Wake up, time to get real
By Dieter Weiss, In4ma
Recently, I read a study that claimed 9 out of 10 managers are making important decisions for their companies using intuition. Wikipedia describes intuition as the ability to acquire knowledge without proof, evidence, or conscious reasoning, or without understanding how the knowledge was acquired. What a nice description for basing decisions on a gut feeling. When analyzing the P/L statements of European EMS companies, it looks to this consultant that intuition is the preferred tool for many in EMS management.
The biggest single manufacturing country for EMS, Germany, had 20% of their 457 companies making losses in 2016. In Scandinavia, it was 24%. I have not finished the analysis for the UK so far, but it does not look too promising either. What a surprise, in Romania it was 31%. Could that be true, in a country with more or less the lowest labor cost in Europe? I doubt it. Several companies are using the Eastern States of Europe as an extended workbench. They even supply the material; get the finished or semi-finished products back and the extended workbench charges a little more than the labor cost. Depending on the amount of management charges imposed, one can adjust the bottom line and transfer profits to the mother company. This is the only logical explanation, when a Romanian EMS company, belonging to a big international EMS, has been operating at a loss for nine consecutive years without the management taking action to improve the situation.
The European EMS industry will not get better financial results without big changes. The growth rates of component suppliers, which are flying through the press nearly every day and the growth in revenues of the big public EMS in Europe, are not a positive sign, if the revenue growth is just based on higher sale prices due to higher component prices.
On the marketing side, many companies rely on their existing customers and hope that new and maybe even additional orders will come in tomorrow. Lately the managing director of a big EMS told me that he does not need to know the market size and the structure of the industry, he only focuses on his revenues. Another one told me, he only holds a strategy meeting every three years.
When will the EMS industry start learning from big organizations, that decisions should be based on facts and numbers? Leave your stomach feelings for a visit to a good restaurant and get real. Good profits can only be generated with professional decisions and they should be based on facts, evidence and proof.
There are about 1750-1800 EMS companies in Europe, which is far too many. Far Eastern companies are scratching at the door and European purchasing managers are excited to let them in, especially when their bonus is based on savings in purchasing. Many EMS managers ignore this and tell me, that close proximity to their customers is the key to success and they do not have to fear the EMS offshore. They use the same arguments I heard thirty years ago from the PCB manufacturers: that this time is different with industry 4.0, artificial intelligence, electric vehicles, autonomous driving and many more unrealistic fantasies. The bet is on, that in twenty years from now, there will be far less than 50% of the EMS companies currently operating in Europe and many of the remaining will be only doing fast turnaround and prototypes, offering to help their customers with their good connections to offshore sourcing. Are there ways out of this dilemma? Yes, leave your intuition at home and get real.