Thin margin myth in EMS manufacturing

Fear of change and habitual thinking limit EMS capabilities

By Mark Zetter

Charles Darwin proved species that adapt survive better than larger or faster species that don’t. Competition among contract electronics solutions firms is no different. CEOs who cannot transform their organization find their services cast out from the changing marketplace.

EMS CEOs and investors often cite misalignment of EMS corporate strategy with marketplace changes (demand) as reason for poor performance. Misalignment went unchecked for years at Benchmark Electronics. Benchmark EMS sales and business development staff with little or no operations understanding, and unable to comprehend or articulate an OEM’s pain points, behaved like many of today’s EMS program managers — putting out fires instead of nurturing customer lines of business and prospecting additional or new program and business opportunities.

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Then there was OnCore Electronics. Another EMS provider also serving non-traditional markets similar to Benchmark.

But unlike Benchmark who is still slowly turning the boat around since new leadership took over, OnCore sold its services to a large European program only to lose the farm to competing EMS provider Neo Tech, partly due to OnCore poorly quoting the European business.*

And while M&A can drive EMS growth, contrary to what many think EMS sales people do not drive EMS growth. The majority of EMS industry sales growth comes from current OEM customers wanting more services from existing partners and electronics OEMs seeking new EMS partners.

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EMS providers cannot free up excess amounts of working capital tied up in their business because they don’t have the proper tools to see its right in front of them. So they continue to cite low margins during OEM negotiations to win OEM favor – all while running their businesses poorly. You can read that last part again, I’ll wait.

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EMS industry has not yet realized new tools exist able to measure the real cost of doing business for all EMS functions and activities and productivity across the enterprise.

EMS has evolved over the years from the early days of Hewlett-Packard consignment kitting and SMT/PCB assembly with non-vertically integrated EMS partners.

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Since then, EMS managers and executives have hopped from EMS-to-EMS company for more than 25 years further proliferating inefficient practices resulting in an entire industry embedded with antiquated problem solving techniques. In short, there is a high level of inbreeding thinking going on in EMS preventing management from escaped its own gene pool of poor reasoning.

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