Smith Market Blog

Increased Supply Chain Tightening as OEMs Seek Efficiencies

PrintE-mail

According to the latest WSTS semiconductor market and forecast,  the 2012 worldwide semi market is expected to come in roughly 3.2% down from 2011 levels, but with 2013 expected to see a  rebound moving up to positive growth territory of 4.5%. Furthermore, the 2014 forecast is expected to see continued growth of 5.2% year-over-year, reaching US $319 billion. The source of the positive forecasts are due to "healthy mid single digit growth across most of geographical regions and semiconductor product categories, supported by the healthier economy of the world."

Yet despite the positive 2013-14 forecasts, there are significant supply chain pressures stemming from the continued cost reductions due the combination of the 2012 slump fresh on the heels of the global recession just a couple of years ago. With inventory management already tightened by most in the semiconductor and electronics industry, this year's focus has been on improving costs from inefficiencies in processes.

OEMs continue supplier consolidation

Earlier this month, iSuppli reported the results of an IHS study based on a longer study earlier this year that found:

A total of 51 percent of OEMs, citing increased pressure to maintain profitability and streamline operations, said they would cut the overall number of outsourced manufacturing services providers with which they currently do business[…].

The stated issue is seeking cost reductions and efficiencies, both goals can be reached with the simultaneous trimming of the number of supply chain partners for various outsourced business needs.  But the follow-on question addresses the path for achieving these goals. Namely, whether or not the OEMs are pulling back on the amount of outsourcing in order to return to a period of greater in-house reliance, or if the direction is more  a movement to enlist supply chain providers who can provide turnkey solutions covering multiple service needs. Addressing this question, IHS found:

On average, each OEM now works with eight outsourced manufacturing partners spanning EMS- , ODM- and/or [joint design manufacturer] JDM-type engagements […].

[…] Overall, the two most commonly cited changes that OEMs say they want to make with their outsourced manufacturing services providers during the next six months are lead-time reduction and price negotiation.

Winners and losers?

So, who is likely to gain or lose from this OEM consolidation trend? Likely the largest suppliers who have the breadth of handling design through manufacturing functions are the most likely to win out over those more specialized partners, namely single- or limited-function EMS, ODM and/or JDMs, as IHS cited above.

But there is more to this than the manufacturing suppliers alone. As we have seen at Smith, there has been a parallel supply chain consolidation throughout the semiconductor industry. The trend has been a favoring of those partners who have the expertise and facilities to provide market agility through in-depth knowledge, experience and analytics that support customizable services and then the provide the stringent quality management services once parts are sourced rather than relying on third-party testing labs.

Margins have continued to tighten, and that has increased the importance of having supply chain partners that can provide a full suite of services. The services demanded from distributors today cover the gamut from market and product knowledge through procurement, testing, anti-counterfeiting, and bi-directional logistics solutions through end-point asset disposition, and final ROI. SmithSecure is our example of what a trusted supplier should offer without compromising the set of unique requirements that differentiate our customers.


Lisa Ann Cairns, Ph.D.
Written on Thursday, 06 December 2012 07:58 by Lisa Ann Cairns, Ph.D.

Viewed 1190 times so far.
Like this? Tweet it to your followers!

Latest articles from Lisa Ann Cairns, Ph.D.


Hits: 1191

Trackback(0)

TrackBack URI for this entry

Comments (0)

Write comment


busy
Copyright 2012 N.F. Smith & Associates LP.  All Rights Reserved.  View our Privacy Policy.

PlagSpotter - duplicate content checker tool

Content

Contact Smith

Live Help