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Revisit the global supply-chain evolution

Posted: 01 Jan 2004 ?? ?Print Version ?Bookmark and Share

Keywords:test? emt? ate? oem? odm?

Looking back at 2003, with the economic downturn worsened by the war in Iraq, SARS and lessons learnt living with lurking shadows of global terrorism, we are beginning to hear murmurs of a so-called economic recovery.

Hence, it is perhaps timely that we revisit the topic of our global electronic supply-chain evolution on how the electronics manufacturing test (EMT) industry needs to realign its sales, marketing and support (SMS) to maintain customer focus despite shrinking profits and shifting demand. The challenge is to move the SMS paradigm from a traditional modus operandi determined by geographies to one along serving customers' supply chains, from OEMs to electronic manufacturing service (EMS) providers: contract electronic manufacturers (CEMs) and ODMs.

The tumultuous downturn has offered ATE vendors to fine-tune this supply-chain business management model to meet new challenges and realities. At the same time, technology continues to speed up at a rate that will require an even faster flexibility to shorten the ever-critical time-to-market and time-to-profit for downstream supply chains.

Never before has the convergence of communications and computation happened at such a rapid pace. Killer techs like SoCs have married killer apps like the white hot 3G technology to enable mass market products like wireless notebooks, handsets and advanced automotive technologies. This has inevitably pointed to a need to step up on test technologies. Increasingly complex SoC calls for new testers and test methodologies, both of which need to be equally viable technologically and economically.

For those high up in the EMS food chain, these technologies spell manna from heaven after the lean years that the entire industry has witnessed. As leaders of tomorrow's technology, both chip and new platform companies not only continue to attract the greatest attention, but the lion's share of investments. That leaves EMS players in the high-volume manufacturing arena more stretched than ever to make every cent count for their return on investment capital.

With test becoming an increasingly vital component of the EMS value chain, it is not surprising that given this scenario, more is expected of ATE suppliers for less in return. What clearly emerges is an urgent need to reorganize and get back in shape to increase business flexibility and grow the buffer zone for increasingly erratic economic cycles.

Search for the silver bullet

Rapid technological cycles mean that HVM supply chains have become more fluid. OEMs can decide to shift their production resources overnight just to save half a day on logistics. ATE suppliers now juggle with fewer resources and increasingly tough customer demands for responsiveness and quality within tightening budgets and timelines. A single magic antidote has yet to emerge to help players counter the negative effects of cost-cutting and provide their customers with the necessary "global reach with the local rich touch."

To survive future downturns and still be able to enhance their value propositions for customers, ATE companies may need to commoditize the core of their businesses. The notion of outsourcing sales and support is already de rigueur in the realms of IT and consumer electronics, but is still almost sacrosanct in the ATE world. The idea may leave some downstream EMT customers aghast, for it will commoditize the very bone and marrow of the traditional EMT direct channel approach of the past two decades.

For Agilent's EMT SMS, the answer lies in strategic outsourcing - not just finding credible companies to provide labor or perform contract work, but strategic channel alliance partners who are equally capable of offering a full-range of cohesive sales and support for its customers.

This value proposition will mean even greater emphasis on ensuring value across the entire supply chain, from the upstream OEMs that generate new business and technological trends to the downstream CEMs and ODMs, which compete relentlessly to ship the best products at the lowest possible cost.

Partnering directly with upstream customers, Agilent will be pacing its top R&D engineers alongside the sources of new product innovations, listening to customers' needs and proactively develop tomorrow's technologies while anticipating test and inspection solutions to minimize problems when PCBs reach high volume production on the assembly line. Such upstream synergies will also enable OEM customers to maximize productivity in design and pilot run. Downstream vendors, already ruthlessly squeezed to reduce test costs and increase yields, will no longer own the task of justifying the need for tests to their customers. Agilent will ensure that the best test strategies are cascaded from design to production.

So what's in it for the EMS customer with such a business model? If Agilent no longer offers the premium of direct sales and support, there is no reason why the customer should not consider the next ATE vendor in line.

Stringent business criteria and technical certification processes for alliance partners are put in place to secure quality continuity for customers. Less tangible factors like customer relations and rapport need not suffer. In the spirit of entrepreneurship, some individuals impacted by the fact that a big corporation could no longer sustain their aspirations, have taken this opportunity to turn from employee to partner, bringing with them a wealth of account knowledge and technical expertise to service the same customers. As such, the launch of these alliances will better serve downstream customers in their local geographies - each operating nimbly to offer even more flexible and affordable local-language reach to customers at the transactional level.

For the skeptics who may be asking whether Agilent's EMT SMS will lose its magic sauce with this transition, let's just say the customer will be the best judge.

- Amos Leong

VP and GM for EMT Sales, Marketing and Support

Agilent Technologies Inc.

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