Obsolescence Insurance, a New High-Margin Business for EMS Companies
by 
Balancing growth, innovation, and efficiencies to move into increasingly competitive markets comprises a directive that extends across executive responsibilities and into supply chain relationships. This balance is part and parcel of a set of strategic challenges not only for the semiconductor and electronics supply chain, but also across many industries. In the electronics industry, where the pace is quick and cycles are notoriously short and volatile, the challenge presented to supply chain executives is to balance innovation and growth strategies with their traditional, core supply chain responsibilities: operational efficiencies, cost management, quality, and compliance demands, as recent Gartner research highlights.
Gartner’s report, 2015 CEO Survey: Bimodal Balance Is Required for Future of Supply Chain, explores these internal business shifts that extend growth responsibilities onto the desk of supply chain leaders. To describe the balance demanded of Chief Supply Chain Officers (CSCOs), Gartner has coined the term “bimodal” and “bimodal balance.” The thrust behind the bimodal strategy is the inclusion of CSCOs and supply chain operations into larger organizational growth strategies. By including supply chain strategies and the CSCO in corporate growth planning, there is also a new extension in the role and the importance of supply chain partners to the organization.
This strategic change represents a significant shift in the way in which supply chains are and will be structured and importantly, the expectations and evaluation of supply chain partners. No longer will it suffice to “only” offer traditional supply chain capabilities of efficiency, cost, quality, and compliance. CSCOs will be evaluating supply chain partners differently and hence strategically structure supply chain networks to support growth and innovation strategies alongside of cost efficiencies. The impact that these shifts will have on the electronics industry’s supply chain balance is mounting and will have deeper implications for supply chain relationships, particularly as macroeconomic and geopolitical changes present more opportunities for expansion in China and India. As we have been exploring at EPS, the challenges and opportunities related to emerging markets are many, viewed now from the perspective of a supply chain executive’s new focus, there is an interesting opportunity to understand the direction that channel relationships and M&A activity may take.
One of the looming questions for the electronics industry in emerging markets is, how will new relationships be defined and what opportunities will open for local vendors versus expansion opportunities for existing channel partners? This question is particularly true for distributors who increasingly seek to provide new services connecting OEMs with local vendors in new geographic markets. The OEM choices between establishing new local chains versus expanding existing distributor relationships to include new services to support geographic expansion has tremendous impact on the future shape of the global semiconductor and electronics supply chain. The balance of power among distributors, franchised and independent alike, may shift.
Dana Stiffler, vice president of research for Gartner, spoke with EPS about the challenges of supply chain expansions and emerging markets. While the largest corporations continue to increase dual headquarters as one expansion solution, “the supply chain continues to struggle in meeting the challenges of growth. One challenge comes from different views of how to define the supply chain,” Stiffler explained. In emerging markets, there is still a more narrow definition of supply chain operations and responsibilities. The expansion of responsibilities for growth, innovation and efficiencies by CSCOs, i.e. the ability to act bimodally, helps companies progress through Gartner’s business transformation model (i.e., from topline focused to bottom line focused and finally to a more integrated focus). These largest corporations require that new, local vendors and smaller channel partners must seamlessly connect to their established platforms and systems; in other words, “those vendors and channel partners who are accommodating and able will get the nod,” said Stiffler. These can be real challenges for expanding supply chains to local vendors.
In this manner, we see the bimodal challenge in action. There is a tension between the opportunity to engage new talent and new channel partners to gain local market knowledge and advantages, and the requirement that these new channel partners be able to adapt to standardized practices codified within the larger corporation. Growth and innovation from new channel partners must be balanced with the ability to integrate with existing systems and processes .
As emerging market expansion continues to hold growth opportunities, how companies, particularly the largest OEMs, will engage and enter these new markets and with whom, has the potential to dramatically reshape the wider electronics supply chain.
Related posts
