(PRWEB) February 04, 2003
(PRWEB) February 4, 2003 -- February 4, 2003
SAN JOSE, Calif. (PRWeb) - Prior to 2001, the electronics manufacturing services (EMS) industry compounded revenues 25% per year. It had done this for the last 15 years. Revenues for 2002 are estimated at $90billion dollars for the thousands of EMS providers, or contract manufacturers, across the globe building products for their original equipment manufacturing (OEM) customers.
Although 2003 is not likely to display the annual industry revenue growth it experienced throughout the '90s, the industry is expected to grow at about 6 to 10% this year and is estimated to gradually return to the 20% to 25% growth rates by the second half of 2004.
2003 will represent an electronics outsourcing market saturation of 18% to 20% (which means approximately 80% of electronics OEMs are still performing their manufacturing and related activities in-house). ?The global market is estimated to grow to $160 to $190 billion by 2006 which will still only equate to a market saturation of 25%, maybe 30%?, says Mark Zetter, founder and president of Venture Outsource Group (San Jose, CA) whose company works with technology OEMs that are engaged in, or considering, outsourcing their supply chain.
EMS providers offer a degree of sophistication OEMs cannot match
OEMs sometimes save as much as 15 to 20% just off the cost of the materials to "make" their products when they outsource their non-core competencies to EMS providers such as Flextronics, Celestica, Solectron, and Plexus. EMS providers leverage large volume procurement needs to obtain better materials component pricing which is then passed on to their OEM customers. OEMs can often realize even more savings when lower labor, lower overhead, and lower distribution costs (incurred by the EMS provider) are factored in due to EMS factories located in low-cost regions around the globe.
Electronics outsourcing continues to evolve as more and more activities, once typically executed in-house by OEMs, are being outsourced to providers. Twenty years ago there were only a handful of EMS providers in business. Today, there are thousands of providers on our planet. Meanwhile, providers are aggressively taking on more OEM activities including front-end design, systems integration, distribution, reverse logistics (product depot/warranty repair) and it is not stopping there. Some outsource providers offer their OEM customers direct fulfillment services (where OEM finished products are delivered directly to the end-user), field installment, as well as OEM customer field support.
Well-managed EMS providers are sophisticated "profit centers" capable of building products for multiple electronics customers and the various product families within each OEM?s product program. In these engineering and manufacturing environments, cost-containment and measurement tools are extremely important and are implemented at the granular level. Outsource providers are capable of turning a profit in both high-mix low-volume as well as low-mix high-volume product business models. Providers know manufacturing intimately which is why OEMs pursue their expertise. However, many OEMs feel once they decide to outsource with an EMS provider, the provider will do everything needed for the OEM to be successful.
A growing concern for the OEM
Even with the best of intentions by OEMs and providers, outsource relationships continue to falter. Many OEMs have difficulty managing the exchange of information between their organization and their provider and thus experience trouble effectively managing their portion of responsibilities needed to contribute to making any outsourcing engagement successful. "This is primarily due to OEMs not having the correct outsourcing infrastructure," says Zetter. "OEMs must realize they need to take an active part in managing their own backyard while also taking part in the complex activities going on inside their providers. When they do not do this properly, they can soon find themselves in struggles with their providers over contract terms, deliverables, and a string of other issues that can lead to bubbles in their distribution pipeline and sometimes catastrophic failure of the relationship." He also says a few of the common reasons OEMs contribute to the downfall of their outsource relationships include:
- OEM internal decision-makers cannot agree on an outsourcing plan
- OEMs do not have enough knowledge during contract negotiations
- Outsource providers are selected casually instead of strategically
- OEM infrastructure is not properly in place to manage the outsource relationship or measure provider performance
Areas where OEMs frequently seek external guidance include formulation of their internal outsourcing infrastructure and contract development and negotiations. The Venture Outsource Group Website contains helpful information that can be downloaded at: http://www.ventureoutsource.com/outsource.html. Meanwhile, these are not the only areas the firm assists clients. "Our menu of services has been evolving over time," says Zetter, whose firm has been involved with an enormous amount of outsourcing deals. "Our clients clearly understand we have expertise outside the periphery of traditional outsource manufacturing. They've been asking us to do a host of things we clearly did not think of when our practice began. This was part of the motivation that encouraged us to change the name of the firm," he says.
"Our reputation and presence both get a lot of interest. We know the electronics outsource sector from the inside (and) we can engage clients from around the globe across various technology end-markets. These factors have contributed to our success," says Zetter.
About Venture Outsource Group
The Company was founded by Mark Zetter, a former senior executive in the US$90 billion electronics global contract manufacturing marketplace. The firm is dedicated to helping decision-makers in early-stage and major technology original equipment manufacturing (OEM) companies gain advantages when outsourcing. The Company works with companies across North America, Europe, and Asia. http://www.ventureoutsource.com.
Mark Zetter, President
Venture Outsource Group
San Jose, CA
408 292 3271 (main)