Witnessing dramatic changes since the 1980s, the electronics industry is poised for steady and sustainable growth globally due to booming economies and ever-increasing consumer demands. However, due to the decline in consumer product life cycles, original equipment manufacturers (OEMs) are using contract manufacturers to enable them to focus on product development and reduce labour and material costs.
New analysis from Frost & Sullivan (electronics.frost.com) European Contract Electronics Manufacturing (CEM) Industry Value Chain Analysis, finds that the European contract electronics manufacturing market earned revenues of $37.7 billion in 2006 and estimates this to reach $67.2 billion in 2013.
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“In a complex manufacturing environment with challenging product life cycles, collaboration across the industrial value chain is a key element in creating successful business propositions,” notes Frost & Sullivan Research Analyst Rengarajan Srinivasan.
Hence, many vertically integrated companies, formerly responsible for both product development and manufacturing, are restructuring their operations to concentrate on their core competencies, reduce costs and build networks of dedicated suppliers able to offer additional benefit to customers.
With an increasing number of OEMs focusing on product innovation and marketing while opting to outsource operations from other parts of the value chain, contract manufacturers are expanding their presence in the OEM supply chain.
The outsourcing trend among OEMs is evolving as manufacturers focus on forging collaborative networks with contract manufacturers to increase profit margins and retain their dominant position in the market.
“Moreover, the increase in globalisation has widened the scope for contract electronics manufacturing (CEM) organisations and CEM vendors are spreading their operations globally to gain better cost advantage,” notes Srinivasan.
However, the CEM service provider market is extremely heterogeneous, characterised by fluctuating customer demand, focus on faster response times and delivery of products at the lowest cost.
Consequently, contract manufacturers are seeking a completely visible supply chain to enable better production planning and demand forecasting. This can offer high flexibility and fast response to fluctuating demands.
Contract manufacturers are also extending their reach across the electronics supply chain from component sourcing to end-user delivery. The efficient use of warehouse management systems (WMS) and transport management systems (TMS) enable contract manufacturers to reduce the time in which products remain in the supply chain.
The ability of contract manufacturers to offer flexibility and quick response to market change offers significant business advantages. Flexible on-demand supply chains provide enhanced customer service, while value chain modularity offers less investment risk for OEMs. The electronics value chain of the future is expected to be a highly collaborative network, designed for maximum flexibility and on-demand manufacturing efficiency.
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