Strengthening the Weakest Link: Key to Competitive Advantage in the EMS Supply Chain Market

Frost: With the RoHS directive coming into effect in July 2006, there will be a lot of implications on the OEM behavior. This directive will act as a driver, which will spur the outsourcing of supply chain operations. There are a lot of aspects to be considered, such as, the need to make sure that the consumption of the leaded components is done on time and also making the new components compliant to the directive. EMS providers are already gearing up their manufacturing processes to meet the directive and making sure that the transition to the lead free parts happens in such a way so as to avoid excess and wastage of noncompliant components in the supply chain. The lead free process will also increase the expenditure for the new process technology. The conversion to lead free manufacturing will take a significant effort and OEMs will outsource to avoid being caught in the situation.

EMS industry earned revenue of $158 billion in 2005 and estimates to reach $ 320.5 billion in 2012.

The electronics industry is prone to fast paced technology changes. EMS providers have to invest a lot of money to remain within the competition and sometimes to merely stay in the race. The optimization of supply chain operations is dependent to a major extent on technology. At the end of the day, technology increases collaboration and visibility within the chain. EMS providers will have to keep up with the changing technology and replace or upgrade their existing technology constantly. The roll out of collaboration tools or planning systems like ERP solutions will be high. It is not always possible for the EMS providers to invest capital to update their in house technology. Uncertainties in technological changes makes OEMs think twice about outsourcing their supply chain operations. Though the cost hindrance of supply chain software is very high, another issue faced is due to implementation and resulting integration issues. It is extremely difficult to integrate all platforms to the same level especially when using old ERP systems. Change is a constant struggle for EMS providers. Poor forecasting can prove to be disastrous for EMS providers and their partners as it was witnessed during the downturn of 2001.

EMS providers need to hit both the upside and downside of demand, while at the same time ensuring optimum inventory levels. This is a challenge all the players in the supply chain will have to face, irrespective of their position in the chain as well as the time factor.EMS providers can by experience and with technology tools, have closer hits than misses on their demand forecasts. EMS providers will need to determine what inventory level strategies they would require to meet the customer demands. Some original equipment manufacturers (OEMs) will demand 95 percent, 98 percent or even 99 percent on time delivery. The key strategy would be to identify what inventory strategy would be required to satisfy the requirement. They need to identify what inventory strategy would be required to compete and dominate in their industry. World EMS Supply Chain Markets Publ 20051130 Supply cyain? Wikipedia