Most OEMs plan to reduce number of contract manufacturers

USA: More than half of all electronic original equipment manufacturers (OEM) worldwide plan to reduce the number of contract manufacturers they work with during the next year, according to the IHS iSuppli Outsourced Manufacturing Terms, Conditions and Best Practices Survey.

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 IHS survey reveals that most OEMs want to trim their outsourced manufacturing supply base in order to bring down cost, with the consolidation of suppliers serving as the next biggest reason,” said Thomas J. Dinges, CFA, senior principal analyst for EMS & ODM research at IHS. ”While the impact of this trend is still to be determined, such a move by OEMs potentially could result in a reduction in the number of electronics manufacturing services (EMS), original design manufacturers (ODM) and joint design manufacturers (JDM) competing in the outsourced manufacturing business during the next 12 months.”

On average, each OEM now works with eight outsourced manufacturing partners spanning EMS- , ODM- and/or JDM-type engagements, according to the survey.

Surveying the outsourcers
These findings were just some of the results that can be found in the IHS iSuppli Outsourced Manufacturing Terms, Conditions and Best Practices Survey.

During a six-week period starting in late July, IHS sent the survey, covering more than 150 topics, to more than 1,000 clients in the electronics supply chain through all major global technology regions.

Respondents represented a wide swath of the electronics business, spanning industries including communications, computing, consumer electronics, automotive/transportation and industrial.

The survey covered a wide array of topics related to outsourced manufacturing, ranging from major issues like expectations for contract manufacturing activity, to detailed subjects like payment terms, inventory terms and sourcing discretion.

Outsourcing cost and labor issues
In another major finding from the survey, most OEMs said they believe that outsourced manufacturers can help reduce costs—but the vast majority of respondents said they have no visibility into the cost structure of their EMS, ODM and JDM partners.

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.

Meanwhile in China, another issue seems to be requiring attention. Despite all the labor issues that have aired related to the country, almost half of OEMs there still don't require third-party audits of their outsourced manufacturing providers in order to ensure compliance with local labor laws.