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(July 17, 2007) ALAMEDA, Calif. — Technology Forecasters, Inc. (TFI), released three "Quarterly Forum" reports, surveying the EMS/original design manufacturer (ODM) business sector, opportunities in packing and transportation logistics for integrated EMS/ODM companies, and the strategic points for medical electronics assembly. TFI found that the EMS industry returned to profitability in 2006, yet ODMs still outpaced EMS.
In "Annual EMS-ODM Financial Benchmark Research Report," TFI concludes that ODMs lead EMS providers in inventory-management capabilities and cash management, and that EMS providers should consider adopting ODM business models to improve profitability. For example, though the report saw the EMS sector reach profitability in 2006, the profitability level remains below 2% for profit/net revenue. ODMs saw a profit ratio of about 3.3%. The report noted that the Flextronics acquisition of Solectron will create a shift in the industry; Hon Hai/Foxconn remains dominant in the EMS space. TFI reports that the EMS/ODM industry is growing at a compound annual growth rate (CAGR) of about 12%, with ODMs again rising at a faster pace than EMS providers. Bruce Rayner of TFI notes that 2007 might be a bit slower, due in part to a slow-down in the first half of the year. The total available market — computing, communications, industrial, automotive, military and aerospace, consumer, medical instrumentation, and non-medical instrumentation — which is growing at about 6.3% CAGR, drives EMS/ODM growth. Computing, communications, and medical sectors offer the highest growth opportunities for EMS penetration in the coming years, Rayner explained. The study draws from 2006 financial results of 45 public and private EMS providers and 87 public ODM companies.
"Best Practices in Logistics: The EMS Market Opportunity for Outsourced Logistics and Transportation Services," summarizes the OEM viewpoint on logistics, including drop-ship to retail and export/import customs documentation, as well as avenues EMS providers should consider to entice OEMs to outsource these departments. About 50% of the nearly 100 OEMs surveyed called logistics a "primary responsibility" of internal departments. While OEMs in the survey reported being "satisfied" with EMS and ODM logistics services, capabilities could be improved. TFI suggests that EMS and ODM companies invest in logistics systems, personnel, and processes that will viably exploit opportunities for OEMs outsourcing these tasks in conjunction with assembly. Priority services for OEMs include customs documentation, vendor managed inventory (VMI), negotiation and ownership of transportation contracts, reverse logistics, and final ship. These tasks can be completed in-house by the OEM or EMS provider, or in partnership with a third-party logistics (3PL) provider. EMS providers can team up with 3PL companies, or compete with them for OEM business, notes Rayner. Logistics outsourcing is a logical step for many OEMs, which already outsource final assembly and test to an EMS provider; EMS companies tend to be familiar with global shipping due to their incoming supply chains. TFI forecasts that EMS providers will increase their share of the logistics pie, while OEMs will move away from that area.
TFI also examined the medical-device sector of EMS business. In "Medical Electronics: at the Crossroads of Patient Care and Technology," TFI forecasts that medical electronics will grow at 7.9% CAGR through 2010, with the U.S. leading the market. Western Europe and Japan are also dominant. Outsourcing assembly of these devices will increase from 11% to 14% by 2010, with cost reduction, flexibility, and reduced cycle times driving medical OEMs to EMS providers. Quality assurance systems, knowledge of and adherence to regulations, and protection of intellectual property (IP) are critical for EMS providers looking to attract medical OEMs. For more information on medical electronics assembly and outsourcing, see Precision Engineering & Medtech EMS and Industry Takes Pulse on Lead-free Medical Electronics.
To learn more about these reports, visit TFI's Website. TFI's next quarterly forum reports, to be released at the September 6 meeting in Ottawa, Ontario, will include the firm's "Five Year Forecast" for the EMS industry, accompanied by analysis from a financial expert; a presentation on "Zero Waste" manufacturing and its marketing and financial benefits; a summary of opportunities for EMS providers in the military and aerospace markets, where large- and mid-size OEMs are stepping up outsourcing practices; and a panel discussion involving representatives from mid-tier EMS providers on industry drivers and demands. On September 5, TFI will host a workshop on "Continuous Improvement" and process management, co-located in Ottawa with the forum meeting.
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