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What OEMs want, get from EMS partners don’t jive, study says
By Barbara Jorgensen, Senior Editor -- Electronic Business, 8/1/2006
OEMs’ expectations of their electronics manufacturing services (EMS) partners—and their partners’ success in meeting those expectations—appear to be out of sync, according to a recent study.
For example, OEMs rank an EMS provider’s or ODM’s (original design manufacturers) ability to reduce the total cost of ownership as the most important factor in an outsourcing relationship, according to a recent report by supply chain consultancy Technology Forecasters Inc. (TFI). (See graph below). Yet in aggregate, OEMs gave their suppliers relatively low marks in this area.
TFI’s study—the first of its kind conducted by the consultancy-- is a kind of report card delivered by OEMs to their manufacturing suppliers, both EMS providers and ODMs. It is a snapshot of attitudes and opinions about OEMs’ priorities for their EMS providers and ODMs in aggregate as well as individual performance ratings of 16 suppliers, according to Matt Chanoff, author of the study and an analyst with TFI.
“The main intent was to determine best practices in general and to look at how OEMs rate companies,” he says.
In addition to reducing the cost of ownership, OEMs cited four other criteria as key. The second most important factor was their manufacturing suppliers’ global supply chain management coordination and execution. Third was their flexibility and responsiveness to a variety of factors, including engineering change orders and shifts in market and supply conditions. Ranked fourth by OEMs was the EMS/ODMs’ ability to leverage technology; fifth was environmental compliance.
Interestingly, Chanoff says, the study found an inverse relationship between the relative
value OEMs place on the five performance categories and how well their EMS/ODM suppliers perform. For example, reducing the total cost of ownership was of highest importance, yet in aggregate OEMs gave their suppliers relatively low marks in this area. Conversely, OEMs rated their EMS providers and ODMs relatively highly for environmental compliance yet this category was of least importance to them.
A few other findings worth noting include:
- EMS suppliers in North America scored lowest in reducing total cost of ownership, which is most important to OEMs. Suppliers in the Asia/Pacific region performed notably better than those in other regions in this category.
- Performance is consistent across regions in global supply chain coordination and execution, flexibility and responsiveness, and profitable environmental compliance. Outsourcing companies are more than meeting expectations in these areas everywhere.
- On average, EMS providers performed similarly to ODMs in most of the five categories.
- EMS/ODM companies with revenue between $5 billion and $10 billion stood out as the best performing in most categories.
- EMS/ODM suppliers in the revenue range of $1billion to $4.9 billion performed noticeably lower than their industry peers in reducing total cost of ownership and flexibility and responsiveness.
- OEMs with outsourcing spend levels of more than $1 billion are in general less satisfied with the performance of their EMS/ODMs than those spending less on outsourcing.
Chernoff says EMS experts’ reaction to the results were mixed: “In a certain sense it’s surprising that on the top of the OEM scale was cost, and the bottom was environmental compliance. Yet how the EMS/ODM companies did was the inverse. On the other hand, it’s not surprising: if you meet environmental regulations you have done your job, whereas there is not a common threshold for money—everybody wants to save more money.”
The study’s results are based on interviews with 129 senior managers and executives representing 103 OEM companies worldwide, which provided a total of 312 supplier ratings across three geographic areas: North America, Asia/Pacific and Europe. The OEMs represent eight market sectors: telecommunications, networking, storage, computers and peripherals, consumer, industrial, medical, and automotive. In addition to analyzing the data by geography and market segments, TFI also looked at performance based on OEM spending.
Using a five-point rating scale, OEM respondents were asked to assess
their suppliers’ performance in the five key areas (reducing total cost of ownership, global supply chain coordination/execution, flexibility and responsiveness, leveraging technology, profitable environmental compliance).
For more information, go to www.techforecasters.com.
