Adam Pick, iSuppli Electronics Production | February 05, 2008

iSuppli’s Worldwide Analyst Tour Illustrates OEM Strategy Shifts

During the past ninety days, iSuppli’s EMS/ODM team embarked on a worldwide research tour across North America, Europe and Asia. One of the research objectives was to better understand the key trends impacting the procurement strategies and practices of OEMs relative to the contract manufacturing node of the supply chain.
By Adam Pick, Principal Analyst, EMS/ODM Services, iSuppli

iSuppli’s EMS/ODM team met with more than twenty OEMs from several tiers and multiple markets including compute, networking, telecom, mobile, industrial, aerospace and consumer.

Ultimately, our analysis suggests this is a very unique time for many OEMs. Unlike former analyst tours, iSuppli’s team was intrigued to learn of several procurement practice shifts among the OEMs and new, or recently launched, supplier selection processes.

These strategic and tactical actions by OEMs relative to their EMS and ODM providers were triggered by several factors including:

• Supply chain disruptions
• Supply chain power issues
• Consolidation
• Contract expirations
• Financial concerns
• Trust factors

OEM Materials Spend and Control

One of the most apparent shifts in OEM procurement strategy relative to EMS/ODM providers continues to be focused on parts management and control. As highlighted in prior iSuppli reports, several OEMs have been pulling back parts procurement for several years in an attempt to minimize real or perceived purchase price variance. OEMs appear to have declining faith that CMs can effectively aggregate spend for their distinct bottom-line benefits.

As a result, OEMs continue to deploy buy/sell relationships and implement price-masking strategies to better manage parts—both high-value and low-value parts. In certain situations, OEMs are deploying consignment and “kit models” to maintain even tighter control over materials.

OEM Supplier Selections

Another key observation from iSuppli’s recent research tour was the number of new EMS/ODM supplier selection processes underway. It appears that several manufacturing relationships are experiencing change or will experience change in the near future.

To some extent, there is anecdotal evidence of this when reviewing recent results from several, very public OEM/CM relationships. For example, Cisco is less than a 10% customer of Celestica, Sun Microsystems’ sales to Benchmark dropped by 40% last quarter and Philips represented less than 10% of Jabil’s sales this past quarter.

What Is Next?

iSuppli’s research suggests that OEMs have developed a revived vigor to better understand and utilize their supply chain power for both strategic initiatives and financial results. It appears that OEMs are now, more than ever, willing to readjust their existing supply chain relationships and practices to harness the benefits of flexible manufacturing assets.

However, there are several pros and cons to any aggressive negotiating tactic within the complex, electronics supply chain. Following ”A Big Stick” approach may be appropriate at times, but our research indicates a one-sided approach may be incredibly naĂŻve.

To learn more about this unique analysis, please see Pick’s latest report titled, “OEMs Shake Their Stick?”. You can learn more about this special report by clicking:

Adam Pick is iSuppli’s Principal Analyst for EMS/ODM Market Intelligence Services and can be reached at or +1-(310) 524 4024.
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