Member Article

Review of 2013

Over the past few years, original equipment manufacturers (OEMS) have faced pressure to drive down costs in an economy with little to no growth in end-markets, especially in developed countries. This prolonged economic malaise encouraged some companies to take a fresh look at their manufacturing strategy in 2013, resulting in an increase in levels of outsourcing, with some even exiting manufacturing altogether.

As an electronic manufacturing service (EMS) provider Plexus has to continually assess the main drivers of growth within the industry. Whilst the industry is impacted by the wider macro economy, it does not rely solely on increases in gross domestic product (GDP) growth to grow top line revenue. It could be argued that lower GDP growth can be of benefit to EMS providers as OEMs undertake strategic reviews and decide to outsource manufacturing to an EMS provider.

These assessments have shown that the key drivers for growth are:

• an increasing rate of outsourcing adoption across multiple industry sectors
• an increase in the breadth and depth of services provided by EMS companies
• OEM to EMS divestitures
• global trends e.g. the increasing demand for clean energy

Outsourcing all or a portion of their manufacturing means an OEM can convert internal fixed costs to external variable costs, leaving it more able to deal with changes in end market demand, particularly during periods of economic instability. This can create a win-win for both companies, providing growth opportunities for the EMS provider and the OEM able to focus on its core competencies.

Across Europe as a whole, there have been changes in the EMS landscape, mainly due to acquisitions and exits, and further consolidation is likely during 2014.

The good news is that the move towards in-region manufacturing continues to gain momentum. This is largely due to the increasing recognition that considering total landed cost or total cost of ownership (TCO) is better than just unit cost. For example, while lower labour rates in China may present a cost advantage this could be eroded when adding in factors such as freight, duty and cost of working capital to provide total landed cost.

A desire to improve time to market also impacts the decision on where products are manufactured, with shorter transport times enabling shorter lead times and greater flexibility. Research shows that the trend to consider total landed costs will continue.

Some market sectors have shown strong growth over the last 12 months, especially the healthcare/life sciences and commercial aerospace sectors. We anticipate that the outsourcing of product development, manufacturing and after-market services will continue to grow in these sectors.

The outlook for EMS providers in the UK and Europe in 2014 is encouraging. We believe companies like Plexus, with the ability to offer end-to-end solutions from conceptual design through to sustaining/aftermarket-services, will continue to grow and prosper. Having made significant investments in Europe over the last few years we are well positioned in Europe and can look forward to building on the success of 2013.

This was posted in Bdaily's Members' News section by Plexus .