An Alternative Approach to Vertical Integration in Manufacturing


Reading time ( words)

The past 50 years have seen the emergence of the EMS industry as OEMs outsourced increasingly more of their product to various global contract manufacturers. Originally concentrated in the United States, the industry has blossomed into nearly $600 billion in sales and their growth shows no indication of slowing in the near future.

The EMS industry was fed by acquisitions of manufacturing concerns from OEMs in the 1990s, followed by mergers of many EMS players in the 2000s. The worldwide manufacturing landscape has changed forever. The days of OEMs owning large vertically integrated manufacturing assets are gone and will probably never return. Oddly, the large vertically integrated manufacturing capability of the OEMs started to be dismantled by the emergence of the EMS companies. Now, some of these same EMS companies are adopting the same, vertically integrated solutions themselves.

Changes in EMS—ODM & Vertical Integration

Even within the EMS world, the past 10 years have witnessed two significant changes. First, there was the emergence of the original design manufacturer (ODM) as third parties participated more in the design and engineering of product on behalf of the OEMs, and then the merger of the ODM capability into the EMS players either through acquisitions or in-house development of the capability. Second, there was the broadening of manufacturing capability within EMS through vertical integration. Again, the vertical integration originated from the EMS’ acquisition of existing technology manufacturers (such as metal fabrication and plastic injection molding) or the in-house development of the capability.

ODM

The ODM factor immediately draws in the unwanted complication of intellectual property (IP) rights and protection of them. The fear of losing IP to competitors through undisciplined or unscrupulous ODMs is sufficient to justify customers’ staying clear of EMS partners who rely heavily on this capability for revenue. The larger Tier 1 EMS players are heavily invested in customers with consumer products where small design developments can be a differentiation, but the life cycle of their product is so short, the need to maintain intellectual property security is less critical. However, these same Tier-1 players have some customers who are not part of the consumer market yet the financial support of the ODM infrastructure within the Tier 1’s corporate structure is still burdened over the broader base of their corporate costs. MC Assembly prefers to invest in engineering resources dedicated specifically to processes like design for manufacturability (DFM) and design for excellence (DFX) where the output is not directly sold to its customer, but rather their customer benefits from the associated cost reductions gained from the improved efficiencies in the manufacturing processes.

Vertical Integration in EMS

The vertical integration factor is a little less straightforward. Initially, the movement towards vertical integration of manufacturing capability was limited to the exceptionally large EMS companies and, at first, was usually the result of them acquiring an auxiliary manufacturing capability as part of the acquisition of circuit board assembly and surface mount technology (SMT) from an OEM.

MCAssembly_Figure1_Jul2017.jpg

Figure 1: MC Assembly process lines demonstrating high-complexity mechatronics assemblies. Note the metal fabrication and cables that are fed from MC integrated partners.

Share


Suggested Items

Blockchain for Manufacturing: What are the Opportunities?

11/17/2017 | Neil Sharp, JJS Manufacturing
Blockchain is one of the hottest topics in the tech world, and a buzzword that’s been popping up quite a bit over the last year or so. It is said to have the potential to radically simplify many business processes, by reducing risk and boosting transparency. In the manufacturing world, what are its opportunities?

Should I Involve My EMS Partner in DFM?

10/26/2017 | Neil Sharp, JJS Manufacturing
OEMs are seeking the support of EMS providers with more than just manufacturing, but with design elements too. One of the main design services EMS providers will be likely to offer is design for manufacture (DFM). This article highlights why engaging your EMS partner in DFM is worthwhile, and will be valuable in securing the longevity of your product.

Test Solutions Your EMS Partner Should Offer

10/20/2017 | Neil Sharp, JJS Manufacturing
When looking to outsource your manufacturing, you need to know that your chosen EMS partner has good test solutions in place so that they can produce consistent, high-quality products to your customers’ requirements. This article highlights the importance of test, and outlines the different types of test your EMS partner should offer.



Copyright © 2017 I-Connect007. All rights reserved.