Archive for September, 2006

I did a webcast last week that featured a presentation from Bruce Rayner of Technology Forecasters, Inc. (TFI).

In the presentation, Bruce shared insights from research TFI has done on what is important to brand owners (OEMs) vs. how they rate their contract manufacturers (EMS and ODM providers) performance. According to TFI’s research, brand owners rate the following in order of importance:

1. Reducing total cost of ownership
2. Global supply chain coordination and execution
3. Flexibility and responsiveness
4. Leveraging technology
5. Profitable environmental compliance

yet rate their contract manufacturer’s performance as:

1. Profitable environmental compliance
2. Leveraging technology
3. Flexibility and responsiveness
4. Global supply chain coordination and execution
5. Reducing total cost of ownership

This gives some good insights into the gaps that exist and some good insights into what is most important to brand owners. I particularly noted how important flexibility and responsiveness is along with the need for global supply chain coordination and execution. These two issues are very inter-related and essential in today’s extended supply networks.

EDN has an article talking about the projected continued growth in outsourcing through 2010. The article features research from Technology Forecasters, Inc. (TFI). The article states that “even with incremental revenue growth, however, EMS/ODM companies will still face profit and pricing pressure. The primary reason most OEMs outsource is to save money and expect those savings to increase over the course of their EMS/ODM relationships.”

Dan Gilmore has some good insights at SupplyChainDigest in an article entitled “How do we get so much inventory?”

In the article, Dan talks about the fact that inventory levels continue to climb and does a really nice job of describing the many root causes of this problem.

I would contend there’s one other root cause - possibly the largest. A company’s inability to respond to change. Think about it. In an ideal world, there would be no inventory. When a customer places an order, you would just build what they want and ship it. Despite the fact that literally billions of dollars have been spent trying to manage and reduce inventory, the problem isn’t going away. In fact, Dan argues it’s getting worse.

The only reason we have inventory in the first place is to provide better responsiveness. The real problem here is that despite the billions that have been spent, companies have failed to address the true root cause - their inability to respond to change. If companies are more responsive to change, the need for inventory as a buffer to provide better response diminishes significantly.

As Dan accurately points out, there are a lot of contributing factors. But we’ve seen time and time again that empowering the organization to respond more quickly and effectively to change is essential to reducing inventories.

SupplyChainBrain has a story highlighting new research by AMR Research entitled “The Supply Chain Management Applications Report, 2005-2010.”

According to the report, in 2005, the SCM grew 3% to $5.6B, exceeding AMR Research’s forecast of 1% growth. This is the second year of consecutive growth for the market.

The report goes on to say that “the most rapid innovation is being delivered by independent software providers that are focusing on industry-specific functionality and targeting under-serviced business problems like Jonova, Kinaxis, LogicTools, Logility, Optiant, SmartOps, Synchrono, Terra Technology, ToolsGroup, TrueDemand, Vision Chain, and WAM Systems.”

The report also says that “analytics is merging with optimization to drive decision support for critical processes like demand management, inventory optimization, and sales and operations planning (S&OP). Vendors following this trend now or in the near future include Adexa, Demantra, i2Technologies, Kinaxis, Logility, Oracle, SAP, and Teradata.”

I thought the most interesting comment was AMR’s finding that companies are moving from enterprise planning to multitier decision support. This is a bulls-eye with what we’re seeing and the key value that we deliver to brand owners (OEM’s) in the markets we serve. The move to an outsourced and distributed manufacturing environment has made this a necessity for companies today.

For the complete report and tables, go to AMR Research.

Electronic Business has an article entitled “Consumer electronics fueling EMS industry growth in India” that talks about the incredible growth in India and the impact it’s having on the EMS industry. Past research has shown that electronics manufacturing is now driven more by consumer purchases than business or commercial purchases.

The implications of this are huge. I know my kids are already into the latest gadget, which have become at least equal parts fashion trends to them as they are consumer electronics. It’s not just about the features, it’s about how they look and which one’s are “cool” with their friends.

This leads to incredible volatility of demand and rapid product innovations, which in turn have enormous ramifications on the supply chain management challenges of both OEMs (brand owners) and EMS companies. More so than ever, being able to respond to these changes is what dictates success or failure.

Electronic Business is featuring an article entitled “Inside the mind of the OEM.” The article features research from Venture Outsource.

The article states that “about 90 percent of OEMs that currently outsource rank the importance of lean between somewhat and very important when it comes to choosing an EMS or ODM partner.”

Given that OEMs are very focused on satisfying demand in the most cost effective way, the importance they place on lean makes sense. Being pull or demand-driven is a key to meeting the business objectives of an OEM.