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Reinvent Your Business

Manufacturers moving up value chain alters patterns of shipments of export cargo and import cargo in international trade.

Reinvent Your Business

Manufacturers in the Western world have moved up the value chain to concentrate on more technically advanced industries or products. They compete with low-wage economies by competing on meeting customer needs, and on innovation and flexibility.

In 2017, we strategically took part in several marketing and communication initiatives to position Dynamic EMS as more than a company focused on printed circuit board assembly (PCBA) dedicated to a build-to-print model. This service as a standalone is no longer valid or competitive within the UK.  China is becoming increasingly good at low volume/high mix production within the industrial sector, traditionally a sweet spot of the UK. There has been a global shift in manufacturing from West to East. The manufacturing sector is growing rapidly in India and China and has shrunk in most advanced economies.

So, examine your business to evaluate where else you can add value along the production lifecycle and embed this service into your company’s DNA.  Promote it well to change your target markets natural perception of your business.

Over the past five years, innovation has been identified as one of the main drivers of growth.  This goes hand in hand with continuous reinvention, but also expands out to ensure that, as a company, you are continuously connected to innovation and hubs of technology talent.

Offer your service as a supply chain consultant, after all the EMS industry is in its 60th year, the same amount of time that Dynamic EMS has been operational, albeit under other brand names during this time.  With over 60 years of experience, you have become experts in engineering, unmatched science boffins, technology gurus, and masters of the supply chain.  Tell others your story.  Education is key to addressing the skills gap shortage looming.  We are part of an aging generation of technology talent, however, we are in an industry that does not attract the next generation.

We have found, by forging strong connections to governmental authorities, that we are doing our bit to change the market perception of electronics manufacturing in the UK.  Gone are the days of sawdust on the floor and heavy labour-intensive working conditions.  Today, through our open-door policy, local authorities, incubators, seed funders, universities, and colleges are able to see manufacturing in action in 2018, and how we at Dynamic EMS, touch the technology of today with the innovators for tomorrow.  It can be quite surprising for some to see the vast range of technology, from industrial large form factor equipment, through to handheld medical devices, robotic arms, Internet of Things (IoT) safety and security equipment.

So, while it is a competitive environment and the EMS business is cloaked in non-disclosure agreements, privacy policies and paranoia, it also helps to share.  It’s my personal belief that there is enough Total Available Market (TAM) for us all to succeed and grow, but beyond that, perhaps we should continuously consider the health and well-being of the entire industry.

John Dignan is owner and managing director of Dynamic EMS. 

The semiconductor industry involves shipments of export cargo and import cargo in international trade.

Electronic Manufacturing Supply Chains

From 2015 onwards, the original component manufacturers (OCM) of component parts have continued to grow via aggressive mergers and acquisitions (M&A), especially the semiconductor manufacturers.  The semiconductor industry consolidation, and changes in their distribution sales model have left end-customers with fewer supplier options and fewer qualified design resources. We believe that semiconductor suppliers will continue to win share and will likely have pricing/margin power over the industry for a number of years to come, and in the chip industry, mergers have created mega-suppliers with considerable power.

When two OCM suppliers with a common product portfolios merge, the vendor base for those devices is reduced by a factor of one. Mature lines are phased out in favor of newer and more profitable ones and we’ve seen end-of-life notices from OCMs accelerate within the past year.  At the end of the day, OCMs want to satisfy all demand, but they don’t want to get into a situation where they expand and then the market contracts.

Therefore, the reality is that we now operate in a market with fewer OCMs.  Where once we had several choices, we now have one or two, or sometimes a sole supply only, resulting in the thinning or damming of the sourcing stream.

The current component shortage is now expected to last through 2018. Passives lead-times are stretching to 30-plus weeks, with some orders quoted for delivery into mid‐2019. That’s a long time for buyers to live hand-to-mouth.  This leads to a bunker mentality within the procurement department that double, and even triple, orders to stock up on supply.

For the first time in a number of years, the term allocation is back on the table.  Of course, in any scenario when demand exceeds supply, there is an impact on cost, with prices rising at an extraordinary rate.  For the first time in years, we are beginning to see price increases in chips, making buyers anxious.  Naturally, business is booked well in advance to avoid absorbing an increase, especially in a margin-sensitive business such as EMS.

Being involved in the design stage allows your EMS partner to design the product for manufacture, taking into consideration components that may create a challenge for the Original Equipment Maker (OEM) to secure.   Products can be designed with an alternative component, one that could be easier to source, or one that isn’t approaching its end of life, (EOF) or obsolescence.

Component demand is up thanks to IoT growth and the rise in automotive, mobile and industrial markets.

Technology migration, particularly within the already-volatile memory market, has a ripple effect on availability.

There is currently a transition in the flash market from 2D to 3D technology.  Flash is, of course, the key component in SSDs.  This movement is naturally driving a shortage in both flash memory, with a knock-on effect on SSDs.  Demand gradually puts pressure on established technology, such as DRAM, with DIMM modules for servers in short supply at a time where cloud technologies drive demand up for server production.

This shouldn’t be a  show-stopper.  Take a sustainable approach by forging open book and transparent relationships with your OCM partners.

We’re now seeing shortages across a wide range of products.  In passives, MLCCs and tantalum; and some resistors and diodes.  The industry’s largest DRAM supplier, Samsung, is considering increasing its DRAM output, even as it adds capacity for newer technologies.

But how should they do this?  Does the OCM add capacity, which is expensive and takes considerable time to ramp-up, to a point where the return on investment is visible?  However, if they don’t add the required capacity, could they run the risk of losing the sale?

And it’s not just the OCMs who face challenging decisions, the EMS buyers do too, as the suppliers and distributors are allocating products, using customers’ buying history as a baseline.

The solution, to reduce or eliminate risk, is to take control of the parts of the supply chain that can be controlled.  Work with like-minded OCM partners only, and form a two-way relationship.  Develop your supply chain for cost-effective solutions to reduce waste (component waste, e-waste, packaging, process inefficiencies etc).

Work with your OEM partners to design products with the circular economy in mind, which we at Dynamic EMS see as becoming more important to our EMS business model, and our OEM customers, who now request our company mission statement in regard to environmental issues and/or policies, for example, Just-in-Time (JIT).

Having operated within the supply chain for EMS companies for over 35 years, we recognise that what we are experiencing currently, is part of a continuous cycle.  As this cycle develops, we will see new, smaller component manufacturers emerge and grow.  These companies are born as developmental spin-offs from the larger existing companies, with the talent, experience, and resources in place to transform and disrupt the market once more.

So it’s a cycle, do what you can to sail through it with the minimum amount of disruption.  As many management books state on the subject, change is a business objective, belt up and hold on tight, as it could be a bumpy ride.

John Dignan is managing director of Dynamic EMS.