This research discusses Electronic Making Services industry and providers' developments which is relation to source chain aspects of electronics industry. The challenges that faced but still facing this industry are discussed in details. Electronic Manufacturing Services industry provides solutions and mechanisms to resolve supply chain problems in consumer electronics industry. A research study of Flextronics International Company presented to clarify how this industry helps OE Manufacturer and how it's rather a good solution for the major problems and problems in electronics making world.
Electronic Making Services (EMS) or Contract Company (CM) has started out their service since 1960, once huge OE Manufacturer (OEM) started out working with subcontractor to be able to accomplish more profit and to deal with high demand changes with no needs to new labor and capital. The EMS industry was raised and played a significant role in processing procedures and technology, also EMS providers have increased their potential, manufacturing overall flexibility, purchasing electricity and cost reductions of materials used in this industry. Therefore, it's been hard for OEM to cope with popular changes and developing flexibility beside cost reduction since EMS providers possessed handle all those aspects efficiently .
From 1970 to 1990, EMS has increased their role and show in global network and provided a higher variety of services such as assembly, prototype, screening, circuit board, materials purchase and management, and transport to the finish customer. A huge demand was made due to technical development since 1990; it has obliged OMEs' to deal with EMS providers in order to reply more successfully to product invention, the shorter life cycles and strong changes of demand. EMS providers have facilitated enlargement and development of OEM companies by giving them high overall flexibility and better control of the variety of services and demand changes .
Outsourcing increases results in consumer electronics industry for a number of reasons. First, the products of most gadgets are similar in production process and building methodology. Second, the type of electronics markets is very vibrant and interacted which motivate OMEs to deal with EMS. All parts of personal computers and medical appliances are consisted from parts such as capacitors, storage area chips, and resistors. The reason why that makes the merchandise unique is the technique of joining the various parts onto paper circuit panel, customization of components and parts, and the encoding of the device and its special software. The essential similarity in completed goods makes the EMS to get an easy technique to split their equipment, skills and data, and information to handle several production orders .
High customization: customers demand is increasing continuously and rapidly. They required the manufacturers to create vastly custom-made products quickly and at relatively low cost. This results very high load and pressure on electronics firms to react to those highly personalized orders with versatile supply string and low priced .
Second problem is the brief life routine: providers have to create new products which have good price, continue reasonable revenue and keep market share. This will cause too brief life cycles of products and will make it more difficult to forecast customer demand. Therefore, manufacturers must be near to customers and must use sellers and resellers to raised understand market segments needs and demand .
Third problem is inventory control versus quick declination: the challenging environment in gadgets industry requires the manufacturers to create components at good deal with new performance and features, to keep high competitiveness. Therefore, using the existing inventory as soon as possible is very important to maintain earnings .
The issue between source and demand is the fourth problem: materials is one of the primary constrained in gadgets industry. Continuous creation of new products and redesign of old parts and components are being refined as the prediction of customer demand is very difficult. Therefore, maker must work collaboratively with materials suppliers to gratify demand and at the same time they have to work with stores to forecast customers demand .
The fifth problem is the high pressure from distributers and suppliers to deliver products at the right time and right place. This can be applied high strain on gadgets manufacturers. Thus, good communications and cooperation with stores and distributers must guarantee better delivery and client satisfaction .
Economical scale: the demand of consumer electronics is increasingly very high, and it depends on product pattern. Therefore, if EMS providers decide to increase capacity to gratify high customer demand this will lead to surplus labor and resources but, they have the ability to shift those excess labor and resources to another OME customer. Which means that EMS providers have high versatility and alternatives to deal with .
Main ability: electronics industry witnesses high competition between OEMs thus, looking for customer needs and goals is vital part to create high competitive products quickly. Thus, the primary capacity for OME is new product design and client satisfaction. By working with EMS, consumer electronics OMEs can focus and make more attention on services design and client satisfaction .
Decreasing materials cost: the huge development of EMS providers provides them more vitality and impact of obtaining raw materials. This increased power and size can cause lessening components costs .
Better revenue and profits on return: electronics processing over head cost and capital investment is very high and to repay it it takes long time. Taking into consideration that the life span cycle is short in this industry, it will be very hard to make the decision of investment. Thus, EMS providers can help OEM to use their decision by creating the whole making processes and overhead cost that will result in better earnings and profits on return .
The high pressure of time to advertise: as we mentioned before, the circuit time of the product is too short thus, coming to the top on the market is very necessary to gain higher profit. EMS providers can source capacity and expertise required for services and new design process quickly. Therefore, EMS providers have the ability to bring new products into market quickly and satisfy customers demand .
Markets globalization: nowadays, marketplaces are being global and OMEs are struggling to satisfy demands in global markets. EMS providers be capable of take the advantage of low labor costs in many places on earth. Furthermore, they can source products at short lead time and decrease supply string costs locally .
Choosing customers is the main decision for EMS providers. Since EMS providers aren't in the business to make demand, they need to be cautious and aware about products that contain huge market demand in addition to future changes. EMS providers must place themselves in processing areas that permit them to include more value. For instance, almost all of EMS companies get rid of computers assembly processes plus they get more involved with medical electronics, servers and cell phones so they can add more value to their manufacturing processes due to the high demand on those electronics areas .
Typically, EMS providers have a broad customer found and they're producing a collection of components and products. Consequently, they achieve high production and capacity usage. EMS is trying to generate high diversity of OME customers to get higher return on their investment and improver usage. Additionally, by building this wide foundation, EMS providers can make up the demand from some other clients if one of their customers market has gone down .
Another concern for choosing customers is the competitors. Once EMS needs to make contract with a competition of one of its customers, EMS specialist usually ask for agreement from his old customer, then he will construct a special production line because of this new customer. This action leads to develop EMS industry that has honest bottom part and reliable attitude. Furthermore, the maturity of EMS industry will lead to high competition within electronics industry and small OEMs be capable of develop up within short time into big company through coping with EMS providers and taking the benefit of their supply chain capacities .
Ever more, EMS providers aren't only produce components and provide services however they are also being truly a major part of supply chain answers to OME manufacturers. Source chain roles consist of product making and design, shipment to get rid of users, demand forecast and targets, suppliers' management and connection .
Demand forecast and prospects of EMS will depend in essence on OEM orders. EMS providers are trying to produce all requests of OME companies. OME provides demand for long and short-term cycles and EMS uses the short term for materials purchasing. Long lasting demand is utilized typically fort capacity requirements planning and materials forecasting. The demand is very energetic, so the long term demand may change and the OME can amend this demand based on its contract with EMS. Sometimes, if EMS professional not able to deliver the planned quantity it may get penalized; therefore, EMS begins to build its own skilled know-how and procedures to work on demand forecasting with OEMs in order to safeguard itself from penalization .
Shipping and delivery to end users has been a service that lots of EMS providers may provide. EMS providers have began to provide entire resource chain alternatives. They started shipping the merchandise to OEMs customers and end users. This results in add more value to EMS providers and solve shipping issues that may face OEM companies. Vehicles costs is quite high and OEMs want to make the assembly process near their customers. EMS has increased its global life to be very close to the end users markets. Building their factories close to the finish users permits them to decrease lead time and lower delivery costs to the finish customers .
In order to create and design services, EMS should expand its capacity. When OEMs outsource more and more of these works to EMS, then, filling up the capacity will be easy. The main concern of building the capacity and the time of the building is the brief life pattern of gadgets products. Thus, EMS providers should be careful when to build the capability required and should be aware how to combine and integrate all facilities and capacities of all customers to attain higher usage .
Recently, EMS providers are using electronic commerce in their source chain management strategies. The goals of employing this tool are to speed up purchasing process time, to automate purchasing process also to decrease over head cost. Therefore, the source chain could be more efficient and overall cost will be minimized. In addition, the application of electronic business enlarges the supplier foundation for EMS providers and affects global sourcing positively. Another main simple truth is, sharing the info between OEMs, EMS, suppliers, and end customers will be very important to integrate resource chain parties and can lead to success of EMS industry .
First concern is taking care of inventory level, which is very hard concern for EMS providers. Presently, studies also show that the normal minimum level of the inventory is approximately 2 weeks. Determining the amount of inventory is determined by precision of demand forecast from OEM and the power of suppliers to respond to this forecast .
The reliability of demand forecast is vital and is dependent mainly on OEM. EMS and OEM agree on specific mechanism to capture customers' needs. For example, OEM might provide one month demand and four months forecast. Predicated on this agreement, OEM will add one more month at the start of each month besides providing real demand for the arriving month. Consequently, this kind of agreements will help to better control inventory level .
Ability of the distributor to respond to the new demands and forecast is a major factor to help EMS handling inventory issues. Responsiveness of supplier depends on lead time, capacity available, and safety stock level. Some suppliers choose to create additional capacity to have the ability to refill EMS purchases within couple of days for example. EMS should provide extra for such suppliers .
EMS usually has many customers, which means that EMS should pool inventory for those customers. Furthermore, suppliers of EMS industry will face the same concern and they should take care of their inventory to face the problem of pooling .
Demand doubt is a major problem in EMS industry thus, the using the inventory is subjected to risky. Unsurprisingly, nobody wants to consider the chance and own the inventory. Guess that the supplier has the inventory, this might lead EMS to create a higher inventory level. Certainly, setting the optimal inventory level is very hard and taking the chance of inventory ownership needs more and more study and analysis .
The second obstacle is risk writing in gadgets industry. EMS providers have, because of the position, the capability to relocate hazards to suppliers or OEM up to they can. Their special position in consumer electronics industry supply chain allow them pass on and share the risks of demand ambiguity and capacity investment funds with suppliers or OEM customers or both of them. Therefore, EMS could reduce dangers through supply string connection .
In recent times, Make-to-Order (MTO) strategy is being more efficient in consumer electronics industry to control demand doubt and brief product life circuit. MTO needs more sophisticated information system tools to control and manage the complicated source chain. Electronic commerce potential must be better and used in this industry. Another obstacle to EMS information systems is to create for creation product and process. The ability of prediction and invention of new designs necessitates EMS to continuously improve its knowledge bottom and information system tools .
Flextronics International is EMS specialist documented as Singapore Company and based in San Jose. It was founded in 1969 and from 1994 to 1998 it extended and gained high progress in several parts. "The company's annual revenue is continuing to grow to $5. 74 billion for fiscal 2000 concluded March 31 from $640 million in fiscal 1997" . "Flextronics has been among the list of five most significant EMS providers in the US since 1997" .
The company is applying the basic principle of "Industry Area" or "Campus". It built low cost production campuses in North and SOUTH USA, Asia and Europe where major customers exist in. Every property or campus is ready with high production equipments and systems, engineering staff and services, and plastics skilled expertise. Flextronics has extended its service area when you are near to suppliers of its material needs such as molding of plastic, chips and microchips product packaging, and product allocation at its campus in Guadalajara-Mexico, Sarvar-Hungary, and Doumen- China. The strategy of Flextronics enables its suppliers to hire areas close to campuses which help them to supply materials easily and build their own foundation. Flextronics is considered presently as a innovator in responsiveness, velocity, and overall flexibility in EMS providers' world .
The company has durability factors in many areas such as product quality, purchasing functionality, and customers' bottom. It is developing many products in different areas such as computer systems, communications, and medical equipments. The company provides its customers high degree of product and mass customizations, overall flexibility of production and design, superior source chain management, effective logistical issues and lowered time to market. Flextronics has located its business in every markets to control cyclical changes of each industry, thus rising reliability and steadiness, and bettering quality. Consequently, supply the capability to OEM customers to diminish production and shipping costs and at the same time Flextronics growing up its customer groundwork .
The high variety of services and overall flexibility made available from Flextronics resulted in new deals and prizes from international OEMs like IBM, Microsoft, Nokia, Ericsson, and Motorola. Flextronics has boosted its occurrence in Europe by purchasing Dii Group in 2000 for $2. 4 billion and in the same time, the business has achieved an enormous step by putting your signature on a deal with Motorola Company for $10 billion. By signing this deal, Flextronics was planning to produce cellular phones, pagers, and other cordless devices for Motorola Company by the finish of 2005. Flextronics became the major EMS specialist for Motorola business. The expected value of this alliance is approximately $30 billion .
Flextronics has wide-ranging customer base as stated before. The company selects its suppliers and customers carefully. Flextronics focuses on telecommunications products and servers. Shape 1 shows the product market mixture of the business in 2000. Comparing those amounts with amounts in 1998, for example, the results shows that gadgets products share decreased from 10% to 8%, whereas computer products increased from 15% to 27%, and medical and others increased from 5% to 12% [5, 7].
Figure 1: Ratio of Product Market Mixture of Flextronics International Ltd .
Flextronics has changed from owner to producer and EMS specialist. The company selects it suppliers carefully predicated on performance and trust. Get together the demand and forecast is vital as a way of measuring performance. Strategy of Flextronics is to cope with wide selection of suppliers and makes satisfactory profit without have narrow range of suppliers .
Flextronics wants to provide development schedules to customers. However, the business usually uses short-term demand because it is convinced that the long-term forecast is not correct. Furthermore, the company has its technical engineers that are responsible for demand forecast .
The company uses Kanban system in its making factories with limited buffers at each stage. Using MTO strategy, the business doesn't own completed goods warehouse. Singapore warehouse keeps on about two days of inventory from each company, and then ships them twice each day to the website in Malaysia. Flextronics is the owner of this warehouse and will pay for inward shipping. The company desires its suppliers to have about fourteen days of inventory if possible, but this isn't committed inventory because it is aware of that its suppliers have other customers .
It's very unusual to send components to the creation location from every region on the globe. Therefore, Flextronics has produce the style of "Industrial Area" to solve logistical conditions that face supply chain. This strategy enables every one of the suppliers to be close or in the same region of the business campus. Furthermore, physical limitations can be taken out, keep away from transfer and export restrictions, and decrease logistical troubles for circulation .
The complicated character, short life routine and demand uncertainty results in the need for complicated information system to deal with all aspects in consumer electronics industry. It is common for EMS providers to develop software solutions to enable those to keep track of their demand, production techniques and inventory control. During 1999, Flextronics use to update its electronic commerce potential using some new software programs. The program allows potential buyers or purchasing professionals to use the Internet to see customer purchases and demands. A number of Flextronics major customers have their own websites to post their new orders. The company getting excited about allow suppliers in close future to view and react to orders too. Furthermore, Flextronics has web-based tool for OEMs plus they can sign in the website to see important information about the products being produced on production series and related quality data, anatomist observations, creation rates, and failing rates .
EMS providers are as an essential part of consumer electronics supply string industry. Digital industry is very complicated and has many troubles and obstacles. Short product life pattern, uncertainty of demand, inventory problems and capacity and lead time constraints are being solved through contracting and working with EMS providers. EMS industry integrates supply chain and raises capacity utilization. Furthermore, it can share industry hazards with OEM and suppliers. The progress of this industry is increasing since it provides several services, developing solutions, supply string versatility, reduced materials costs and proximity to raw materials suppliers.
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