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Electronics Production | July 02, 2010

Shift in approach to Offshore Manufacturing

The results of the 2010 OEM Survey conducted by consultancy Riverwood Solutions suggests a shift in the approach to Offshore Manufacturing in the aftermath of the 'Foxconn Situation'.

The Riverwood Solutions 2010 survey of senior operations and supply chain professionals covers OEMs ranging in size from USD 1 million in annual sales to over USD 100 billion. Survey respondents spent more than USD 100 billion in the global electronics supply chain in calendar year 2009. Findings from Riverwood's survey where significant year-over-year changes in response patterns suggest a shift in thinking by OEMs include: - 14.3% of survey respondents believe that product cost is the single most important performance factor for measuring and managing their EMS provider. In the 2009 survey, more than 41% of survey respondents believed product cost was the single most important factor. - 40.9% of survey respondents are concerned that under-investment by their EMS provider will hurt performance on their account. In 2009 only 25% of respondents were concerned about the level of investment by their EMS provider(s). - 47.6% of OEM respondents say they would be willing to pay their EMS provider 2% more if product returns were cut in half. Affirmative response to this question more than doubled year-on-year, up from just 23.5% in 2009. - 63.6% of survey respondents say that they are likely to hire remote operations staff near their EMS provider. Only 29.4% of OEM respondents reported remote hiring plans in 2009. "Based on the these and other results in our OEM survey, there appears to be a shift occurring in the way OEMs think about their outsourced, offshore manufacturing operations, with cost becoming something less than the all encompassing focus of these activities," remarked Ron Keith. Commenting on the results of Riverwood Solutions annual survey, Mike McNamara, CEO of Flextronics, said, "For years, the users of EMS services could often obtain very low prices for manufacturing services due to pricing structures and operating practices of some industry participants. A fundamental shift has occurred in China, driven by demographic and economic changes particularly in Southern China, that requires all EMS companies to invest more in their employees. Aside from basic wage increases, employers need to invest more on employees' health, welfare and living conditions if they want to attract and retain the best employees, This increased focus on social responsibility will undoubtedly increase costs to OEMs, but will inevitably result in greater employee commitment, productivity and quality." Mr McNamara went on to say, "The data from the Riverwood survey seem to suggest a shift in thinking from purely lowest cost to one of increased social and supply chain responsibility, and I am encouraged that this will be a positive change for customers, employees and communities." "Some dramatic changes in the distribution of responses to certain questions year over year are difficult to explain without some significant external shock to the system," according to Ron Keith, CEO of Riverwood Solutions. "Perhaps the recent deluge of negative press regarding Foxconn that has spilled over onto some of their key OEM customers can explain some of the significant shifts in executive views at key OEM users of EMS services."
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