Outsourcing remodels the supply chain

The global electronics supply chain is undergoing a fundamental transformation due to OEMs’ continued outsourcing to electronics manufacturing services (EMS) providers and original design manufacturers (ODMs), according to Jeffrey Wu at analyst firm iSuppli.

Wu, formerly with Taiwanese manufacturers BenQ, said: “Taiwanese manufacturers now...play a pivotal role and often stimulate changes in the electronics-manufacturing industry. Many OEMs now are taking back control of the purchasing of certain components from the EMS/ODM providers.”

“This trend is likely to continue, because OEMs increasingly believe this is the best way to resolve procurement problems arising between them and their contract manufacturers,” he said.

The EMS/ODM purchasing policy has been blamed both for driving down semiconductor prices because of their sheer purchasing power - around a third of all semiconductors purchased - and for obscuring the amount of inventory in the supply chain.

This has resulted in sudden, unexpected adjustments in the supply/demand balance, with severe consequences for manufacturers.

The lack of transparency on global supply chain inventory levels has recurrently plagued the semiconductor industry since 2001, and has been widely attributed to the unknown inventory levels of contract manufacturers.

“The rules of the EMS/ODM industry are being rewritten,” said Wu. “Contract manufacturers are devising ways to climb up the value chain to combat drastically-eroding margins, breaking down the conventional boundaries between EMS providers and ODMs. Contract manufacturers are expanding their global footprints to serve the OEMs in fast-growing emerging markets, a practice that increases operational complexity.”