starting design further upstream, all the way to "where do the raw materials for this come from".

Many companies (Sony to name a big player) are pursuing organic solutions such as corn-based chassis for laptops and other products.  Others are working on breakdown methods for existing products such as CD eating fungi and various bio based solutions that breakdown and separate packaging materials. 

All this can spell savings for some companies (Dupont has saved $1B in eco-efficiency) and new business opportunities for others.  By the way, the number of graduating environmental engineers is increasing tremendously over the next few years.  As these folks enter the workforce eco-efficiency will certainly become more pervasive.

Annual Productivity Benchmarking of EMS/ODM Companies by Tier
This is the annual survey that looks at EMS and ODM companies to assess the health of the overall industry and to create a scorecard of how the best and worst companies match up against the 14 financial metrics considered.  TFI's Niti Agrawal presented the results.  The study included 49 EMSs and 94 ODMs, with a variety across tier 1 through tier 4.  While the study is chock full of great data I will offer a few tidbits here. 

Even with all the gloom the EMS industry managed a revenue growth rate of 19% 2004.  The ODM industry grew at a quicker 28%.  The high-tech OEM space actually grew by about 11%.  OEMs continue to push outsourcing and EMS players have made inroads in the Auto, Medical, and Industrial spaces.  On the profit side, EMS players showed a -2.0% net profit while ODMs showed a +6.8% net profit.  It is interesting to note however that the ODM profit level fell greater from '03 to '04 than EMS profit did.  So the ODMs are certainly feeling their share of pain. 

There was a point made that the EMS pain has more to do with the Chinese EMS players being willing to work at or below breakeven and less to do with direct pressure from ODMs.  It was noted that the study was very light on Chinese EMS data as they are private companies and unwilling to divulge information.

Anecdotally, the EMS players commented that they are seeing strong price pressure and that they expect that pressure to increase in 2005.  Not surprising I guess, but troubling given the already negative profit margin by the EMS industry as a whole.

The EMS Model: Changes, Risks, and Implications
Matt Chanoff presented a study that was kicked off by a previous forum discussion regarding 'was the EMS model broken?'.  The study was a compilation of 13 interviews with key industry people. 

The study looked at the industry from the OEM and EMS perspective and then looked at each perspective from a customer viewpoint and an investor viewpoint.   Not surprisingly the viewpoints were across the board from classic stand of OEMs using EMS to buy slices of capacity overhead as they need it to a view that said EMS just shifts cost and has no real value add.  It was voiced by several EMS players that OEMs these days want the management, visibility, and control as if they were doing their own manufacturing, but without the costs, risks, and logistics, which they are happy to leave to the EMS houses.

The study also looked across the spectrum from EMS to JDM to ODM looking for pros and cons of each.  Clearly there is no "right answer" and I think the bottom line is that the search for an elusive margin is still on and it's not clear where or if it will be found. 

You can learn more about the quarterly forum at http://www.emsnow.com/spps2/sitepage2.cfm?catid=49 where you will also find details of a $500 discount exclusive to EMSNow readers.