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Evolution necessary for contract manufacturers, says analyst

Posted: 10 Oct 2012 ?? ?Print Version ?Bookmark and Share

Keywords:OEM outsourcing? niche vertical markets? contract manufacturers? Supply Chain Partners?

The dynamics of contract manufacturing has been altered by the aggressive nature of the electronics industry.

OEM outsourcing decisions are yet to experience the implications of the continued evolution of product design and manufacturing. Outsourcing to electronics contract manufacturers is fast becoming a key, value-add service for electronics OEMs across all vertical markets. The aggressive nature of the electronics industry, whether related to price, designs or customer demands, is altering the dynamics of electronics contract manufacturing. Once considered achieving competitive advantage, (for both electronics contract manufacturers and OEMs) outsourcing has become a vital part of any successful survival strategy.

Enterprising OEMs will increase dependency on electronics contract manufacturers for continuous innovation, cost reductions, quality, and most importantly faster time-to-market. As a result, the electronics contract manufacturing market is evolving and emulating the overall electronics industries to capitalise on opportunities and overcome challenges.

Frost and Sullivan's latest research, "Evolution in Electronics design and Implications for Global Supply Chain Partners," highlights key factors that will affect the role of contract manufacturers in the electronics industry. The study employs findings of a recent survey conducted by�Frost & Sullivan in collaboration with

The main driver for the increasing role of electronics contract manufacturers (from sourcing to design support to manufacturing and distribution) is shortening product lifecycles. Specification of the product during its lifecycle is one of the greatest problems OEMs face, and it will grow as product design continues to evolve rapidly. Always been a challenge, increasingly shorter product lifecycles exacerbate the issue. Many products fail because of incorrect specifications, which have direct implications for manufacturing. This is one good way for contract manufacturers to grab the attention of OEMs, particularly those new to outsourcing.

OEMs across all vertical markets are expected to rely on multiple contract manufacturers to translate innovation into successful product launches. Consumer electronics, computing and other high volume sectors are well acquainted with the contract manufacturing model. These industries have been more forthcoming in employing strategic outsourcing partners for functions beyond manufacturing. They are also more open to viewing them as strategic partners.

In high reliability industries such as aerospace and medical electronics, the role of contract manufacturers remains only tactical. OEMs in niche vertical markets have shown a greater propensity to carefully weigh the pros and cons of embracing contract manufacturers as strategic partners or an extension of their operations. Most OEMs manage some or most of their manufacturing and supply chain needs in-house, and are hard pressed to consider outsourcing unless a partner can guarantee better results.

The chart below depicts the implications for the services offered by electronics contract manufacturers highlights by survey respondents.

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Figure: Evolution in Electronics Design: Implications for Services of Contract Manufacturers, Global 2011.
Source: Frost and Sullivan Analysis.

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