By Eric Miscoll, EMSNOW Publisher
If you are reading this, you probably know that EMSNOW spends a lot of time with executives from electronics manufacturing services (EMS) companies of all sizes, all over the globe. From the EMSNOW/in4ma On Tour in-person interviews, our Up Close video series, to Philip Stoten’s EMS@ C-Level series, and so on, we can legitimately claim to have our finger on the pulse of the EMS industry.
What we are hearing lately is a seismic shift in the conversation: in response to the disruptions of Covid, and now the tariff wars, what we see is an acceleration of the push for supply chain resilience. Call it Regionalization 2.0 perhaps, but EMS company executives are coming to the conclusion that it’s not the strong or the big that will survive, but the agile. The ability to build anything, anytime, anywhere seems to be the direction the industry is headed.
What would it take to have that kind of agility? Or is this just another pipe dream like the ‘lights out factory’ we heard about at so many APEX and Productronica shows through the past decade or so.
Markus Aschenbrenner, Member of the Executive Board, Zollner on MADE IN EUROPE, an IPC Podcast, hosted by Philip Stoten, explains it this way (listen to the complete conversation below). “Our customers are multi-national operating companies. They need to serve different markets. Right now they want to localize their supply chains so they can serve the markets faster, and be more responsive to the local needs. So this is our long term strategy at Zollner. We want to set up our production so we can serve the markets directly, from within the markets.”
Bo Lybaek, President and CEO, GPV agreed.”(The Trump tariff disruption means) in region for region will move forward faster. If we look at what is happening within our customers’ organizations, they are also decentralizing so they can be closer to their customers. So we are following their in region for region thinking.”
Manufacturing electronics is a complex endeavor that has achieved astonishing advances through technology innovation thanks to the talented global engineers at EMS companies and at their equipment and materials suppliers. The trend of decades past was to centralize those capabilities in one region: Asia, and specifically China. Can those capabilities now be replicated in all the regions? Is there the talent and supply chain ecosystem currently available to enable that kind of agility for all types of electronics? Probably not for quite some time. But there are workarounds available for the short term. One example, as we speak, Apple is shipping 1.5 million iPhones out of India to beat the tariffs.
Long term, what specific challenges need to be overcome in the industry to enable true agility, and which players are in a position to move the needle?
Yes, of course, the availability of new software platforms and AI-supported real-time data analysis will be part of the equation. But EMS has been cautious due to software implementations for Industry 4.0 that did not live up to expectations, so there must be a proof of the business case and real understanding of the challenges of electronics manufacturing by the software engineers who offer these solutions.
More importantly, standardization of equipment, business process, and culture across an EMS’ entire global footprint will be essential for this kind of resilience. When growth comes from M&A and not from greenfield expansion, that becomes especially challenging. Intel calls it ‘copy exact’ and it takes years and constant maintenance to achieve over time. The devil in the details indeed.
Global agility will also require component supply chain partners who can provide what is needed and react quickly to demand fluctuations. Historically, there has been tension and mistrust between the EMS industry and the component supply chain, including distribution, and the component manufacturers. Without more transparency around forecasts, inventory levels and lead times, it’s hard to imagine being able to achieve the kind of agility we are talking about.
The semiconductor industry is itself being re-imagined; business models are shifting dramatically among the foundries and technology companies. Tariffs add complexity especially to the global component supply chain. A single electronic assembly can have thousands of parts from many countries. Distributors and component manufacturers at the ECIA are working on educating the industry and increasing efficiencies in this arena as we speak. The EMS industry needs to understand the value and work with distribution more closely.
Educating OEM customers and suppliers about the challenges and benefits of supply chain agility will be an important part of achieving this nirvana. In some ways this is the epitome of what the EMS industry has been selling since it’s inception: manufacturing as a service. Anyplace, anytime, anywhere. That’s an integral part of the value proposition for companies beyond the smaller, regional EMS serving one or two customers locally. The endgame is for the OEM to hand over the design to the EMS who will build it and deliver it to the OEM warehouse nearest the end customer, to the benefit of the environment, and the OEM’s bottom line.
As Bo Lybaek and Markus Aschenbrenner emphasized, build in region for region is a growing consensus among the global EMS and their multi-national OEM customers and suppliers. This is a concept that has been a feature of strategic planning meetings for several years and many talented executives are finding innovative ways to embed this mandate into decision-making at all levels and functions of the organization. It has been percolating throughout the industry, while global companies lay the groundwork and build the workforce capabilities to enable execution.
These efforts make the odds of ‘Anything, Anytime, Anywhere’ much more likely.
