Tuesday, September 29, 2015

2015 OEM/Rework/Repair Trends in Electronics Manufacturing – Guest Blog

by Steve Allen, VP Marketing and Innovation, ACL Staticide

In Steve’s latest Guest Blog for Q Source, he examines developing trends in electronics manufacturing

American companies are bringing electronics manufacturing back to the U.S.
Because of ever-increasing labor rates in China and higher shipping costs from Asia to various global end markets, many American companies have decided to bring back electronics manufacturing to North America. It’s likely that purchasing strategies will also change in the next several years as more OEMs follow this trend. Currently, a number of companies (including Apple and Lenovo) are deciding to in-source, rather than have products built by electronics manufacturing services (or out-sourced contract manufacturers). Those companies have decided to make at least some of their electronics products in house.

An increase in manufacturing in the North American market will affect virtually all operations strategies. Buyers involved in out-sourcing decisions will need to evaluate the manufacturing and supply chain capabilities of CMs doing business in North America. These buyers that have decided to in-source may need to find new suppliers or further strengthen relationships with existing ones in Mexico and the United States (and perhaps other locations worldwide).

Resultantly, U.S. distributors will certainly benefit from the transition of electronics manufacturing back to the U.S. (and Mexico) as the demand from OEM and CM providers will increase. That demand will include parts, design, supply chain management, and aftermarket services.

Many in the industry call the trend "on-shoring" or "re-shoring." Sometimes these terms have an “us versus China” connotation, which is inappropriate. The trend is really "regionalization." In true regionalization, electronics equipment is manufactured in the market where the product is sold. And, it’s all about capacity utilization. The current data indicates that the geographies that are growing (in terms of electronics manufacturing) are Mexico, Eastern Europe, and Malaysia. Currently, China is stable. This indicates that regionalization is indeed a growing and global trend.

High-volume electronics will still be built in Asia.
Electronics manufacturing is growing in Mexico because the country has the lowest labor rates of the three North American countries and shipping costs to the United States and Canada are much less than shipping the products from China. It’s clear that more electronics OEMs are regionalizing their manufacturing, especially low- to mid-volume, high-mix production, which includes industrial equipment and appliances. High-volume consumer electronics equipment (e.g., notebook computers and cell phones) that will be sold globally will continue to be built in China and other low-cost Asian countries (Taiwan, Malaysia).

Ten years ago, manufacturing of low- to mid-volume appliances and industrial equipment moved to China because electronics OEM executives wanted to take advantage of extremely low Chinese labor rates. It is now apparent that they didn’t account for the true total cost of manufacturing in China, based on today’s analysis.

In recent years, labor rates in China have increased 20% per year—and they will continue to rise—so labor cost advantages have greatly lessened…if not disappeared in the region. In addition, transportation costs from Asia have increased significantly, as well.

Currently, it is uncertain exactly how much electronics manufacturing will migrate back to North America. We do know that the trend will continue as labor costs in China and other Southeast Asian countries continue to rise.

For 2015, the contract manufacturing industry is expected to grow, despite continued economic weakness worldwide. In a report from its Outsourced Manufacturing Intelligence Service, IHS pegs the industry growth rate at 4.0% this year to $404.5 billion. That’s slower than the roughly 5% growth the industry saw in 2014, but IHS predicts steady, though unremarkable, growth for contract manufacturers worldwide over the next three years. By 2017, the group says revenue will rise to nearly $452 billion as original equipment manufacturers seek to boost production to serve customers in consumer electronics, industrial equipment, appliances, and automotive end markets.

However, many industry experts are now saying that a “major economic dislocation” could easily derail market growth pointing to the sovereign debt crisis in Europe and the U.S. response to realigning its long-term spending trajectory. IHS also noted two key trends to watch in contract manufacturing: Customers’ desire to lower costs and suppliers’ drive for improved cash flow. Notwithstanding, the trend of manufacturing flowing back to North America is good and will continue for the foreseeable future. We view this as a great opportunity for new and innovative products to service this market space.

Thanks, Steve! That was a very interesting peek at current and developing trends in electronics manufacturing. We look forward to your next blog submission.

Steve Allen is the Vice President of Marketing and Innovation at ACL Staticide. For information about ACL, please visit our ACL Staticide Department at QSource.com. You may also contact us via email or phone at 800-966-6020 and one of our associates will be happy to assist you.

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1 comment:

Karla T. said...

Great article giving a historical account and analysis of contract manufacturing trends. We had a customer try their luck in Mexico. They ultimately returned to NA due to language issues, misunderstandings and the lack of agility when it came to making engineering changes or expedites. Eventually, upper management realized that commoditizing the manufacturing piece by outsourcing outside of the US was a huge risk and not worth the proposed savings. It caused them to miss deadlines and have quality issues.