Electronic contract manufacturing (ECM) is emerging as a cost-effective solution to the growing OEM needs in today’s business environment. Constant advancements in technology have created new ways for companies to outsource their production processes, and electronic contract manufacturing is one of them.
The demand for electronic products is at an all-time high. It is a situation expected to intensify with constant tech advances and the global over-reliance on electronics. As a mid-sized electronics manufacturer, such high demands can become impossible to meet. Because of this, plenty of manufacturers rely on electronic contract manufacturing. It helps in supplementing the capacity of the manufacturer. The electronic contract manufacturer performs the entire manufacturing process on behalf of the manufacturer. So what is an electronic contract manufacturing all about?
Electronic Contract Manufacturing
With the density of device development for IoT products, devices are steadily multiplying with each passing year, making it difficult for OEMs to maintain adequate operations. The low cost of ECM, when compared to in-house operations, has led companies to outsource production, thus taking advantage of its speed and efficiency. The increased investment in IoT is also a big factor in this growth.
ECM, as popularly abbreviated by industry experts, refers to a myriad of services. It may range from engineering for design, subassembly manufacturing, box builds or turnkey, functional testing, PCB fabrication, order fulfillment, and distribution for original electronic manufacturers (OEM). However, it only functions to supplement or to replace the OEM operations.
The concept of EMS contract manufacturing is a popular one among large and small OEMs across the globe. Large OEMs hire and rely on the services of ECMs in fulfilling their manufacturing orders in peak periods. On the other hand, medium-sized or startup OEMs opt to use the services of ECMs for their entire production process, especially when launching a new electronic product.
The importance of outsourcing electronic manufacturing stems from the need to lower costs and spread risks. Preconditions that have necessitated outsourcing services, such as international standardization of the electronic manufacturing process, etc., are valid. Fierce competition and volatile market conditions have also played an essential role in the emergence of electronic contract manufacturing.
Electronics, in general, have become critical cogs in the running of various sectors in the global economy. While such demand increases the need for ECMs, many industry trends have also contributed significantly to the emergence and need for electronic contract manufacturing.
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Trends in Electronic Contract Manufacturing
Rising Demand
Each year, more companies try to find unique ways of using enlisting the assistance of ECMs. Recent studies by PM (Polaris Market) predict that the electronic contract manufacturing sector will clock $554.2 billion by 2026. It attributes this to the increasing level of competition in the sector besides extreme pressure to lower costs.
Most original electronic manufacturers turn to ECMs to get ideal ways of enhancing the quality and reducing production costs. Part of getting electronic contract manufacturing services entails access to skilled professionals besides cutting-edge technology and modern equipment. Such facilities contribute when it comes to providing a competitive edge in the electronics industry.
Need for Longer Electronic Product Lifespan
Everyone needs an electronic device that can last for long periods, considering the steep prices accompanying such electronic products. It isn’t easy to keep on replacing electronic products or parts every year. As a result, ECMs have to find better ways of extending product lifespans to ensure customer satisfaction.
Functionality and Features
A critical aspect that any consumer looks at when shopping for an electronic product entails the functionality and attribute aspect. It informs their purchasing choices, and thus a crucial aspect OEMs have to consider in fabricating their electronic products. For high-end smart feature value addition, it helps if OEMs contract ECMs. Electronic contract manufacturers have the experience and technical know-how to develop high-quality devices possessing valuable features.
Safety and Quality Enhancements
New requirements and regulations for specific industries shape how electronic contract manufacturers develop new products. For instance, companies that create electronic devices for highly specialized sectors need unique technology and equipment to certify compliance. Such include the aerospace, defense, and medical sectors. It is from this basis that electronic devices keep getting more robust and safer compared to previous options.
Electronic Contract Manufacturers
Electronic contract manufacturers are entities responsible for meeting the manufacturing obligations of original electronic manufacturers. ECMs offer a myriad of electronic services, including PCB fabrication, box builds and turnkey services, etc. It is therefore important for these ECMs to exist. One of the key reasons entails the reliance of mid-size or startup OEMs on their electronic contract manufacturing services.
The trust relayed to OEMs by customers is often a huge asset. Therefore, transferring this trust and risk to electronic contract manufacturers for the manufacturer of your electronic products is not easy. It requires absolute trust in their capacity, technical ability, resources, and economies of scale to deliver and in good time. Therefore, finding the correct ECM for your electronic manufacturing can prove difficult.
But to simplify the difficult process of selecting an ideal ECM candidate, you can look out for the following attributes.
Experience and Skill
Anyone needs a well-established contract manufacturer with the required experience and skills to deliver quality electronic fabrication service. Therefore go beyond the sales pitch and do some research about their capacity to deliver quality manufacturing service. It will help you determine their level of experience (years of operation) besides their industry backgrounds. Asking the potential ECM of what they demand from their employees can also help. Aspects such as the level of education and experience of their workforce (primarily those in the design and fabrication department) will provide insights into their capability. For an ECM with a seasoned crew, the quality of service will be excellent.
Flexibility
An electronic contract manufacturer needs to specialize in your area of electronic interest. But besides this, the ECM should also offer other electronic services such as developing prototypes or correcting PCB design flaws. It is vital because your electronic contract manufacturing needs can change sometimes. Because of this, the EMC partner should prove capable of carrying out these tasks as well. Additionally, having an ECM with manufacturing and design departments helps hasten your manufacturing process within the budget set.
Current or Modern Nature of the ECM
An electronic contract manufacturer needs to have modern equipment, technologies, and way of operations. In this manner, the ECM keeps up with the latest manufacturing techniques besides industry standards. It helps modernize your electronic products to conform to market trends and ensure that you retain or grow your competitive edge. Remember, technological advances happen every day. Similarly, new and applicable equipment also gets developed to run the tech and ensure speedy and quality production of electronic products. Such recent advances reduce errors and glitches.
Excellent Connections
Industry connections are a key benefit of getting and working with reputable or experienced ECM. An OEM can benefit from the ECM’s years of industry experience. It becomes so because creating strong working relationships in the industry is difficult with suppliers. Therefore, partnering with an incredible electronic contract manufacturer who already has a connection can be game-changing. You can tap into the discounts emanating from their strong supplier ties, especially when sourcing for raw materials.
Ability to Forge Lasting Relationships
No one wants to get into an electronic subcontract manufacturing deal with an ECM only to get abandoned along the way. Such occurrences happen mostly when things go awry. It is therefore important to get a contract manufacturer that will collaborate with you to find satisfactory solutions. For instance, repairing or troubleshooting a problem proves cheaper than trying to replace the whole PC board.
Robust Measures in Quality Assurance
Quality assurance is an integral aspect of every stage in the process of electronic production. It minimizes the risk that comes with production errors, product malfunction, and non-conforming components. An EMC that possesses the required and recognized certifications of quality assurance demonstrate their elite status. It also says that the ECM conducts due diligence in testing, sourcing, and quality assurance in each stage.
It is also prudent to note that such EMCs have all their processes documented. Such documentation helps insulate your company from liability whenever issues arise. A top ECM needs to possess robust testing, production, inspection, and shipping besides distribution.
In-House Design and Engineering
An ECM with an experienced in-house engineering and design team can prove beneficial over those lacking such departments. Such a department helps in identifying potential product issues besides issuing suggestions that improve the production process. It is a department that can check every facet of your design. Besides this, the team can recommend some test strategies which can assist with quality assurance.
Customer Communication
Excellent communication plays a key role in the manufacturing process of your electronic product. However, it has to be two-way between both parties. If you and an electronic contract manufacturer have clear and prompt communication, issues like production and delivery delays get avoided. It is important to pay attention to ECM’s attention to detail, especially on their processes. Additionally, determine their level and frequency of communication before, during the manufacturing, and post this process.
If an ECM provides an incredible level of attention and detail, it confirms their experience and expertise. It also demonstrates that your project will get handled well.
Timely Delivery
A top electronic contract manufacturer should have the capacity to deliver your order in time. It is crucial to deliberate on this factor before settling on an ideal ECM for your electronic manufacturing needs. Remember, projects can stretch the capacity of ECMs to a limit and thus leave little margin for timeline errors.
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Origin of ECM (Electronic Contract Manufacturing)
The United States primarily acts as the cradle for electronic contract manufacturing. It hosted some of the earlier and most dominant electronic contract manufacturers. For instance, SCI started as an electronic product (equipment) supplier to NASA. It then progressed into supplying IBM’s PC program in the 1980s. Other pioneering ECMs include Solectron and Flextronics. Some of these companies, like Solectron, played a pivotal role in the solar energy sector in the 1970s.
However, not all the ECM pioneers originated from the US. Elcoteq, a leading electronic manufacturing services provider in Europe, started operating in 1984. Another key pioneer outside of the US and Europe included the Hon Hai Foxconn that began in 1974.
Two significant events marked the development and growth of electronic contract manufacturing, for one, IBM’s strategic decision of using standard components in its personal computers in the 1980s. It included components like mice, printers, motherboards, CPUs outsourced from outside manufacturers or suppliers. As a result, the demand for peripherals, applications, and components increased, giving rise to producers.
The other significant event included Cisco deciding to outsource electronic manufacturing in the 1990s. It aimed to reduce its manufacturing and instead focus on marketing and innovation. While initially derided by most companies with strong traditions in engineering in Silicon Valley, the perception gradually changed. The success enjoyed by Cisco informed most of their business models. All this encouraged the idea and emergence of electronic contract manufacturing.
Benefits of ECM (Electronic Contract Manufacturing)
- ECM is instrumental in cost reduction in supply chain charges, with a potential reduction of up to 50%.
- Electronic contract manufacturing has also enabled original electronic manufacturers to stop all or most of their manufacturing activities. Because of this, the companies’ manufacturing facilities get freed and their resources reallocated for other production operations.
- It is also possible to operate an OEM facility without an internal manufacturing facility or an internally operated factory because of ECMs. Consequently, this reduces the operating costs besides cutting on the capital investments.
- Most companies can also decide to outsource their longstanding electronic products to ECMs. Consequently, it helps refocus internal operations to newer and more complex products that possess higher margins.
- Electronic contract manufacturing reduces the time-to-volume and time-to-market of electronic products, primarily to OEMs.
- It also becomes a reality to produce similar products on a large global scale by utilizing parallel electronic production facilities.
- Another key benefit of ECM lies with the enhanced purchasing power that OEMs can tap into.
Applications of ECM (Electronic Contract Manufacturing)
Electronic contract manufacturing has had a traditional application in different sectors and subsectors of the global economy. Some of the key sectors include communication (where it covers both networking equipment and mobile phones). It also applies to business and personal computing, consumer electronics, and semiconductor testing and systems.
Recently, electronic contract manufacturers have deepened the services range on offer, broadened the range, besides developing fresh markets. It entails the automotive sector that holds plenty of promise. For instance, the sector accounts for a significant chunk of ECMs like Jabil Circuit and Solectron.
Electronic contract manufacturing also serves the aerospace and defense sectors. The sectors have increasingly become important for ECMs. It includes services such as special turnkey services, PCB fabrication, box-build assemblies, etc.
Another crucial sector serviced by electronic contract manufacturing is the medical sector. For instance, it includes medical equipment such as glucose meters, ventilators, respiration monitors, infusion pumps, magnetic resonance imaging equipment, etc. It is a sector dubbed underpenetrated and holds more promise for the ECM industry in the future.
Factors that Determine the Growth of Electronic Contract Manufacturing
Original electronic manufacturers use the services of electronic contract manufacturers differentially. It is a difference that stems from the individuality and uniqueness of the sector and the nature of the company, respectively. For instance, OEMs dealing with telecommunications, peripherals, and computers electronic products make the best use of subcontractors. However, while the growth of ECMs is anticipated to continue, such growth is dependent on OEM factors. It includes the following.
The dynamism exhibited by OEMs’ end-user markets
The end-user dynamism, especially when it comes to how fluid their demand for electronic products changes, influences operations of OEMs. It is a process that trickles down and influences electronic contract manufacturing. For instance, the electronic demand boom in the 1990s millennial boom caused endless optimism and growth of electronics as a business. Such growth resulted in the emergence and expansion of electronic contract manufacturing. While this did not last long, a steady increase has been witnessed since 2003 and is expected to gather pace.
The OEM’s degree of continually outsourcing electronic production needs
It is important to note that the economy’s strength directly influences OEMs outsourcing production services from ECMs. For instance, in the 2000s (early), a fragile economic environment necessitated OEMs to electronic contract manufacturing. It aimed to reduce their operating costs, especially on labor, besides increasing flexibility.
The level to which fresh clients either in new or traditional industries begin using the electronic outsourcing model
OEMs operate based on profit-making and thus depend on new opportunities to add to their electronic business. Such opportunities in fresh and under-tapped markets in specific regions determine the level of demand and hence the need to outsource manufacturing to ECMs. It, therefore, drives the growth of ECMs.
Original electronic manufacturing divestitures
It often happens that OEMs transfer their manufacturing operations to a trusted electronic contract manufacturing partner. In such an agreement, the ECM gets the OEM’s inventory, other assets, and equipment besides leasing the OEM’s facilities. It mostly features getting into supply arrangements that can range from two to about five years. Such agreements stipulate the supply of OEM manufacturing needs in specific geographic areas for specific periods. However, such agreements do not obligate the OEM into buying minimum product quantities. It can prove an attractive proposition to ECMs to access fresh geographical markets, new technologies, and customers besides strengthening their vertical integration approach implementation.
Concentration
It primarily applies to sizeable electronic contract manufacturers. Plenty of large ECMs have developed a habit of acquiring electronic manufacturing services companies, contributing to their growth. It includes significant mergers besides smaller-scale takeovers. The effect has resulted in more concertation of large ECMs (supported by recent trends in the market share data).
While each of the factors discussed contributes to the growth of ECM, the level of contribution differs by company, besides the period concerned.
Competitive Advantage Brought about by Global Presence of ECM
Most of the large electronic contract manufacturers have a global presence in the current dispensation. It helps the companies in managing component inflow from around the world besides optimizing production between production facilities. Such processes, including balancing inventories through demand, helps in shortening and simplifying the supply chain. Consequently, it reduces the time-to-market period, which enhances the competitive edge of the company.
The internet is instrumental in making all relevant information available for access. It especially becomes valid when the electronic contract manufacturer produces in numerous continents. Such an ability to simultaneously launching similar products in diverse areas of the globe provides an incredible competitive edge. It is a strategy employed by most top-tier operators like Nokia. While useful, it also contributes to the concentration aspect, limiting their operations to top-tier ECMs with a global presence.
The competitive significance of having a global presence has led to many ECMs opening branches in diverse continents across the globe. It is uncommon to find an electronic contract manufacturer either buying or building new facilities in different regions. For instance, RayMing PCB and Assembly have diversified their manufacturing and marketing facilities from China to diverse European countries and the United States of America.
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ECM and Design Services Forecast and Market Size
The significance of the electronic contract manufacturing and design sector cannot get understated. In 2020, the industry had a market value of USD 428.78 billion, with further projections of the sector hitting USD 809.48 billion by the end of 2028. It represents a healthy 8.27% CAGR growth in seven years.
A key contributing factor for this projected growth entails optimizing resources besides the increased proliferation of digital and mobile devices. It also helps that the international ECM and design has different segmentations like end-use, service, and geography. Such a stratification helps in appraising each subsector and its corresponding contribution to the sector’s status in the global economy.
ECM by service has different segmentations like electronic assembly, electronic design, engineering, electronic manufacturing, etc. It is one of the most dominant contributors to the ECM sector. However, other segmentation by end-use entails automotive, IT and telecom, consumer electronics, defense and aerospace, healthcare, etc. While not the leading contributor of the sector, it holds a significant contribution to the industry status. The last categorization is by geography. It includes four major regions in Europe, North America, Asia Pacific, and the rest of the globe. Here, Asia Pacific contributes the most to the subsector through industry giants like China which is big on electronics.
Final Remarks
Electronic contract manufacturing is an essential component of the manufacturing industry. It possesses a myriad of benefits to both OEMs and ECMs besides ensuring the availability of electronics to the common masses. If you want to venture into the electronic design, business, or production, it helps to understand the role of ECMs in the manufacturing process.
