Some very interesting developments in after-market services these days.
One major player, Celestica, has been expanding its AMS for the past several years as it seeks higher margins. Higher-value services now represent roughly 5% of the company’s revenue, according to Deutsche Bank. (AMS in this case consists of everything from logistics to in and out of warranty repair.)
Skip Boothby, Celestica’s director of Global Services (which includes AMS), says they see two primary trends:
1. Postponement regional configure to order: Celestica sees order fill rates falling because the decision (forecast) is made too early in the product life cycle. The response is that the product is built to the lowest common denominator and shipped to a lower cost region where it is then built to order.
2. Direct order fulfillment: Here, Celestica sees product being built in a low cost region and shipped direct to the customer within a couple days. An example is Apple building PCs at Foxconn in China. The opportunity for the EMS is to add the transportation element which, if it can master, adds a new profit center.
Boothby says Celestica is trying to execute a “control tower” strategy whereby they oversee everything from rework/repair to logistics/reverse logistics to warranty and field service. He said their transportation management service is “very profitable” (but didn’t put a number on it).
They currently sell these services a la carte. They have considered developing a licensing arrangement or other pricing models. They want to make it affordable for startups and companies where their client relationship is in the “low millions.” This is just starting to be rolled out. The average AMS account is $7 million, all of which is value-added (labor, not materials). Most customers are not existing PCBA manufacturing customers. Most AMS work is one-off.
Boothby’s comments came during the Outsourcing Navigator Council meeting, produced by Charlie Barnhart Associates and hosted at Teradyne. If you’ve never attended one of these meetings (they host one or two a year), they really are very valuable, and draw a good cross-section of supply chain executives. I’ll have more on this shortly.