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India Electronics Manufacturing Services (EMS)

VIEWS: 271 PAGES: 16

Information provided to Indian electronics executives regarding outsourcing and electronics manufacturing services (EMS) for printed circuit boards and assemblies.

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									India as a Destination
   Source for EMS
 ( Electronics Manufacturing Services )
                      presented to

          Gathering of Indian EMS Executives
                   New Delhi, India


                          by

                Mark Zetter, President
               VentureOutsource.com
                                                          © Venture Outsource 2005




                   EMS Evolution
Over the next 10 to 15 years, the electronics HW industry
will evolve into two primary business models
•   product solutions companies
      •   product innovation/development
      •   customer channel relationships

•   operations management companies
      •   product concept/industrialization
      •   process development, manufacturing, logistics




                  http://www.ventureoutsource.com/about
                                                                             © Venture Outsource 2005




                            EMS Evolution
                          Front-end Services

              Backward
             Integration
                                                                                 Back-end
Component    Fabrication/       Traditional     Product                      ATO > End-users/
 Suppliers   Mech Assy             EMS          Design       ATO > Distr.    Reverse Logistics


                                 Flextronics
                                  Foxconn                                        Customer Direct
   Intel                                          Cisco            Reptron
              PCB fab.,                                                              Service
                                  Solectron       Palm              Arrow
   NEC         Encls.,                                                               Outlets
                                  Celestica        IBM              Avnet
  Motorola     Plastics                                                              Internet
                                Sanmina-SCI       Nokia             VARs
                                Jabil Circuit                                      Direct Mail




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                                                      © Venture Outsource 2005




               EMS Evolution
The technology outsource supply chain model is becoming
the dominate model and can never be reversed

Supply chain purchasing power has swung in favor of the
outsource provider

The larger outsource providers excel in the ability to rapidly
advance and scale the art of process




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                                                     © Venture Outsource 2005




                       Drivers
Outsourcing electronics manufacturing can have real
economic benefits even in the absence of product cost
savings




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                                                                                                    © Venture Outsource 2005




                                              Drivers
                 Internal OEM                                                                      Cumulative
                   Operating         --- Est. Costs to OEM by Outsourcing ---                        Savings
                     Costs            (1)    (2)   (3)   (4)  (5)   (6)   (7)                  Dollars Percent
Materials              $76           $76     $76      $73   $72   $70    $70     $68            $8        11%
Labor                   $4            $4      $1      $1    $1     $1      $1      $1            $3              75%
SG&A                    $6            $3      $3      $3    $3     $3      $2     $2             $4              67%
Finance                 $2            $1      $1      $1    $1     $1      $1      $1            $1              50%
Freight                 $4            $4      $5      $5    $4     $4      $4     $4             $0               0%
Overhead                $8            $6      $5      $4    $4     $4      $4     $4             $4              50%
EMS Profit              $0            $4      $4      $4    $4     $4      $4     $4            -$4              n/a

Total OEM Cost $100                  $98     $95      $91   $89   $87    $86     $84            $16              16%

(1) Shared resources = greater capacity utilization          (4) Optimizing logistics
(2) Production in less expensive regions                     (5) Co-locating suppliers
(3) Cost-efficient product redesigns                         (6) Controlling component supply through verticalization
                                                             (7) Greater purchasing economies of scale


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                                                                               © Venture Outsource 2005




                                    Drivers
       Captive Manufacturing                      Outsourced Manufacturing
           Statement of Operations                        Statement of Operations
Revenue                         $ 325,000      Revenue                         $ 325,000
COGS                            $ 231,000      COGS                            $ 231,000
Gross Margin                    $ 94,000       Gross Margin                    $ 94,000
R&D                             $ 30,800       R&D                             $ 30,800
S,G&A                           $ 38,500       S,G&A                           $ 38,500
Other Expenses                  $   3,082      Other Expenses                  $   3,082
E.B.I.T.                        $    21,618    E.B.I.T.                        $    21,618

              Working Capital                                Working Capital
Inventories                     $   196,000    Inventories                     $ 39,200
P,P&E Net                       $   622,000    P,P&E Net                       $ 155,500
AR net of AP                    $   (25,000)   AR net of AP                    $ (25,000)
Net Working Capital             $   793,000    Net Working Capital             $ 169,700

             (21,618 x 4)                       ROWC (21,618 x 4)
  ROWC
             $ 793,000        = 11%                  $ 169,700
                                                                             = 51%

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                                                      © Venture Outsource 2005




       Indian EMS Strengths
Domestic market potential

Inexpensive indirect labor

Large skilled direct labor pool

Language base




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                                                      © Venture Outsource 2005




  Improvement Opportunities
Low electronics HW manufacturing capacity

Lack of infrastructure

Market responsiveness




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                                                     © Venture Outsource 2005




  Improvement Opportunities
Changing governmental policies

Inadequate global marketing of manufacturing technologies

Lack of cohesive R&D roadmap with little CapEx




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                                                                                                          © Venture Outsource 2005




                                 Competitiveness                                  Source: IMF World Economic Outlook

                      High
                                                                            USA
Technological infrastructure




                                                                                  Japan


                                                            Israel

                                                 China      India
                                               S Korea        Taiwan
                                                                Singapore
                                              Malaysia
                                     Mexico             Philippines
                                 Indonesia      Thailand


                      Low

                               Low                                                   High
                                              Productive Capacity
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                                                                                                © Venture Outsource 2005




                    Competitiveness                                     Source: IMF World Economic Outlook

                                                                             Taiwan
 High
                    Philippines                  Japan
                                                                   USA
                                        Brazil

                                                                   Israel
Management




                               Mexico
                                                                       Malaysia

                   India                                 S Korea


                                                 Thailand


                                     Indonesia

                             China
     Low

             Low                                                               High
                                  Physical Infrastructure
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                                                       © Venture Outsource 2005




           Worth a Closer Look
Advanced research conceptualization
•   regional vs international

Component design (front-end services)
•   fuel component manufacturing
•   build EMS infrastructure

New product introduction (NPI)
•   design-to-alpha, beta
•   embedded systems



               http://www.ventureoutsource.com/about
                                                       © Venture Outsource 2005




           Worth a Closer Look
New business development
•   branding

Attracting/retaining OEM customers
•   manufacturing velocity
•   perceptions, quality

Customer support
•   electronics HW reverse logistics




               http://www.ventureoutsource.com/about
                                                          © Venture Outsource 2005




                 What’s Next?
Universities and EMS/SMT technology centers
Make a market (government and NGO)
•   international and regional industry organizations
•   strategic partnerships, effective media utilization

Regional and national government
Private sector (mfg. operations, hi-volume EMS infrastructure)
•   facility locations consistent with international logistics
•   finance cost buckets, operations metrics/KOIs
•   program management (CFT, DRT, S/CAR, transfer protocols)
•   operations (DFT, MPI/TPI, GHK, IPA teams, alerts)

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                                            Accompanying article
         Steps to develop and promote Indian EMS
http://www.ventureoutsource.com/contract-manufacturing/outsourcing-offshoring/india-manufacturing/steps-
                                 to-develop-and-promote-indian-ems




                                                 About VentureOutsource.com
 The industry authority for outsourcing electronics contract manufacturing, VentureOutsource.com provides strategy and best
 practices attracting opinion leaders in product companies and suppliers and vendors to these companies with responsibilities
                 in corporate strategy; vendor selection, global sourcing and logistics and worldwide operations.




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                                                           San Jose, CA 95126

								
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