The web is the enabling tool

Analogous to a family that shops at a local supermarket for food and supplies instead of raising cattle and growing vegetables in their own backyard, multinational original equipment manufacturers (OEMs) are increasingly outsourcing their electronic equipment to electronics manufacturing services (EMS) providers. The outsourcing advantages are tremendous, allowing the OEM to concentrate more on product innovation, core competencies – such as research and development, sales, marketing and branding – and decrease time-to-market while improving materials procurement and logistics. Essentially, this saves time and money, providing OEMs with the opportunity to significantly trim expenses and enhance the supply chain.

The economic and strategic benefits to outsourcing electronic equipment to EMS providers have resulted in a dynamic industry that is estimated to be a $100bn worldwide market for 2001. In the technology-driven economy, internet and globalization are driving changes that require OEM companies to be faster and more responsive than ever before. Now, with the bursting of the internet stock market bubble and the caution to the wind approach to business that has been circulating ever since, high-technology manufacturing is very attractive. OEMs are looking to take advantage of partnering with a well-diversified and positioned EMS provider.

Flextronics is among the six top-tier EMS companies whose breadth in capabilities, geographic presence and resources are driving the growth of this industry. With over 100 locations and more than 70,000 employees in 27 countries, Flextronics offers its customers the operational flexibility necessary to maintain a competitive advantage and ability to react to market changes quickly. The company has created a one-stop operation that can design, manufacture and distribute electronic products internationally. Having taken advantage of globalization by placing factories around the world, the enterprise has strategically positioned itself in every major market. This strategy enables multinational OEMs to reduce manufacturing and transportation costs while increasing their ability to reach endusers worldwide. Moreover, it leverages its skill base in product development and process technology in concert with materials procurement and logistics to produce a lower overall cost and reduction in time-to-market.

Strategic outsourcing of electronics is a complex processin which services must be offered across the entire product cycle from design to system build to customer fulfillment. Flextronics‘ complete set of manufacturing, engineering and design solutions allow to take projects from the concept and design phase to industrialization, manufacturing to deployment. Traditionally, the industry has offered a wide range of manufacturing ca-pabilities and other outsourc-ing-related services such asdesign-for-manufacturability. This model has been taken a step further by moving in a direction that offers complete end-to-end solutions – an offering that provides OEMs with advanced design expertise and capabilities, handling every phase of production in-house, versus merely improved subsystems layout and/or the relatively simple task of offering more appropriate or less expensive devices.

After a product is designed, it moves through a stage known as industrialization, where program management teams focus their engineering and manufacturing expertise. These value-added engineering services are performed in 15 product introduction centers worldwide, commencing project planning, process optimization and prototyping services in an effort to reduce cost and time-to-market. Additionally, the utilization of the most appropriate technologies (lead-free solder, flip-chip, chip-scale and wafer-level packages) are implemented in conjunction with component management to ensure a successful product launch into volume manufacturing at one of Flextronics‘ industrial parks.

These unique industrial parks are at the core of Flextronics‘ end-to-end and global solutions strategy that offers manufacturing technologies and services that locally procure raw materials and components needed for product assembly. By locating these parks in low-cost regions around the world like Hungary, the Czech Republic, Poland, Brazil, Mexico and China, Flextronics can reduce logistical barriers to manufacturing and provide its customers with a central and local manufacturing resource. The quality of the parks derives from the company’s strategy of co-locate suppliers on the same campus where assembly takes place. Raw materials, components and sub-assemblies are made into finished products and then distributed worldwide. More importantly, the parks are designed to reduce the risk of operating in an environment where traditionally it has been difficult to set up operations due to high costs. Each park integrates strategic suppliers, often smaller enterprises, which alone would have difficulty navigating through local employment laws, cultural constraints, customs clearance treatment, tax laws and other issues associated with operating in such regions. This vertical integration of suppliers translates into the following benefits for multinational OEMs looking to outsource their electronic products:

• Decrease in logistic costs by offering a wide array of manufacturing services at a single location

• Lower labor costs by operating in low-cost locations worldwide

• Reduction in time-to-market through the elimination of transportation delays that could be significant

• Decrease in shipping costs by co-locating suppliers on a single campus

• Reduction in inventories through just-in-time delivery

• Improvement in communication and quality feedback processes

• Overall increased quality through on-site monitoring and communication

The company’s manufacturing outsource strategy continues to evolve in the effort to offer complete end-to-end solutions. For example, that the Swed-ish telecommunications giant Ericsson will turn over its mobile phone factories and manufacturing operations entirely to Flextronics illustrates the evolution of the EMS industry and the many dynamics involved in operating a globalized business. This deal highlights the industry’s emergence into high-technology manufacturing, but more importantly, shines the spotlight on the company’s ability to deliver solutions to OEMs looking for a virtual manufacturing model. In-line with this one-stop approach, the enterprise has made significant investments in logistics and information technology to ensure that it reaches its goal of providing end-to-end solutions to all of its customers.

The logistical investments allow Flextronics to further connect its low-cost global industrial parks to customers. These supply-chain solutions involve freight forwarding, warehousing and inventory management as well as e-commerce solutions. The com-pany’s heavy investments in information and internet technology allow for improved order placement, tracking and ful-fillment, mass customization/ build-to-order capabilities and endusers order placement 24/7 on-line. The implementation of ERP (enterprise resource planning) applications help to achieve a high level of standardization of its software systems within every unit, and assures that OEMs receive a consistent, high-level of quality and service anywhere in the world. The company’s ability to manage information and take full responsibility for the logistical burden of the entire supply chain continues to facilitate the evolution of the EMS industry and its outsourcing model.

This industry has firmly established itself as a vital link in the worldwide supply chain for electronic products. Understanding that someone has to turn ideas into reality, Flextronics‘ business is booming. The recent turbulence in the technology markets appear to be benefiting the top-tier players, as diversity of OEM customers and persistence of a secular outsourcing trend continues to enable the EMS industry room to grow. With an overall positive view of the industry and the belief that the largest EMS companies will continue to occupy the strategic positions, multinational OEMs will continue to explore outsourcing and partner with the EMS company that can provide the broadest range ofservices in conjunction with strong global presence.

As we progress into the 21st century, unprecedented sophistication will differentiate the EMS provider. Flextronics, and the few other companies like it, will continue to be the architects shaping the structure and influencing the industry by providing a full spectrum of manufacturing and design services to multinational OEMs who are looking to take advantage of a model that has radically shortened the entire supply chain in both time and organization. Michael J. Kovacs

Generally, in articles marked with the Spotlight sign we provide insight and experience in an opinion-based style. Every Spotlight item there-fore reflects the opinion of its author(s).

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