Supply Chain Shakeup is Here at Last

We’ve often wondered whether the roughly 25 years of serious electronics outsourcing has been deleterious for OEMs. Certainly OEMs that have come to rely heavily on contract manufacturers now lack much of the know-how that comes with in-house product build. That’s a subtle change, and one that’s hard to measure directly.

But I’m getting at something more concrete. Indeed, is it possible the broad-based philosophy to “outsource everything” has not only led to a loss of manufacturing development but also actually cost more than had OEMs maintained their internal production capabilities?

Some OEMs are finding out. The ODM model, not so long ago the envy of the contract manufacturing world because of its higher margins, is being torn apart. Customers are pushing for additional services and in the process driving up internal ODM costs.

The flooding in Thailand, the earthquake and subsequent tsunami in Japan, the unrest in the Tunisia – all these unpredictable events are forcing OEMs to look ever more closely at their ever-more-fragile supply chains. The decimation of the disk drive market in Thailand last fall really woke everyone up.

Now, industry leading mid-market OEMs have already begun restructuring their supply chains, disengaging and reworking their manufacturing agreements with ODMs, and reconsidering regionalization builds (aka reshoring). This is a multi-step process that will take several years, says Charlie Barnhart, but it also is “a very definitive trend.”

Barnhart made his comments the Outsourcing Navigator Council meeting May 30 at Teradyne in suburban Boston. (I was fortunate to be invited to moderate a panel on EMS after-market service trends; more on that later.) Barnhart is a bit of an industry gadfly, but he’s provocative and willing to buck the conventional wisdom when his data (and his gut) tell him so. If he’s right, expect upheaval, and expect it soon.

We can’t say we haven’t been expecting this.

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About Mike

Mike Buetow is editor-in-chief of Circuits Assembly magazine, the leading publication for electronics manufacturing, and PCD&F, the leading publication for printed circuit design and fabrication. He is also vice president and editorial director of UP Media Group, for which he oversees all editorial and production aspects. He has more than 20 years' experience in the electronics industry, including six years at IPC, an electronics trade association, at which he was a technical projects manager and communications director. He has also held editorial positions at SMT Magazine, community newspapers and in book publishing. He is a graduate of the University of Illinois. Follow Mike on Twitter: @mikebuetow