I attended a fascinating conference yesterday on the state of electronics outsourcing and supply chain management.
Set on the campus of Tellabs in the Chicago suburbs and produced by Charlie Barnhart Associates, speakers and attendees patiently dissected current trends and needs.
So as not to inhibit discussion, I promised not to reveal any specific remarks or details prior without getting the individual speaker’s signoff, so for now I will stick to generalities.
Attending were representatives from about 10 EMS companies and a like number of OEMs, some from Fortune 100 companies. There were also various analysts and other talking heads/pundits. I was the only media person in attendance.
Topics ranged from the concrete to the speculative. Tellabs spoke at length on how and why the telecom gear maker decided to outsource its electronics assembly, and was refreshingly upfront not only about the pros and cons but about the mistakes it made along the way.
Researcher Matt Chanoff noted the startling success of the Apple iPad and wondered whether the reason it has managed to capture a 95% share of the tablet market despite more than 80 competing products has to do more with the “ecology” of Apple vs. the form, fit or function of the iPad itself. He also pointed to a few distinct trends in the electronics design and manufacturing space, noting an unprecedented product platform commoditization is underway, while at the same time a newish breed of hobbyists (“prosumers”) has emerged and created a niche market for very expensive, semi-retro (read: electromechanical) products like cameras.
CEO Cary Wood laid out the turnaround of 118-year-old Sparton, which came thisclose to bankruptcy before righting the ship. The current metrics are an impressive display of refocusing and rebalancing. He said that the bulk of Sparton’s EMS customers two years ago were money losers, and Sparton had to either cancel the programs or renegotiate terms. But the bigger issue was convincing the sales team to jettison bad customers. Wood was forthcoming about the specific policies they put into place, including standardizing templates for pricing and quoting, and installing a sales and incentive program based on profits. He also noted that given Sparton’s exceptionally long history in Michigan, they effectively had to relocate the headquarters because they were the big fish in that small pond, and after all the local layoffs and shutdowns, they would have been tarred and feathered. He also said they made the decision to separate HQ from a manufacturing site so as not to get too emotionally attached to a particular business.
Time and again, OEMs and EMS companies said it was advantageous for competitors to place programs with a single EMS and that IP concerns didn’t really factor into the equation. The EMS companies said that OEM competitors are attracted by the knowledge that the EMS knows how to build products for the target market and that the EMS would also know what the appropriate prices would be. (That latter point was made several times.) In short, IP concerns take a backseat to the hope that the EMS would ensure the build price remained consistent with their competitors’ products (which also hints that OEMs accept the commodity nature of most of their products).
Another speaker asserted that no EMS is too big to fail, Flextronics and Foxconn included. He pointed to the disruption such an event would have on supply chains, pricing and capacity.
The good folks at CBA put me to work moderating a panel made up of two OEMs (Tellabs and Eaton) and three EMS companies of varying size and geographical reach (Plexus, Morey and Creation Technologies). I’ll have more on that in a bit.