EMSNOW CLASSIC From the Publisher: EMS Industry — Then and Now
By Eric Miscoll
This article originally appeared in April of this year. We thought it was worth a replay.
As many of you know, I’ve spent my career tracking the EMS industry from its earliest days. Although I started my career in operations management, early on I began to study and research EMS, first as COO with Technology Forecasters, and then a stint as a practitioner serving as GM of Texas Prototypes until I became managing principal with Charlie Barnhart and Associates. In short, this industry has delighted and sometimes confounded me for many years.
Jennifer Read, EMSNOW’s new editor, has thought and written about electronics manufacturing for even longer, and her career includes the component distribution side of things as well, as she worked at Avnet’s Electronics Marketing and with the ECIA. Both of us worked with Charlie on a number of projects including his Outsourcing Navigator series of analytical tools for OEMs.
We thought it would be fun to do a series of articles about how the industry has evolved. Since we’ve been collecting data and writing about it for so long, we know what we’ve been saying, so over a few beers recently, we took a walk down memory lane to some of the trends that we forecast over the last decade or so. We decided to explore which predictions have panned out, and which have been wrong turns. We felt pretty good about our forecasts, to be honest (although this could be the beer talking).
Here’s our list of key trends. We will be writing about these over the next few months. As these articles get published, please contact us with your thoughts as well and we’ll mull them over and decide if our positions should change. Or not.
- The China Price – Remember when Wall Street decided to ‘encourage’ all publicly held electronics OEMs to outsource their ‘dirty factories’ to China? Labor is so cheap, they said. Developed countries can become ‘service economies’. What could go wrong? We’ll explore.
- Regionalization – See above. Moving all manufacturing to one place that’s six time zones away resulted in some issues. So many began to see the wisdom of ‘build in the region, for the region’. We take a bow on this one, as we made the business case for this approach years ago with CBA methodologies providing the analytics.
- Revenue diversification – The EMS business model went under attack due in part to the concept of ‘continuous cost reduction’ that OEMs wanted to build into their agreements. Did anyone do the math? 3% reduction every quarter ends up at zero eventually. Something had to give. And it did. EMS companies have figured out how not to go bankrupt. At least the ones that survived did.
- Labor trends – Once this concept of ‘service economy’ took hold, the idea of working in a ‘dirty factory’ turned many a smart young physics or engineering major away from electronics manufacturing and they fled in droves to Wall Street and Software. We’ve been tracking this for a long time. Anybody having trouble hiring these days?
- Outsourcing Reversal – Now this is one that we have to mark as a ‘fail.’ We thought the EMS business model was becoming untenable, e.g. some EMS were quoting projects below cost to fill factories, and that’s unsustainable. So we thought OEMs would start absorbing bankrupt factories and become vertically integrated again. Well, that didn’t happen. What DID happen was surprising. We’ll discuss.
- Military pull back – Right after the recession, we cautioned many of our clients in North America that the U.S. DoD would be cutting budgets dramatically. That’s another fail.
These are the trends that we will be exploring more thoroughly in coming articles. We’ll tell you what we said about it then, and what we see actually happening now. We look forward to hearing your comments, so please email either of us to be included in our discussion.
In short, Jennifer and I are quite delighted to be covering this industry again with EMSNOW. We can’t help but admire the level of competency and truly awesome advanced technology that represents the electronics manufacturing enterprise of 2018. We are honored to be part of it. We look forward to hearing more stories and examples of fine companies responding to industry challenges in creative ways.