El Segundo, California - With Electronic Manufacturing Services (EMS) firms accounting for a larger-than-ever slice of spending on electronic components, major changes in the supply chain management relationships between OEMs and their EMS providers will be essential in order to avoid another inventory train wreck, according to the latest report from the iSuppli Market Intelligence Services group.
"Poor communication and a lack of clear delegation of important tasks in the EMS/OEM relationship contributed to the inventory glut that caused so much misery in the electronics supply chain in 2001," said Scott Hudson, principal analyst with iSuppli and co-author of the report, "EMS Industry Adjusts to New Realities."
"These issues, and the question of how excess inventory is dealt with, have not been resolved. That, combined with the growing spending by EMS providers on components, could lead to another massive swelling in inventories, similar to the phenomenon that deepened and lengthened the electronics industry downturn of 2001," Hudson added.
In the report, iSuppli reveals that the EMS industry in 2001 purchased $66.6 billion worth of electronic components, representing nearly 24 percent of total electronics industry spending -- including almost 28 percent of all semiconductors bought in the world. EMS spending will only increase as the industry grows; component purchases by EMS companies in 2002 are expected to rise by 7.5 percent to $71.6 billion.
With the major influence that the EMS industry exerts over the electronics supply chain, it is essential that the EMS providers and OEMs adopt a new approach to their supply chain management relationships, iSuppli believes.
"The only way to resolve the numerous supply chain problems and issues that exist between OEMs and EMS providers today is to find a better partnership model for assigning the roles and responsibilities along with financial terms and conditions upfront," said Jeff Bloch, vice president, Electronic Manufacturing Services at iSuppli, and co-author of the report. "Several enlightened OEMs are beginning to look at 'governance' models that clearly define ownership of supply chain-related tasks and that set expectations and milestones early in the project. iSuppli believes that such a model will offer the controls and visibility necessary to avoid another inventory disaster, while providing the growth in revenues and profits that will benefit both parties."
As shown in the figure below, iSuppli believes that EMS revenue declined by more than 5 percent in 2001, falling to $94.6 billion. However, sales are expected to rise by nearly 2 percent in 2002 to more than $96.1 billion. The iSuppli forecast foresees EMS revenues growing at a compound average rate of more than 18 percent from 2002 to 2006, rising to about $188 billion in 2006.
Worldwide EMS Industry Revenue Forecast Billions of U.S. Dollars 2000 $100.03 2001 $94.57 2002 $96.14 2003 $116.52 2004 $140.08 2005 $161.69 2006 $187.98 Source - iSuppli Corporation, April 2002
This semiannual report is the first to be issued by the new iSuppli Market Intelligence Services' EMS Market Analysis Service led by procurement veteran Scott Hudson. It includes a comprehensive forecast for EMS industry revenues through 2006, as well as detailed analyses of the supply chain challenges facing both the OEM and EMS providers moving forward. The report also includes profiles of the top 30 EMS companies.
The new EMS Market Analysis Service is the latest offering from the iSuppli Market Intelligence Services' Manufacturing Practice. Providing strategic market information across a breadth of component and application markets in addition to analysing the critical supply chain issues, the service is targeted at EMS firms, OEMs, component suppliers, and investors. The EMS Market Analysis Service tracks the size, growth, applications and major players in the EMS industry and is comprised of two semi-annual reports, two topical reports and an annual competitive analysis report. In addition to the Market Analysis Report series, each iSuppli Market Analysis Service includes, direct access to iSuppli industry analysts, a subscription to iSuppli Market Watch, and attendance at iSuppli Forums.
As part of a special introductory offer that expires on June 20, 2002, the EMS Market Analysis Report titled "EMS Industry Adjusts to New Realities" can be purchased for $2,750. This is the only opportunity to purchase this Market Analysis Report as a standalone item.
iSuppli Corporation, the leader in Parts Flow Management (PFM), provides complete procurement and supply chain operations services -- from strategic procurement to inventory reduction to worldwide delivery. iSuppli's mission is to reduce the overall cost of acquisition for electronic components, while improving continuity of supply and simplifying supply chain processes for the EMS, OEMs, and supplier communities. Market Intelligence Services form the foundation of all iSuppli services providing critical information designed to enrich procurement-related tactical decisions and strategic plans of electronic component suppliers and users. iSuppli and its wholly-owned subsidiary iSuppli/Stanford Resources employ the world's largest and most experienced staff of component, systems, and application market analysts. More information is available at www.isuppli.com
SOURCE iSuppli Corporation