Electronics Manufacturing Service Industry

Abstract

This document is one in a series of white papers in supply chains for electronics industries. It describes current trends in the electronics manufacturing service (EMS) industry, which has enjoyed a 20% annual growth rate in the last few years, which is also likely to continue in the next few years.

Full text

Electronics Manufacturing Service Industry
Earl Barnes
Jim Dai
Shijie Deng
Doug Down
School of Industrial and Systems Engineering
Georgia Institute of Technology
Atlanta, Georgia 30332, USA
Mark Goh
Hoong Chuin Lau
Moosa Sharafali
The Logistics Institute – Asia Pacific
National University of Singapore
Singapore
Abstract
This document is one in a series of white papers in supply chains
for electronics industries. It describes current trends in the electronics
manufacturing service (EMS) industry, which has enjoyed a 20% an-
nual growth rate in the last few years, which is also likely to continue
in the next few years.
August 17, 2000

Acknowledgement
Without the help of the following people this paper would not be possi-
ble. We would like to thank John Caltabiano, Director of Materials, from
Solectron, Georgia, Jim Kellso, Manager of Worldwide Logistics, from Intel,
Jay Phillips, Vice President of Retail Solutions Group, from NCR, Kerry
McCracken and BS Teo from Flextronics, William Goh, Executive Deputy
Chairman, from JIT, Renee Northup from ISyE of Georgia Tech.
1

Contents
1 Introduction 5
1.1 History of the EMS Industry . . . . . . . . . . . . . . . . . . . 6
1.2 RapidGrowth........................... 8
1.3 Extending Service Domain . . . . . . . . . . . . . . . . . . . . 10
1.4 IndustryTrends.......................... 12
2 CMs and the Supply Chain 13
2.1 Services from EMS Industry . . . . . . . . . . . . . . . . . . . 13
2.2 Rationale for EMS Industry . . . . . . . . . . . . . . . . . . . 14
2.3 Customers............................. 15
2.4 Suppliers.............................. 17
2.5 Supply Chain Management . . . . . . . . . . . . . . . . . . . . 17
2.5.1 Demand Forecasting . . . . . . . . . . . . . . . . . . . 18
2.5.2 Managing Suppliers . . . . . . . . . . . . . . . . . . . . 18
2.5.3 The VMI Program . . . . . . . . . . . . . . . . . . . . 18
2.5.4 Warehousing and Transportation . . . . . . . . . . . . 19
2.6 Capacity Expansion . . . . . . . . . . . . . . . . . . . . . . . . 20
2.7 Localization............................ 20
2.8 The Impact of E-Age . . . . . . . . . . . . . . . . . . . . . . . 21
3 Issues and Challenges in EMS Industry 22
3.1 VMI ................................ 22
3.1.1 Accuracy of demand projection . . . . . . . . . . . . . 22
3.1.2 Responsiveness of suppliers . . . . . . . . . . . . . . . 23
3.1.3 Inventory Pooling . . . . . . . . . . . . . . . . . . . . . 23
3.1.4 Ownership of Inventory . . . . . . . . . . . . . . . . . . 24
3.2 RiskSharing............................ 24
3.2.1 Supply Contracts . . . . . . . . . . . . . . . . . . . . . 24
3.2.2 Capacity Pooling . . . . . . . . . . . . . . . . . . . . . 25
3.2.3 Procurement Leverage . . . . . . . . . . . . . . . . . . 25
3.3 Information Systems . . . . . . . . . . . . . . . . . . . . . . . 26
3.4 The Impact of Online Exchange Markets . . . . . . . . . . . . 26
3.4.1 Cost and Time-to-Market Reduction . . . . . . . . . . 27
3.4.2 Channel Coordination . . . . . . . . . . . . . . . . . . 27
3.4.3 Demand Volatility . . . . . . . . . . . . . . . . . . . . 27
2

4 Case Studies of EMS Providers 28
4.1 History of Three EMS Providers . . . . . . . . . . . . . . . . . 28
4.1.1 Flextronics International . . . . . . . . . . . . . . . . . 28
4.1.2 Solectron Corp. . . . . . . . . . . . . . . . . . . . . . . 30
4.1.3 JIT Holdings Limited . . . . . . . . . . . . . . . . . . . 32
4.2 Broad Customer Base and Balanced Product Portfolio . . . . 33
4.3 Supply Chain Management Strategies and Challenges . . . . . 37
4.4 Information Systems . . . . . . . . . . . . . . . . . . . . . . . 43
A Top EMS Providers 49
3

List of Figures
1 Projected Revenue Growth of the Worldwide EMS Industry . 8
2 Projected Range of Revenue Growth of Worldwide Electronics
Industry.............................. 9
3 Projected Percentage Range of Worldwide Electronics Indus-
try Captured by EMS Providers . . . . . . . . . . . . . . . . . 10
4 Make-Up of EMS Industry . . . . . . . . . . . . . . . . . . . . 11
5 Corporate Locations of Flextronics International Ltd. . . . . . 29
6 World wide distribution of Solection’s sites . . . . . . . . . . . 31
7 Percentage of Product Market Mix of Flextronics International
Ltd. ................................ 34
8 Solectron’s Sales in Various Sectors . . . . . . . . . . . . . . . 36
4

1 Introduction
We are witnessing two trends that are having sweeping effects on both indus-
try and consumers: short product life cycle and mass customization. This
is particularly true in the electronics industry. Some products such as cell
phones have a life cycle as short as 6 months. With such a short product life
cycle, being first to market is key for a company’s survival. Consumers in-
creasingly demand a highly customized, high quality product to be delivered
quickly at a competitive price. The Dell make-to-order model [11] is becom-
ing industry standard. Technology advances, in particular the Internet, fuel
competition. Each company, even established ones like IBM and Hewlett-
Packard (HP), needs to re-evaluate itself, and identify its core competencies.
The industry is moving to one in which competition is supply-chain vs supply-
chain, not simply company vs company. A rapidly increasing proportion of
end products are never touched by the company whose brand they bear.
Instead, the manufacturing is contracted out to specialists, creating an in-
dustry known as electronics manufacturing services (EMS) or simply contract
manufacturing. These specialists are called contract manufacturers (CMs),
or EMS providers. Their customers are original equipment manufacturers
(OEMs).
The top EMS providers are a new breed of supercontractors that promise
to revolutionize manufacturing well into the new century. They command
dozens of factories and supply networks around the world. Increasingly, they
also manage their customers’ entire product lines, offering an array of ser-
vices from design to inventory management to delivery and after-sales service.
Their unusually flexible operations are surprisingly profitable, producing re-
turns on assets up to 20%1.
This phenomenon has gone beyond simply outsourcing manufacturing
tasks, a practice that has been around for decades. In place of traditional con-
tractual relationships between client and supplier, arrangements with EMS
providers represent a sort of extended enterprise - a set of partnerships be-
tween product developers and specialists in components, distribution, retail-
ing and manufacturing. The resulting organization can be so tight as to
behave like a single, virtually integrated company. Its strategies can slash
time and costs out of the supply chain, the process between the invention of
1Return on assets of large EMS providers such as Solectron, Flextronics, etc. can be
inferred from financial data listed in their annual reports.
5

a new product and the time it reaches the consumer. Emerging and estab-
lished electronics OEMs can meet and exceed growth expectations because
EMS providers are able to meet demand spikes and effectively manage in-
ventories. Companies such as Lucent Technologies, Hewlett Packard, NCR,
Phillips, Ericsson, IBM, Compaq, Nokia, and Apple Computer have all liqui-
dated manufacturing plants and chosen to partner with major EMS providers
to strengthen or reposition their competitive advantages. It is reported that
customers of EMS providers in the U.S. have already achieved cost efficien-
cies of 15% to 25% and that is only 5% to 10% of U.S. industry’s potential
savings [27].
Today, EMS providers are far from ruling the world. But they have
achieved a size and international scope which in some cases rivals the OEMs
that they serve. With the outsourcing trend in electronics just in its infancy,
there is no doubt that in the future EMS providers will have a far reaching
impact on the industry.
There are a few reasons why outsourcing works particularly well in elec-
tronics. First, from a production perspective, most electronics products are
similarly constructed and not complicated. Whether PCs or medical in-
struments, all are assembled from a limited number of standard parts like
resistors, capacitors, and memory chips, which get used across many differ-
ent product configurations. What makes the products unique is the way
these standard parts are combined onto printed circuit boards (PCBs), the
software programming the devices receive, and custom components such as
application-specific integrated circuits. As a result of basic similarities in
finished goods, electronics manufacturers have an easier time subdividing
their skills, equipment, and information systems to handle many different
work orders. Second, the competitive, fast-changing nature of the electronics
markets has forced discipline on this manufacturing segment.
The organization of the remainder of this section is as follows. We first
review the history of the EMS industry. We then illustrate and analyze the
phenomenal growth of the industry. Finally, we discuss industry trends.
1.1 History of the EMS Industry
The trend to replace in-house manufacturing with outsourced manufacturing
began decades ago. In the electronics industry, EMS providers began primar-
ily in the business of printed circuit board (PCB) assembly and consignment
work. (Consignment contractors own no material but simply assemble what
6

is provided.) Rapid growth of the contract manufacturing industry did not
occur until the 1990s. This expansion began as a result of downsizing by
many OEMs in the economic recession early in that decade. During the re-
cession, while OEMs could not afford capital investment in new equipment,
EMS providers managed to improve and increase their production capabil-
ities, invest in the latest technologies and expand the services they offer.
Many OEMs discovered that it was cheaper to turn to these contract man-
ufacturers to produce the majority of their components. With economic
recovery, OEMs have simply increased their reliance on contract manufac-
turers instead of increasing capital investment. The EMS providers, shared
by multiple OEM clients, are able to leverage the advantages of year-round
full-volume production.
OEMs are increasingly outsourcing almost every aspect of production
from design to final assembly. The scope of outsourcing practice has been
extended beyond the component level to the complete production of a brand-
name product. The EMS provider is no longer just a vendor, but takes re-
sponsibility for the engineering, manufacturing and distribution of customer
products. EMS providers have become full-fledged partners in product design
and development, essentially extensions of the OEMs they service. Contract
manufacturing is projected to grow faster than the electronics industry as a
whole, a benefit to contract manufacturers of all sizes [16].
It might appear easy to get a tiny piece of the pie in the exploding con-
tract manufacturing industry. But economic scale, purchasing power and
global logistics are making the business increasingly one in which one must
be either a big player or serve a niche market. Traditionally, the successful
path in contract manufacturing is to grow with a major OEM customer. It
might have been simple 15 years ago, when a contract manufacturer put to-
gether cheaper labor with greater flexibility to produce for an OEM customer
according to a given manufacturing recipe. Today, the capital required for
an EMS provider to grow is enormous. Extremely short life cycles and con-
stantly declining prices prompt OEMs to launch their products in multiple
locations around the world and to demand a greater range of services than
just manufacturing. In addition, the introduction of surface mount tech-
nology (SMT) in PCB assembly has significantly increased required capital
investments. OEMs must build a global presence, and as a result, major EMS
providers must follow suit. Senior executives at the top five EMS providers
agree that continued growth of their companies hinges on their ability to
extend their responsibilities to managing the entire supply chain for OEM
7

customers. (See a list of major EMS providers in Appendix A.)
1.2 Rapid Growth
Throughout the 1990s, the EMS industry continued to outpace the rest of
the electronics industry. According to the Institute for Interconnecting and
Packaging Electronic Circuits (IPC)2, the value (total revenue) of the elec-
tronics manufacturing services industry in the U.S. increased 25 percent in
1998, reaching $22.5 billion. The already large outsourcing wave in elec-
tronics manufacturing is just in the formative stage. In fact, a report from
Technology Forecasters estimates that only 18% of all electronics manufac-
turing above the component level was subcontracted as of 1999. It predicts
that will rise to 26% by 2001. The bulk of outsourcing is in computers,
computer peripherals and telecommunications. At a growth rate of 20%, the
projected worth of the EMS industry in the US will be $45 Billion by 2004 [9].
$129.6
$155.5
$186.6
$72.0
$86.4
$103.7
$124.4
$223.2
$108.0
$149.3
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
19992000200120022003
Year
Billion($)
Figure 1: Projected Revenue Growth of the Worldwide EMS Industry
Looking at the entire EMS industry worldwide, the total worth (or, rev-
2The IPC is a Northbrook, Ill.-based trade organization that represents and serves the
printed-circuit board and contract electronics manufacturing industries.
8

enue) was estimated to be $60-90 Billion in 1998. The growth rate is pro-
jected to be 20-25% (the consensus seems to lean towards 20%) [6]. The
projections for the total value of the worldwide EMS industry in the next
5 years are shown in Figure 1. The numbers on the lower and upper bars
indicate the low-end and high-end estimates for the value of the worldwide
EMS industry, respectively.
Total revenue of the worldwide electronics industry as a whole in 1998 was
estimated at $655 billion by one source [25] and $600 billion by another [6].
A figure of $655 Billion is used to develop revenue projections for the entire
worldwide electronics industry from 1999 to 2003. The growth rate is esti-
mated at 8% per year [25]. The resulting projections for total revenue of the
worldwide electronics industry are illustrated in Figure 2.
$707.40
$764
$825
$891
$962.40
$500.00
$550.00
$600.00
$650.00
$700.00
$750.00
$800.00
$850.00
$900.00
$950.00
$1,000.00
Billion($)
19992000200120022003
Year
Figure 2: Projected Range of Revenue Growth of Worldwide Electronics
Industry
In order to see the potential impact of the EMS industry on the entire
electronics industry, the above revenue projections are used to determine the
percentage of the electronics industry’s revenues that were due to or will be
due to EMS providers. The realized and estimated percentages are plotted
in Figure 3. The numbers on the lower and the upper bars again indicate
9

the low-end and high-end estimates, respectively.
15%
17%
19%
21%
23%
10%
11%
13%
14%
16%
0%
5%
10%
15%
20%
25%
19992000200120022003
Year
Figure 3: Projected Percentage Range of Worldwide Electronics Industry
Captured by EMS Providers
OEMs in the computer and telecommunications sectors continue to be
the driving force for EMS providers. The computer and communications
segment combined account for approximately 50% of EMS providers’ rev-
enues in 1998 [9]. Figure 4 plots the distribution of the industrial sectors
(not very finely partitioned) which EMS providers serviced in 1998 [9].
1.3 Extending Service Domain
EMS providers are adding services such as engineering design, warranty re-
pair, and customer service and support. Expanding on the engineering design
aspect, the EMS industry has evolved to the point where distinctions between
design and manufacturing services have blurred considerably.
Having transformed themselves from board-stuffers to integrated EMS
providers, EMS industry leaders now have added a new, critical layer to
global integrated manufacturing services: design for manufacturing (DFM).
DFM, at its core, is designed to get OEMs’ products to market faster
and more cost-effectively than ever before. The purpose of DFM services is
10

Computers
35%
Communications
25%
Industrial
Applications
19%
Other
21%
Figure 4: Make-Up of EMS Industry
to bridge the performance gap between raw components and the assembled
packages, as well as various “volume” manufacturing processes that ensure
quality and reliability in order to deliver smaller and higher performing OEM
products.
Integrated DFM services draw upon an EMS provider’s design expertise
company-wide. They provide online software databases that access design
“rulebooks” detailing case histories of component placement, test and stress
results - to name but a few. These automated tools drive a collaborative
design model, which shares critical information on design and manufacturing
throughout the company and with OEM customers.
DFM services can simultaneously anticipate new technology trends and
meet the customer’s expected service levels. Successful delivery involves a
high degree of automation and integration that encompasses the complete
product life cycle, from design concept to end-of-life management.
Another great benefit of DFM is that these real-time, automated design
systems receive feedback from design, test, supply chain and manufacturing
operations. Moreover, the technology infrastructure supporting DFM can
readily give OEM customers an updated flow of design information.
11

1.4 Industry Trends
A recent Purchasing Magazine survey found that manufacturers are using
CMs for a wide variety of production jobs, not just to build boards and
cable harnesses: “Over 90% of purchasers responding to our survey use CMs
for multiple manufacturing jobs. Fifty-nine percent of those surveyed say
they use CMs for entire system builds or for box builds. Forty-nine percent
outsource cable harnesses to CMs, while 43% use contract manufacturers for
sub-system boards and 30% outsource motherboards to their manufacturing
partners. Twenty-one percent use them to help design systems.” [4]
The survey also found that 40% of OEMs will increase the number of
contract manufacturers they utilize in the next year, and 66% say they will
increase their spending with CMs over the same period [4].
There is a possibility OEMs will, over time, become purely design and
marketing companies. Networking products company Cisco Systems today
outsources some 40% of its products [32]. Cisco’s main role is in defining and
designing the product. It subcontracts the physical production and delivery
processes of the product. In such a case, an OEM needs mainly concept,
design and marketing staff.
As mentioned earlier, competition in the future is expected to be supply-
chain vs. supply-chain instead of company vs. company. However, brand
name recognition will still be vital, meaning larger brand names will have to
coordinate their supply-chains and go to market as one entity.
The ability to be the low-cost provider for manufacturing is the chief re-
quirement that electronics purchasers have of contract manufacturers. Our
survey results show that 81% of electronics buyers say reducing manufac-
turing cost is the main reason to use a contract manufacturer, and 57% say
they outsource to avoid capital equipment investment. On average, pur-
chasers look for CMs who can reduce their manufacturing cost by at least
20%, according to survey results [4].
The survey also finds that buyers look for CMs who have the technical
know-how for the manufacturing job and can deliver the same or better
quality product at a lower cost. To determine a CM’s fitness on these criteria,
purchasers often conduct site visits to CMs to evaluate their capabilities,
according to 66% of those surveyed [4].
Low-cost assembly operations in Singapore have been ruled out due to
rising overhead costs. Industry experts see Singapore as a place for prototyp-
ing and producing higher value-added products. Some customers, however,
12

still want products that require fast turnaround done in Singapore, with
cable modem cards as an example. (For a more extensive overview of the
electronics industry in Singapore, see [1]).
Currently, China is specifically chosen for high-volume, low-margin work.
China is viewed as the preferred assembly site only when labor is a significant
part of production cost. However, China is poised to become Asia’s premier
manufacturing site. It has a potentially huge market, low overhead (due to
low administrative costs, tax benefits, etc) and low labor costs. Products
manufactured in China can serve both the Chinese domestic market and the
markets of Japan, Korea and Southeast Asia. China will benefit substan-
tially from the outsourcing boom. A similar phenomenon is occurring in
Eastern Europe (specifically Romania and Hungary) and Mexico. Low labor
costs and proximity to their respective European and North America mar-
kets make Eastern Europe and Mexico ideal regions for major EMS providers
to place their manufacturing sites. In all of these locations, EMS providers
are encouraging suppliers to co-locate to create facilities that give rise to a
very short overall supply chain. Some industry experts even predict that
the manufacturing crown will be shared among three regions, which together
will do the world’s electronics manufacturing: China, Eastern Europe and
Mexico.
2 CMs and the Supply Chain
2.1 Services from EMS Industry
The traditional role of a CM has been to provide manufacturing services
for OEM customers. In the 1980’s, services were limited to printed circuit
board assembly. The EMS industry has evolved since then, from making
sub-assemblies to producing finished “boxes” that may be delivered directly
to an OEM’s end customers. In addition to manufacturing services, CMs are
increasingly providing a wide array of services such as product design, sup-
plier management, direct shipment of finished goods, and after-sale service.
In short, CMs are now able to provide integrated supply chain solutions for
OEMs.
Product design services that CMs provide are mostly aimed at improving
manufacturing processes and using alternative materials, to lower production
costs while maintaining quality. This has benefits for both the CM and the
13

OEM, as the CM is involved in more value-added activity, while the OEM is
able to take advantage of the manufacturing expertise of the CM to reduce
time to market, manufacturing cycle times, and overall costs. CMs clearly
are not in the business of creating new brand names, and are not generating
demand for an OEM’s products. CMs value their manufacturing processes
and their people, not the products themselves. In essence, CMs position
themselves as partners with OEM customers, not competitors.
The EMS industry is a low margin industry. The attraction for investors
is that the industry has sought to minimize risk. A CM owns very little
finished goods inventory (FGI). If the market shifts or a competitor enters
the market, it is the OEM who takes the majority of risk of over supply
and obsolescence. On the procurement side, the CM is increasingly leverag-
ing its purchasing power to demand that its suppliers own inventory of raw
materials. Through Vendor Managed Inventory (VMI) or Supplier Owned
Inventory (SOI) programs, CMs are reducing procurement risks.
2.2 Rationale for EMS Industry
As stated in the introduction, the EMS industry has experienced phenom-
enal growth. The rationale for the existence and growth of the industry is
summarized as follows.
Economies of scale: A product often experiences cyclic demand. If an
OEM decides to have in-house production and designs its capacity to
satisfy peak demand, there will be excess capital resources and labor
during downturns in the demand. A CM is likely to be able to shift
the excess capacity allotted to one OEM customer to another.
Core competency: With increasingly severe competition amongst OEMs,
it is important to sense what new product consumers want, and to de-
sign and build the product quickly. It is difficult to excel at all of these.
An OEM’s core competencies are typically in new product design and
demand generation. By outsourcing manufacturing activities, electron-
ics OEMs can devote their attention to design and demand creation.
Low material cost: With EMS providers growing bigger, they have more
leverage in purchasing raw materials. Purchasing power due to in-
creased size and shared inventories of common parts can result in lower
component costs.
14

Return on investment: Manufacturing processes often require heavy cap-
ital investment, which often takes a long period to pay back. With
shortened product life cycles, it is harder to make capital investment
decisions. For an OEM, these difficult decisions are removed if the
CM takes care of the entire manufacturing process, resulting in better
return on investment for the OEM.
Time to market pressure: With shortened product life cycles, being first
to market is extremely important. As building new manufacturing
capability often takes time, a CM can provide manufacturing capacity
and expertise quickly. Also since manufacturing is the core of a CM’s
business, by using the best practices and latest technology, the CM
can bring the product to market quickly. In addition, CMs are flexible
enough to be able to respond quickly to positive or negative changes in
demand.
Globalization: Markets have become global rather than local in nature.
Major OEMs are striving to satisfy global demands. Smaller compa-
nies would like to tap into this market, but lack the resources to have
widespread production. By establishing a global presence, CMs are
able to serve both types of customer in an efficient manner. They are
able to take advantage of lower labor costs in various regions as well as
providing short leadtimes and reduced supply chain costs in satisfying
demands locally.
2.3 Customers
The choice of OEM customers is arguably the most important decision that
a CM has to make. While CMs are not in the business of creating demand
for products, they still must be aware of which products have large market
potential as well as the potential for future commodification. Smaller CMs
may not have the luxury of turning away business, but larger CMs have
found that they must position themselves in areas for which they can add
the most value. An example of this is the fact that many of the large CMs
have almost completely divested themselves of PC assembly operations, as
the PC has essentially become a commodity. Currently, the areas of telecom-
munications, servers, and medical electronics are seen to be some of the areas
where significant value may be added.
15

EMS providers usually have a broad customer base. They manufacture
a balanced portfolio of products. This fact enables the EMS providers to
achieve better capacity utilization. Through signing outsourcing contracts
with OEMs, an EMS provider can acquire under-utilized capacity from OEMs
and transfer other work to the facility to fill it to optimal capacity, therefore
reducing OEMs’ manufacturing costs as well as improving asset utilization.
To reduce the risk of capacity investment, a CM tries to build a portfolio of
diversified OEM customers. This way, if the market for one sector is down,
the demand from other sectors can compensate. This business model has
been embraced by investors over the last two years.
If a CM seeks to do business with a competitor of one of its existing
customers, it often seeks permission from the existing OEM customer, and
builds a dedicated production line for the new customer. The EMS industry
is trying hard to build an image that CMs are both reliable and ethical.
Many OEMs, such as Lucent Technologies, Hewlett Packard, NCR, Phillips,
Ericsson, IBM, Compaq, Nokia and Apple Computer have liquidated a por-
tion of their in-house manufacturing facilities and contracted work to CMs.
This has been done to strengthen or reposition their competitive advantages
in new product design and demand generation. Other OEMs like Cisco
and Sun Microsystems have strategically outsourced entire manufacturing
functions from the outset. Making CMs part of its virtual organization has
allowed Cisco to enjoy unprecedented growth, becoming one of the largest
companies (in terms of market capitalization) in the world.
The existence of a mature EMS industry will further increase competition
in the electronics industry. Small companies specializing in the design and
marketing of new product have the potential to grow overnight into a major
OEM by using the manufacturing and supply chain capabilities of the EMS
industry. For instance, Solectron currently works with Silicon Valley startups
with no investment in manufacturing or supply-chain development. Startups
spend much of their resources on marketing and design. They have very little
invested in infrastructure, and as a result they can be very nimble. They turn
to Solectron, and it gives them power equal to the largest OEMs in the world
for the manufacturing and supply-chain aspects of their business. This allows
OEMs to concentrate on their core competencies, R&D, sales and marketing,
while choosing a partner to provide specialized manufacturing skills. Trans-
meta, a 200 person startup company specializing in microprocessor design,
has contracted IBM for the initial production and a Taiwan semiconductor
company for the volume production of its newly designed chips. Though it
16

has no capacity nor manufacturing experience, Wall Street analysts predict
that Transmeta has the potential to rival such industry giants as Intel [5].
Whether Transmeta thrives or not, the existence of a mature EMS industry
has lowered the barrier for new players to enter the OEM market.
2.4 Suppliers
Some OEMs manage and negotiate with suppliers for their CMs, with sup-
pliers sending parts and components directly to CMs. However, CMs are in-
creasingly performing material procurement and management directly. Pro-
curement (along with manufacturing expertise) has traditionally been one of
the areas in which CMs have been able to obtain their profit margins and
this expertise will continue to be a strength. CMs must continue to main-
tain expertise in identifying sources and leveraging the quantity of common
components across many customer parts into pricing advantages.
The decision whether to dual source is a difficult one and as seen in Sec-
tion 4 there are different philosophies as to how to approach this decision. If
the issue is one of reliability or capacity, then single sourcing might not be ad-
visable. However, if a reliable single source can be found that will completely
fill the CM’s needs, then a decision would have to be made as to whether
to sole source or dual source. An argument for multiple sourcing would be
that the suppliers must be kept in competition. However, an argument could
also be made that the market as a whole will provide the competition and in
effect set prices and thus only sole sourcing would be necessary. The tradeoff
comes down to quality, pricing, and reliability risks versus overhead costs.
The notion of a contract has become much less of a rigid document than
in the past, as due to ever shortening life cycles, prices tend to decay at a
fairly fast rate. Contracts typically do not set price or exact order quantities,
but are agreements between parties to supply required demand (within given
parameters).
2.5 Supply Chain Management
Increasingly, CMs provide not only manufacturing services but also entire
supply chain solutions to OEMs. The supply chain services include product
design, demand forecasting, managing suppliers, and delivery to end cus-
tomers.
17

2.5.1 Demand Forecasting
For each product that a CM makes for an OEM, the OEM generates the
orders. The order quantity from the OEM is often firm for the current period
and the OEM takes whatever it has asked the CM to build. The CM tries
to make everything that has been ordered.
In addition, the OEM provides demand projections for the short and long
terms. The short term projection is used by the CM to plan material acqui-
sition. The long term projection is used mostly for capacity planning. The
short term projection is not necessarily a firm commitment from the OEM.
Depending on the nature of the contract between the OEM and the CM, the
OEM can adjust its projections for the next period. Again depending on
the nature of the contract, if the CM cannot deliver the ordered quantity,
the CM may be penalized. To protect themselves, some CMs have begun to
develop expertise and actively work with OEMs in demand projection.
2.5.2 Managing Suppliers
As stated in Section 2.4, CMs have more and more freedom in managing
their suppliers. Managing suppliers can be both difficult and profitable. By
leveraging their size, CMs increasingly demand that their suppliers partici-
pate in vendor managed inventory (VMI) or supplier owned inventory (SOI)
programs. If a supplier joins a VMI program, it maintains a certain level of
inventory at a warehouse near the production site of the CM. The warehouse
is often shared by all of the suppliers and is managed by a third party logistics
provider (3PL). The 3PL is responsible for frequent shipment of parts from
the warehouse to the CM’s production line. A sensible business model seems
to have the 3PL own or lease the warehouse. To encourage more suppliers to
join a VMI program, some CMs agree to pay warehouse costs for an initial
period.
2.5.3 The VMI Program
The VMI program is a pull system. The production schedule at a CM’s
facility dictates the daily usage of materials. This requirement is sent either
through electronic data interchange (EDI), email or fax to the warehouse
operator. The warehouse operator often has only a few hours to pick the
parts needed and deliver them to the production site. The supplier of each
product is required to maintain a minimum level of inventory. Inventory
18

levels are monitored by both the CM and the supplier. The CM monitors
them to keep track of the performance of the supplier. If the supplier is
deemed unreliable, the CM will be forced to work more closely with the
supplier or possibly replace the supplier. The supplier monitors the inventory
to coordinate its production and delivery schedules. An added benefit for a
supplier in the VMI program is that it can observe the actual consumption
rate of its parts by the CM. Over a period of time, the supplier can use this
information to make an inference of the accuracy of the demand projection
provided by the CM or the OEM.
The question of who should own the inventory in the warehouse can
be a source of contention. A supplier who joins the VMI program does
not necessarily have to own the inventory. However, as CMs become larger
and more powerful, suppliers are increasingly being pushed into owning the
inventory. In such a case, whenever a part is consumed by the CM, an invoice
(aggregated daily or weekly) is generated by the supplier. A supplier often
has the freedom to transfer its excess inventory to other locations. (See [29]
for a more detailed description of the VMI program.)
2.5.4 Warehousing and Transportation
In the last couple of years, many CMs have begun to cast themselves as
providing complete supply chain solutions. This includes after-sale services
and outbound logistics services such as shipping the finished product to an
OEM’s end customers. Providing one-stop supply chain solutions allows
CMs to add value. But as many added services such as outbound logistics
are outside of their core competencies, much of the work is itself contracted
to 3PLs.
As we have observed, currently most OEM customers prepare their own
transportation plan to move finished products from the CM to end customers
and their distribution channels. Also, most suppliers arrange the transporta-
tion of parts to the CM’s warehouse. The warehouse is sometimes owned by
the CM, but ideally is owned or leased by the 3PL operating it. The latter
gives the 3PL the same flexibility that a CM has in managing capacity. The
cost of operating the warehouse should be negotiated among the CM, 3PL
and the suppliers.
19

2.6 Capacity Expansion
The degree to which OEMs have been outsourcing work means that CMs
have had little difficulty filling available capacity. The pressures of shortened
product life cycles make the decision of when to build capacity crucial.
In many instances, these decisions are made moot, as a typical method
by which a CM obtains capacity is to acquire the existing manufacturing
facilities of an OEM, along with a concurrent agreement for manufacturing
for the OEM. This also gives the CM the ability to fill any excess capacity
with business from other customers. Here, there is a challenge of integrating
the acquired facilities into the company.
The decision to build capacity can be done before or after negotiations
with an OEM, but once again shortened product life cycles mean that there
is more pressure on the CM to have capacity in place before agreements are
reached.
2.7 Localization
Traditionally, a lot of contract manufacturing has been done in Asia, mostly
because of low labor costs. However, the supply chain costs of a product
can be more than the labor costs. Transportation costs may be significant.
With ever shorter product life cycles, the early introduction opportunity costs
and obsolete inventory costs become more dominant in the total supply chain
costs. OEMs increasingly want to assemble a product near their end customer
market. The pressure to reduce supply chain costs has meant that large CMs
have had to develop a worldwide presence in order to be close to their OEMs’
customer base. By building production sites near end consumer markets,
CMs bring their leverage points closer to the actual demand and maximize
the flexibility to meet end customer demands with reduced leadtimes. The
localization drive has resulted in a worldwide production strategy that has
seen some manufacturing move out of Asia.
A massive localization is happening in Guadalajara, Mexico, in which
seven of the world’s top ten CMs have located, along with their suppliers, to
serve the North American market [28]. Production sites in Guadalajara are
only a few hours away from the US, either by air or land, providing maximum
flexibility to serve the North American market. While there is an increase in
labor costs compared to other areas of the world, this is compensated for by
reduced supply chain costs.
20

As of July 1999, NatSteel has moved 15% of its production to plants in
North America, and the shift is expected to continue over the next three
years. NatSteel is constructing 200,000 square foot factories in Guadalajara,
Mexico [32]. (It is also constructing some in Budapest, Hungary.)
Solectron has pulled most PC motherboard production out of Malaysia
and relocated it to Guadalajara. Production costs in Malaysia and Mex-
ico are roughly the same, the moves being driven by “regionalization” of
production, or moving manufacturing closer to end markets. By moving
manufacturing plants to a place closer to end markets, EMS providers can
save freight and logistics costs as well as potential product depreciation costs
during extended overseas shipping times. Overall, some production has gone
from Asia to Mexico as part of the trend of regionalization of supply chains.
The NAFTA agreement in North America and the opening of Eastern Eu-
rope have diminished Asia’s traditional low-cost assembly advantage. How-
ever, competing regions such as Mexico and Eastern Europe do not have
Asia’s manufacturing culture, which includes an established infrastructure,
an extensive supply base, a dedicated work force and generally business-
friendly governments. These things combined bring an advantage to big
EMS providers– but not an advantage that is destined to last forever.
While this may sound negative for Asia, the regionalization trend is also
occurring in Asia. An executive at Solectron believes that more US-based
OEMs are interested in supplying markets in India and China. In fact, he
believes that based on demand, Solectron will grow its Asia manufactur-
ing presence faster than in Europe or Mexico. Roughly 15% of Solectron’s
manufacturing capacity is in Asia. This includes two plants in Malaysia, in
Johor and Penang, a factory in China’s Singapore-Suzhou Industrial Zone
and a small Japanese operation to serve a large OEM with design and pro-
totyping. He expects Solectron will put at least three more factories in Asia
over the next few years, bringing regional capacity up to 20% of worldwide
capacity. Solectron officials believe Asia will have tremendous demand for
products such as PCs, mobile phones, telephone infrastructure equipment
and networking equipment.
2.8 The Impact of E-Age
Electronic commerce (e-commerce) will be key to CMs’ supplier management
strategies (for example with respect to material procurement). Most EMS
providers are developing supplier strategies that employ either EDI or web-
21

based e-commerce tools. The idea is to automate the transactional part of
purchasing, to speed up procurement cycle time, and to lower overhead costs.
All these help to reduce overall costs and improve efficiency in a supply chain.
Moreover, online market places essentially expand the supplier base for EMS
providers and make global sourcing more attractive.
Information sharing (visibility) between the end consumer market, OEMs,
3PLs, CMs, and suppliers is also important to a CMs’ success. For exam-
ple, information technology makes VMI more seamless. EDI or web-based
transactions will play an increasingly important role in providing this func-
tionality.
3 Issues and Challenges in EMS Industry
Through interviewing various companies across the electronics manufactur-
ing supply chain, we have identified several issues and challenges worthy of
detailed discussion.
3.1 VMI
CMs are increasingly implementing VMI programs with their suppliers. The
minimum inventory level for each supplier is set verbally or by contract.
Currently, it appears that the industry standard for the minimum inventory
level is 2 weeks across all parts. Anyone who is familiar with the inven-
tory literature will immediately question the wisdom of such an agreement,
which is often dictated by the powerful CM. Accuracy of demand projection
from an OEM and the responsiveness of a supplier should both play a role
in determining the appropriate minimum inventory level for a part. CMs
have been busy dealing with rapid growth and have not had time to develop
expertise to build a more systematic inventory model to facilitate their de-
cisions. Even if they were willing to do it now, it appears that there is no
well studied model in the academic literature that is readily implementable.
One difficulty is that the optimal inventory policy depends on many factors,
as outlined below. Some of these factors are very difficult to quantify.
3.1.1 Accuracy of demand projection
An OEM is responsible for providing predictions of future demand. As part
of the contract between the OEM and the CM, the OEM provides demand
22

projection in a certain window, which contains several planning periods. For
example, the CM may have a planning period of one month, and a demand
projection window of 6 months. At the beginning of period t, the OEM pro-
vides the CM with the following information: Dt,t, Dt,t+1 , . . . , Dt,t+6, where
Dt,t is the committed order from the OEM for period t,Dt,t+1 is the projected
order quantity for the next period, etc. Obviously, if the OEM misses the
forecast completely (such as if a sudden jump of 300% in orders occurs for the
next period), one should not expect the CM and the suppliers to keep pace
with the surge. To hold the OEM accountable, some contractual agreement
is required. For example, by the time of the next period (t+ 1), the OEM’s
committed order Dt+1,t+1 can differ from Dt,t+1 by at most a certain amount,
say 25%, without any penalty. Otherwise, the CM and suppliers will do their
best without a penalty being incurred. VMI or any other inventory program
would not help to protect against unexpected surges in demand.
3.1.2 Responsiveness of suppliers
Current VMI programs do not differentiate between the responsiveness of
suppliers. A supplier’s responsiveness depends on its transportation time
from its production or distribution site to the CM’s warehouse, its finished
goods inventory level, the production capacity and the ability to manage its
suppliers. Some suppliers may choose to build extra production capacity,
and thus can always replenish the inventory at the CM within (for example)
3 business days. In such cases, requiring the supplier to carry a minimum of
two weeks inventory is excessive. A supplier should be rewarded for being
more responsive to the CM.
3.1.3 Inventory Pooling
A supplier often has many customers. Suppose that a supplier has 100 cus-
tomers in the US, and each customer requires 2 weeks minimum inventory.
Keep in mind that a minimum of two weeks inventory may mean that the
supplier has to carry an average of 4 weeks inventory. So the supplier has to
carry about 400 weeks inventory located in customers’ warehouses. In addi-
tion, in order to meet the service levels imposed by its customers, the supplier
has to maintain additional finished goods inventory at its warehouses. The
supplier benefits from no pooling effect of its inventory. If the supplier builds
a central distribution center which can provide next day delivery to all of
23

its customers, then a lower level of inventory at a CM’s warehouse might be
sufficient.
3.1.4 Ownership of Inventory
Inventory is needed to hedge against demand uncertainty. With short prod-
uct life cycles, carrying inventory is risky. Naturally, nobody wants to own
the inventory, preferring someone else to take that risk. If a supplier owns
the inventory, the CM may set the minimum inventory level unnecessarily
high. Currently, in the VMI program, whenever the inventory drops below
the minimum level, the CM notes an incidence. If there is dual sourcing, the
new parts are drawn from a competing supplier’s inventory.
Admittedly, finding the right minimum inventory level is a difficult prob-
lem. If the CM owns the inventory, there may be at least an incentive to
find the appropriate level for each part. An alternate way to provide such
an incentive is to incorporate “freshness” clauses in which the CM assumes
ownership of inventory that has been in the warehouse beyond a specified pe-
riod. Many CMs assemble boxes from a given set of bills-of-materials (BOM).
Some parts are cheaper, and some are more expensive. A shortage on any
part will shut down a production line. If the CM owns the inventory, should
the CM carry higher levels of inventory for cheaper parts?
3.2 Risk Sharing
One of the major advantages possessed by CMs is that they are able to trans-
fer their risks to either suppliers or OEM customers as much as possible. The
unique position of an EMS provider in the electronics supply chain enables it
to effectively diversify and share with suppliers and/or OEM customers the
risks pertaining to demand uncertainty and capital investment in capacity.
Among all the risk reduction means that EMS providers possess, VMI is
one which we discussed in Section 3.1. We will now elaborate on three addi-
tional ones: supply contracts, capacity pooling and procurement leverage.
3.2.1 Supply Contracts
The make-to-order model of the EMS industry takes away most of the short-
term risks in finished goods from EMS providers. In other words, OEMs take
the risk of owning FGI. When signing supply contracts with OEM customers,
24

EMS providers explicitly specify that the OEM cannot vary order quantities
within a very short time period, say two weeks or one month. Beyond this,
EMS providers do allow customers to adjust their orders up or down by
certain percentages. Cancellation windows are also specified, with size on
the order of 3 months being typical.
EMS providers often agree on a cost reduction schedule in their contracts
with OEM customers in order to remain competitive. Such a cost reduction
schedule almost always get broken down to the component level and is passed
on to the supply contracts that EMS providers sign with their suppliers for
the corresponding components.
3.2.2 Capacity Pooling
The fact that EMS providers service more than one market sector hints
at how EMS providers diversify capacity risks. As indicated in Figure 4,
EMS providers service OEMs in many industrial sectors including computer
systems, computer peripherals, wired telecom & networking, wireless telecom
and medical equipment. EMS providers can pool demand from all of these
sectors to keep the utilization of their capacity high. This greatly diversifies
the risks of having capacity sitting idle, thus smoothing the return of capital
investment on capacity.
3.2.3 Procurement Leverage
Some EMS providers have dedicated procurement teams that work with
OEMs on new product development issues, develop supply strategies, and
then execute those strategies. OEMs are turning over purchasing to CMs
just as they have turned over manufacturing to reduce costs.
By combining the volumes of multiple customers, CMs can leverage their
purchasing power to enhance their bargaining power when contracting with
suppliers to purchase components. As a result, CMs often can buy compo-
nents and other production materials for less than the OEMs.
Through adopting dual sourcing rules such as the “60-40”3or “80-20”
rules for almost all components, EMS providers make sure that they work
with suppliers who provide both good quality and competitive pricing.
3“60-40” sourcing rule refers to the industrial practice of awarding 60% and 40% of
total business to two different suppliers. “80-20” is one variant of such sourcing rule.
25

Multiple sourcing or dual sourcing also reduces the risk of disruptions in
supply. One interesting remark is that even with a multiple sourcing strategy,
EMS providers can still be at risk for disruptions in supply. In 1999 and early
2000, a global shortage in resistors and capacitors hit large EMS providers
such as Solectron and NatSteel, which made them unable to meet customer
demand [15].
3.3 Information Systems
In general, the growth of Build-to-Order (BTO) will mean that CMs need
sophisticated Information Technology (IT) tools, including e-commerce ca-
pability, to manage the supply chain. While e-commerce is still in its infancy,
OEM buyers will soon be factoring in e-commerce capability when CMs are
being evaluated.
There are also challenges to a CM’s information systems by design-for-
manufacturing (DFM) services. Anticipation and innovation in engineering
design require continuous improvements to a CM’s design knowledge base.
Design teams need to be able to house their intellectual property in collab-
orative online password-protected vaults which are also accessible by OEM
customers.
As e-commerce changes the way EMS providers and their partners con-
duct business, the Internet will level the playing field for all CMs regardless of
size, in the sense that the Internet provides a common interface. All players
compete on the ability to provide quality service.
For purchasing organizations at most CMs, electronic commerce will be
key to their supplier management strategies. Most CMs are developing sup-
plier strategies that employ either electronic data interchange (EDI) or web-
based electronic commerce. The idea is to automate the transactional part
of purchasing, to speed up procurement cycle time, and to lower overhead
costs.
3.4 The Impact of Online Exchange Markets
The booming trend of online sales channels and Business-to-Business (B2B)
exchanges imposes tremendous challenges on the way firms operate in the
traditional supply chain environment. The emergence of online marketplaces
could redefine business processes and relationships in the electronics industry.
26

3.4.1 Cost and Time-to-Market Reduction
A key challenge for CM purchasers in coming years is to develop strate-
gies that speed up procurement cycle time while reducing cost, including
procurement, inventory and overhead costs as well as the cost of the com-
ponents themselves. Through participating in B2B online exchanges, CMs
can automate the transactional part of purchasing, to speed up procurement
cycle time, and to lower overhead costs. The Internet has the potential to
eliminate waste and cost from a supply chain because information can be
transmitted in real time among trading partners.
Internet-based e-commerce also streamlines product design, thus effec-
tively reducing design-time. For instance at Solectron, with paper transac-
tions, certain design changes might take as long as 10 to 15 days to complete
and move into production; now with Internet-based tools, Solectron can finish
design tasks in eight hours to three days - depending on the product [20].
3.4.2 Channel Coordination
B2B exchanges can facilitate the channel coordination of the supply chain.
A report from Cahner’s Research states that “CEO’s agree that the 5 years
ahead will witness a dramatic increase in customers’ reliance on the web as
the major interface to suppliers” [13]. The first stage of the B2B exchanges
is to provide an alternative protocol to facilitate the interactions among the
supply chain participants. By creating B2B exchanges, smoother daily busi-
ness communications and transactions can take place, which in turn reduces
transaction costs. Online marketplaces provide an alternative protocol for
businesses to interact with each other, in order to share information and
establish IT interfaces.
3.4.3 Demand Volatility
The expansion of online sales channels makes demand patterns more ran-
dom, more unpredictable (orders can be placed 24 hours per day, 7 days per
week) and more global in scope. OEM customers could face more volatile
demands. Such volatile demand will be passed on to EMS providers. The
challenge to EMS providers will be how to anticipate demand spikes through
better information sharing with OEM customers, how to smoothly handle
the demand spikes and what strategy to adopt in adjusting capacity to meet
such demand spikes.
27

4 Case Studies of EMS Providers
In this section, we compare and contrast three major EMS providers: Flex-
tronics International, Solectron Corp. and JIT Holdings Ltd.
4.1 History of Three EMS Providers
4.1.1 Flextronics International
Flextronics International is a Singapore-registered but San Jose-based global
EMS provider. Founded in 1969, Flextronics gradually moved to establish
a significant manufacturing presence in the US and the Asia-Pacific region,
with operations in San Jose, Singapore4, Hong Kong, China and Malaysia
through the early 90’s.
Since 1994, Flextronics has entered into a series of major acquisitions
and greenfield projects in the US, Europe and Latin America. In less than
four years from 1994 to 1998, Flextronics completed eight acquisitions on
three continents. These active expansion and acquisition efforts have fueled
its tremendous growth. The company’s annual revenue has grown to $5.74
billion for fiscal 2000 ended March 31 from $640 million in fiscal 1997 [10].
Flextronics has been among the five largest EMS providers in the US since
1997 [8].
Flextronics has adopted and currently implements the concept of an “in-
dustry park” or “campus”. It currently has low-cost manufacturing campuses
in Asia, Europe, North and South America, where major markets reside (see
Figure 5). Each campus is equipped with plastics expertise, engineering ser-
vices and advanced manufacturing technologies. By co-locating suppliers of
such services as plastic molding, chip packaging, and component distribution
at campus facilities in Guadalajara-Mexico, Sarvar-Hungary, and Doumen-
China, Flextronics has extended its service domain. The suppliers lease space
from Flextronics at the campuses, where they not only provide services to
Flextronics but also build their own supplier base.
Flextronics is now regarded as a leader in flexibility and speed within
the EMS industry. The strengths of the company are seen to be in the
4The Singapore site has evolved into an international procurement office (IPO) for Asia
operations and a warehouse supporting the manufacturing at the Malaysian site making
Palm Pilots. The Malaysian facility is located at Johor, approximately two hours by truck
from Singapore.
28

Figure 5: Corporate Locations of Flextronics International Ltd.
areas of procurement, customers and quality. It produces products in the
communications, networking, computer, medical, and consumer markets. It
promises to give its customers a high degree of flexibility through its ability to
provide volume scalability, mass customization, reduced time to market, and
enhanced supply chain and logistical efficiencies. Flextronics has strategically
placed itself in every market in order to weather the cyclical fluctuations of
each industry, therefore increasing stability and quality. It enables OEM
customers of Flextronics to reduce manufacturing and transportation costs,
while increasing Flextronics’ ability to increase its customer base.
These global and comprehensive service offerings have resulted in an in-
creasing number of new program awards from multinational OEMs such as
3Com, Hewlett-Packard, IBM, Microsoft, Motorola, Nokia and Ericsson.
Two major moves by Flextronics in this year have reassured its prosperous
business outlook. Specifically, in April 2000, it completed its purchase of Dii
Group, a Niwot, Colorado-based midsize CM, for $2.4 billion. The acquisition
boosted Flextronics’ presence in Europe and strengthened its design and
semiconductor-related services. In June 2000, Flextronics rocked the EMS
world when it signed a five-year, $10 billion contract with Motorola Inc.
29

Under this contract, Flextronics plans to be manufacturing cellular phones,
set-top boxes, pagers and other wireless equipment for Motorola by 2005.
This strategic alliance with Motorola will make it the prime outsourcing
contractor for the business of Motorola’s Communications Enterprises unit.
The overall value of the alliance is expected to top $30 billion [18].
4.1.2 Solectron Corp.
Solectron Corp. (www.solectron.com), headquartered in Milpitas, California,
is ranked in a recent report by Duff & Phelps Credit Rating Co. as the world’s
largest publicly traded EMS provider [6]. (For more details on the top EMS
providers, see Appendix A.) It is transforming itself into the world’s premier
supply-chain facilitator for electronics technology, manufacturing and service
solutions.
Founded in 1977, Solectron began as a California-based manufacturer of
solar-energy products during the energy crisis of the 1970s. The struggling
startup soon began contracting itself out to Silicon Valley’s burgeoning elec-
tronics industry.
The firm began by assembling electronic components, using parts con-
signed by customers, out of a single Silicon Valley facility with a workforce of
under 100 employees. It has expanded over the years, offering various design,
product development and support services, and today has 46000 employees
at 57 locations worldwide. Notable are significant expansions in Mexico, Ro-
mania and China. It currently has 44 manufacturing sites with 9 million
square feet of capacity [25]. Solectron’s presence is worldwide, with locations
in North and South America, Europe and Asia (see Figure 6).
From its inception, Solectron has been run under two guidelines: “su-
perior customer service” and “respect for individual workers”. These two
precepts are carried out by utilizing a system of fast feedback that gives
Solectron’s employees the information they need to respond quickly to cus-
tomer needs and market conditions.
Proclaiming a “customer first” guideline, Solectron established a system
for assessing customer satisfaction on a weekly basis. Solectron’s customers
rank the company on five criteria: quality, responsiveness, communication,
service, and technical support. The survey results are posted weekly at the
front of every Solectron production line. As a result, Solectron has been noted
by research reports of Wall Street bankers (e.g. Goldman Sachs) for its strong
reputation for quality. The second piece of the feedback loop is a weekly
30

Figure 6: World wide distribution of Solection’s sites
profit-and-loss statement for each production line that is distributed to all
production line managers. This weekly feedback fosters a quick response at
a low level. Ultimately, the measures that matter are customer satisfaction
and profit and loss.
This fast-feedback system has worked. From 1978 to 1988 revenues in-
creased 200-fold to about $93 million, and profits more than doubled. Solec-
tron has become a major supplier of computer peripherals, PCs, mobile
phones, LAN and WAN products, telecommunications equipment, worksta-
tions, avionics, mainframes, semiconductors and test equipment. An agree-
ment with Ingram Micro in June of 1998 has also addressed the distribution
channel for electronics and computer products.
Much of Solectron’s recent growth has been through acquisition of major
OEM operations from NCR, IBM, Ericsson, Mitsubishi and others. From
1988 to 1999, a buying binge of 16 plants has brought Solectron’s total num-
ber of factories to 23 throughout the world. With its growth, Solectron
has assumed responsibility for manufacturing a remarkable array of high-
tech products for some of the world’s best-known, most-respected companies.
It acquired IBM Charlotte’s ECAT operations in 1998 for networking and
31

adapter card products. Its facility acquisitions from NCR in 1998 greatly
increased its systems capabilities, including build to order and configure to
order assembly. In February 1999, Solectron completed its acquisition of
IBM’s Electronic Card Assembly and Test (ECAT) operations in Austin,
Texas., which will be used to produce notebook computer motherboards for
IBM and others.
Since 1990, Solectron’s revenues have skyrocketed from $205 million to an
expected $14 billion in the year 2000 [7]. It continues to grow at a rapid rate
and has expanded outside of its traditional manufacturing role, as evidenced
by recent mergers and acquisitions activity. In April 2000, for example, Solec-
tron shocked industry observers with news of its pending $900 million deal
to purchase certain manufacturing assets of Canadian OEM Nortel Networks
Corp. The pact, the largest CEM-asset-purchase in the history of the indus-
try at that time, includes a four-year supply agreement with Nortel worth
$10 billion, and puts Solectron right on a path to generate revenue of $14
billion in 2000 [22]. Solectron agrees to provide not only manufacturing but
also new-product prototyping and repair services for Nortel’s networking and
telecommunication products [21].
4.1.3 JIT Holdings Limited
JIT Holdings Limited (JIT) is Singapore based and is an example of an EMS
provider that is striving to join the top ranks.
In 1988, JIT began manufacturing and Printed Circuit Board assembly
in a small, rented facility with a total of 20 employees. By 1991, JIT had
expanded its capacity to 20,000 square feet and the number of employees
grew to 280. Then in 1992, JIT began building complete products and its
first regional operations was set up in Malaysia (JIT Electronics Sdn Bhd).
In 1996, JIT consolidated all of its manufacturing operations into a 200,000
square foot facility in Singapore with over 1,000 employees. JIT went public
on the Singapore Exchange in November 1997 and has continued to grow.
Since its inception, the business operations of JIT have expanded beyond
Singapore and Malaysia into China, Indonesia, Hungary and the U.S.
JIT specializes in advanced manufacturing and development, printed cir-
cuit board assemblies, complete product build, and distribution and logistics
services. Its manufacturing facilities have enabled JIT to serve customers in
many different industries, such as multi-media, imaging, computer periph-
erals, consumer electronics, industrial electronics, semiconductor equipment,
32

and telecommunications. Besides manufacturing sites in China, Eastern Eu-
rope, Indonesia and Malaysia, JIT also has a marketing office along with an
advanced manufacturing and development facility in San Jose, California.
By 1999, JIT had a market capitalization of S$1.44 billion. JIT continues
to excel and receive recognition. They were ranked as one of the 10 best
managed companies in Singapore by AsiaMoney in 1999 and they were ranked
No. 17 among the Top 50 EMS provider by the Manufacturing Market Insider
(MMI) for year 1999.
4.2 Broad Customer Base and Balanced Product Port-
folio
Flextronics
Flextronics has a diverse customer base consisting of multinational OEMs
such as 3Com, Palm, Hewlett-Packard, IBM, Microsoft, Motorola, Nokia
and Ericsson.
The choice of customers is made just as carefully as that of suppliers.
Flextronics focuses on more value-added activities, such as telecommunica-
tions products and servers. They do not make any consumer electronics like
TVs, VCRs or low-end PCs and do not do any consignment work. In addi-
tion, it was stated that the notebook sector was too cutthroat for them to be
in. Flextronics is willing to provide some venture capital to promising small
firms, so in some sense they can also “grow” their own customers. Finally,
just as they choose customers (or products to manufacture) with great care,
the choice of when to cease production on a particular product is given great
consideration, with Flextronics seeking to get out of a certain sector well
before the market has bottomed out.
The product market mix of Flextronics as of year 2000 is plotted in Fig-
ure 7. Comparing to figures in 1998, we observe that the consumer electronics
products share decreased by 10% to 8%, while computer products (mostly
servers and work stations) increased by 15% to 27%, telecommunications
products decreased slightly by 4% to 35%, which was balanced by an in-
crease of 4% to 18% in networking products. Medical and other products
decreased by 5% to 12% (see [8, 30]).
33

35%
18%
27%
8%
12%
TelecommunicationsEquipment
NetworkEquipment
Computers
Consumer
Medical,TestEqui.&Others
Figure 7: Percentage of Product Market Mix of Flextronics International
Ltd.
Solectron
Solectron’s major OEM customers include IBM, Hewlett-Packard, NCR, Er-
icsson, Mitsubishi and Nortel. Solectron produces motherboards for IBM
laptops, electronic cash registers as well as all retail and computer products
for NCR Corp., and cell-phones for Mitsubishi Corp. – marking perhaps the
first time that a Japanese electronics manufacturer has hired an American
company to assemble its products.
With respect to customers, unfortunately it is difficult to make any gen-
eral statements. Solectron is always willing to accomodate customers’ needs.
One thing that may be said is that for the most part, the customers own Fin-
ished Goods Inventory (FGI). In a pure Build-to-Order (BTO) relationship,
such as with NCR, this is always the case. There is potential in a Build-
to-Forecast system that Solectron could have a very small amount of FGI
under its ownership. It has been indicated that this becomes a significant
problem during the end of life phase of a product’s life cycle. In the area
of transportation of finished goods, this is managed mostly by the customer.
Solectron is not seen to be as strong in the area of design as other EMS
34

providers. As a result, Solectron feels that they often end up carrying OEM
mistakes.
Solectron is a major supplier of computer peripherals, PCs, mobile phones,
LAN and WAN products, telecommunications equipment, workstations, avion-
ics, mainframes, semiconductors and test equipment. An agreement with
Ingram Micro in 1998 addresses the distribution channel for electronics and
computer products as well.
Solectron serves an extremely wide area of industry. Its services include
•Network equipment, hubs and routers
•mainframes, workstations, supercomputers and file servers
•PCs, notebook computers, docking stations and laptops
•telecommunications equipment, pagers, cell phones, base stations, In-
ternet access devices and video conferencing equipment
•Computer peripherals, laser and inkjet printers, disk and tape drives,
modems, fax machines and projection engines
•retail electronics equipment, scanners and point-of-sale (POS) termi-
nals
•semiconductor and test equipment
•medical electronics equipment
•aircraft instrumentation
•consumer electronics
Figure 8 illustrates Solectron’s proportion of sales derived from various
areas in the Second Quarter of Fiscal Year 2000.
Solectron’s selection of new business is done with an eye on maintaining a
diverse portfolio to enable them to withstand downturns in particular sectors.
35

26%
16%
9%
10%
20%
7%
12%
NetworkEquipment
MobilePhones
TelecommunicationsEquipment
Workstations&Servers
Personal&NotebookComputers
ComputerPeripherals
Medical,TestEqui.&Others
Figure 8: Solectron’s Sales in Various Sectors
JIT Holdings Limited
JIT’s customer base includes: Motorola (telecommunications), 2Wire (telecom-
munications, networking), Hewlett-Packard (printers, scanners, etc.), Fujitsu
Japan (consignment: configure-to-order for PCs and notebooks), Kulicke and
Soffa (semiconductor equipment, wire bonder.), Halo Data Devices (flash
memory), and Canopus (video graphics, digital video, computer peripher-
als). JIT is moving away from the low value-added manufacturing activities.
From this customer base and products, it can be seen that JIT is striving
to develop a diversified portfolio of products. The management team still
feels the need for further expanding the product family in order to sustain
(or increase) growth.
Customer service and customer satisfication are focal points at JIT (as
they are at top-tier CMs). Executives at JIT believe that it is very important
for JIT to place its capacity as close to customers as possible so that it can
36

better fulfill customers’ demands.
Being a mid-size CM, JIT in general does not work simultaneously for
competitors on the same type of products. For instance, JIT currently man-
ufactures handphones for Motorola only. JIT would consult Motorola first
before making any decision if one of Motorola’s competitors approaches it
to make handphones. JIT certainly wants to make sure Motorola will be
comfortable with JIT’s decision over this issue.
4.3 Supply Chain Management Strategies and Chal-
lenges
Flextronics
Flextronics has changed its role from that of a “vendor” to a “virtual factory”.
It now offers engineering services, manufacturing, and distribution.
The acquisition of the Ericsson plant in March 1997 immediately boosted
Flextronics’ box-build business5. Before the Ericsson deal, Flextronics de-
rived only about 10% of its revenue from box-build integration. That share
has grown to 50% to 60% as a result of the addition of the Ericsson facility
and through the growth of other box-build projects. Flextronics has set a
goal of having box-build programs account for 80% of all future contracts.
The area of procurement is a traditional strength of EMS providers and
has been one of the main generators of profits. Flextronics carefully selects
suppliers, based on their performance and looks to develop long-term rela-
tionships based on trust. Performance in this case is simply the satisfaction
of forecasts of demand. Wherever possible, they prefer to have sole suppliers
for a particular product. It is believed that there is no need to keep suppli-
ers in competition, as the market as a whole will look after that (plus the
price is set by the market, rather than Flextronics alone). They have verbal
agreements with their suppliers, with prices reviewed on a quarterly basis.
The philosophy of Flextronics in this area can be summarized as follows: it
is very concerned that everybody it deals with makes a fair profit; it is not
interested in “squeezing” its suppliers.
Flextronics is willing to provide production schedules to its customers.
However, this rarely happens due to customers’ trust. When dealing with
5Box-build goes beyond PCB assembly to full subsystem and/or system assembly. In
certain instances, it also encompasses final hardware/software configuration, functional
test, and distribution/fulfillment functions [19].
37

forecasts given by customers, Flextronics really only uses the near term data,
as it claims that longer term forecasts are typically so inaccurate as to be
unusable. Engineers at Flextronics also do their own forecasts based on past
customer data and claim that they often know OEM customers’ demand
better than the OEM customers themselves. One example given was that
seasonality was spotted that a customer had not previously realized, so Flex-
tronics independently increased production to meet the anticipated demand.
Flextronics carefully picks such situations and rarely “misses”.
The manufacturing itself is done using a Kanban system, with very small
buffers at each station. Being build-to-order, Flextronics does not own fin-
ished goods inventory. The warehouse in Singapore keeps two days of in-
ventory from each supplier (it is physically very small) and delivers twice
a day to the Malaysia site. The Kanban implementation was visible in the
warehouse. Flextronics owns this inventory and pays for inbound shipping.
However, it does not monitor suppliers’ inventory. It would like to have 2
weeks inventory close at hand, but recognizes that its suppliers have other
customers, so does not require this to be a dedicated inventory.
In a global market, it is not uncommon to have parts shipped to a given
production site from every corner of the world. Taking those concerns to
heart, Flextronics has found a way to steer clear of some of the logistical
problems plaguing the supply chain: it has adopted an Industrial Park model
as part of its global strategy.
The core philosophy of the Industrial Park model is to have plastics,
sheetmetal, cable-wiring harness, and electronic component suppliers, and
distributors and other key vendors located within a stone’s throw of the con-
tract manufacturer’s worldwide facilities. Usually, Flextronics leases building
places in the industrial parks to several of its key suppliers (up to 10 strategic
suppliers, see [12]) and encourages other suppliers to co-locate.
Industrial Parks reduce the logistical barriers to manufacturing and pro-
vide customers with a central manufacturing resource. They locate suppliers
on the same campus. The products are distributed worldwide. It is claimed
by the CEO of Flextronics that the Industrial Park/Campus model is one
way of optimizing the supply chain.
Though not a completely new idea, it is a way of getting a better handle on
the supply chain and strengthening its links. By having suppliers practically
across the street, a company can eliminate geographic boundaries, avoid
import/export restrictions on raw materials, and reduce logistical barriers
for distribution and manufacturing channels.
38

The practice may not be the perfect solution for procurement managers.
Often, it means factoring in potential delivery delays due to the lack of
infrastructure in a particular region, working with people in various time
zones, and increased worry about the all-important time-to-market schedule.
What services Flextronics does not offer on its own, it provides through its
“campus concept”. The company has “co-located” suppliers of such services
as plastic molding, chip packaging, and component distribution at campus
facilities in Mexico, Hungary, and China. The suppliers lease space from
Flextronics at the campuses, where they not only provide services to Flex-
tronics but also build their own merchant business.
However, Flextronics does not intend to ever consume more than probably
30% of any of its co-located partners’ output [8]. The idea is to let every one
of the co-located suppliers be contracted, and let them go out and compete
in the open market. This will enable the whole effort to improve Flextronics’
service to its customers through lower inventory costs and lower packaging
costs.
With respect to building new production capacity, Flextronics builds ca-
pacity first and then finds business to fill this capacity. This is in contrast
to practice a decade ago, when business was procured first. Flextronics has
begun locating capacity in industrial parks/campuses where it owns land.
There are currently three of these, one each in Mexico, China and Hungary.
It was asked if Flextronics would ever consider subsourcing any of its
work, but the response was that Flextronics is not currently doing so and does
not envisage this happening (sub-sub-contracting would be too complicated).
Flextronics will work on similar products for competitors, but will physically
separate the manufacturing facilities for each.
Flextronics has some involvement in design, but it is confined to Flex-
tronics’ expertise, which means it is not involved strictly with Design for
Manufacturability (DFM) activities.
Aiming at addressing the lack of expertise in the design and prototype
market, Flextronics has established a series of Product Introduction Centers
(PICs) to help customers in the design stages reduce product-development
cycles and time to market.
The strategy is to position these PICs in areas that are close to customers
so Flextronics can provide concurrent product-development engineering sup-
port in the customer’s backyard prior to transferring the products into a
volume factory.
As of 1999, Flextronics had PICs in San Jose, Westford-Mass., Niwot-
39

Colo., Dallas, Stockholm-Karlskrona-Sweden, Monza-Italy and Althofen-Austria.
The most recent PIC was added at the San Jose site in February 1999.
One advantage of the PIC program is that it helps to provide the large
set of resources required for getting a new product from concept to mar-
ket realization. This is particularly valuable to startups who do not have
the time or experience on the implementation side. Even for OEMs with
more financial resources, implementation teams must be balanced between
projects that change every two to three years, and it is easier in many cases
to outsource some design activities and is certainly more cost-effective.
It is perceived that Flextronics’ PIC program has succeeded at building
goodwill with customers. Although the PIC program may have also brought
in more OEM customers, it is not geared as much at building the bottom
line, but at establishing a network of potentially lucrative customers.
Solectron
Solectron has a business model of separate business units, with a level of
cross-company standardization. Cultural and economic differences drive the
market at individual sites, so it is necessary that decisions can be made at
the local level. While Solectron does not have a facility in Singapore, it does
have a facility in Johor, just outside of Singapore and a larger facility in
Penang, Malaysia. The site in Penang makes PC motherboards, disk drive
assemblies and laptop assemblies.
Solectron was among the first EMS providers to emphasize system inte-
gration and box-build as a core service. It started to recognize the impor-
tance of box-build processes in fueling future growth in 1995. Solectron has
been putting the infrastructure in place to aggressively pursue the market
since then. Solectron’s box-build customers consist of major OEMs such as
Hewlett-Packard, Ericsson and Nortel. Solectron’s goal is to have system
assembly represent about half of its revenue.
The management team at Solectron views the electronics industry as
being well behind the consumer goods industry in the area of supply chain
management and that the electronics industry will move towards the Wal-
Mart/Dell model. In fact, Solectron’s corporate information now identifies
itself as a “supply chain facilitator” rather than a manufacturer. With a
company like NCR, Solectron is able to fill this role. NCR shares demand
forecasts and allows Solectron to manage supplies. On the other extreme,
currently Hewlett-Packard controls everything down to the ordering of its
40

own supplies. The evolution of Solectron continuing to the point that it
becomes an OEM is not seen as a viable possibility. Its business model is not
to compete with its customers, as Solectron is not interested in the business
of creating demand, but of supplying a service.
Solectron currently sees its supply chain as being misaligned, which is
evidenced by the staggering growth in inventory. Total inventory has grown
by 38% from the fourth quarter of fiscal 1999 to the first quarter of fiscal 2000,
with current inventory, as of January 2000, valued at nearly 2 billion dollars.
This growth rate is faster than sales growth over the same period (29%) [26].
Solectron sees this happening for several reasons. First, the customer has
no incentive to manage demand forecasts (due to weak contractual clauses),
which results in numerous forecast changes and thus results in inventory
held at both the raw materials and FGI ends. An additional problem is that
the customer (OEM) still controls a large portion of Solectron’s supply base
(an average of 80% for its top 5 customers) and thus it has been difficult
to implement VMI agreements. Remedies for this problem would include
freshness clauses in contracts with its customers which would in turn force
better planning as well as education that would convince customers that VMI
is crucial for all suppliers.
As of the writing of this report, a major problem for Solectron (and to
be fair, the electronics industry as a whole) is a components shortage. This
is manifested by a supplier putting Solectron on “allocation”, i.e. a certain
portion of the suppliers’ output is designated for Solectron, which typically
does not meet Solectron’s requirements. The challenge of working in such a
constrained environment is difficult, and short of finding alternate suppliers,
is one that must be managed well.
Solectron is developing an e-commerce strategy which utilizes the Internet
to reduce waste and cost in the supply chain. The Internet has the potential
to eliminate the waste and cost because information can be transmitted in
real time among trading partners. Solectron is moving towards a paperless
model in its business transactions through using EDI and some other elec-
tronic commerce tools. Solectron’s goal is to manage the supply chain via
e-commerce technology, and at the same time guarantee flexibility.
Looking at new value-added opportunities, Solectron has put itself in the
forefront of offering engineering and design services through the acquisitions
of Force Computers and Smart Modular Technology.
41

Solectron — Georgia As mentioned earlier, each Solectron site is op-
erated independently. The Georgia site, located in Suwanee (a suburb of
Atlanta), is devoted to manufacturing PCBA and Systems for NCR, PCBA
(pagers) for Motorola, cell phones for Mitsubishi (being transferred to Mexico
when this document is prepared), and several networking and DSL applica-
tion products for leading networking companies. The Georgia site has moved
to a vendor-managed-inventory (VMI) and 3rd-party-logistics (3PL) system.
Burnham is currently their 3PL and approximately 15 percent of the Suwa-
nee location’s suppliers (out of a total of approximately 450) have joined
the VMI program. The inventory system is based on weekly forecast, with
inventory pulled when needed and scanned hourly. The supplier can see how
the inventory is used and can measure the change between the forecast and
the actual. There are no orders, no delays, and no economic order quanti-
ties. All suppliers in the VMI program own their inventory until it is pulled.
Inventories for suppliers and for Solectron are warehoused in close proximity,
with the 3PL managing the warehouses for both parties. Suppliers’ contracts
with Solectron are structured such that base stock levels are dictated, with
Solectron agreeing to pay for inventory that exceeds a certain age. Currently,
Solectron is trying to get to the point where payments to suppliers may be
made electronically.
JIT
JIT has a build-to-order business model, and thus holds very little FGI.
JIT is not sensitive at all about passing production schedules to its cus-
tomers. During the process of manufacturing products, JIT has some flex-
ibility. Ninety-five percent of JIT’s customers let JIT choose its suppliers
from approved vendor lists. JIT works to add value by exploring alternative
materials sourcing and involving itself in design activities. Cost savings may
be realized by JIT recommending and evaluating alternative supply sources
for its customers. JIT has begun to co-design with customers for cost and
manufacturability purposes. In working with HP, JIT redesigned one part
and cut the cost of that particular part in half.
JIT is trying to implement Vendor Managed Inventory or Supplier Owned
Inventory but not all of its suppliers are participating. Currently, JIT simply
requires its suppliers to keep 2 weeks inventory at suppliers’ warehouses. It
sees one of the difficulties as being that different customers give the same
part different names or numbers, which is a challenge with a large number
42

of different components.
When signing contracts with its suppliers, JIT feels that cost is the most
crucial element. Other attributes include the percentage variation in supply
quantity and cancellation windows. JIT implements dual-sourcing for all its
materials. JIT also separates its suppliers into several tiers based on the
length of relationship (long-term, mid-term, or short-term).
In expanding JIT’s production capacity, sometimes new capacity is built
after a customer signed up for service, while sometimes new capacity is built
before any customer is locked in. Some capital resources are flexible (in
particular, SMT machines) so location decisions can be mitigated by trans-
ferring resources. This has been done to some extent in Asia (to and from
their China facility). So far, the capacity expansion decision has not been
perceived as very risky since the market for EMS providers is growing fast
and is far from saturation.
4.4 Information Systems
With many top-tier CMs managing supply chains from the edges of design
right to the end user’s door (even including after-sales support), the demand
for sophisticated and effective information systems has steadily grown.
CMs have developed web-based software solutions that will allow them
to track individual units and individual assemblies across the production
floor. Through web-based tools, CMs will have real-time access to OEM
information such as design and bill of material changes. It will get to the
point where machine instructions for automated assembly equipment will be
on web sites so there will not be a need for large data transfers.
Companies can access their work in progress through web-based appli-
cations with customer interfaces. OEMs and CMs will increasingly use the
web in a similar fashion to communicate real-time information to each other
about forecasts, requests for quotations (RFQs) and request for proposals
(RFPs). Some CMs put web cameras up so that customers can watch their
production online.
Although the levels of sophistication may be different, Solectron, Flex-
tronics and JIT all have their respective IT strategies.
43

Flextronics
Flextronics spent most of 1999 upgrading its e-commerce capabilities with
several new software programs.
At Flextronics, procurement managers (buyers) use the Internet to see
customer orders. Some of Flextronics’ major customers have extranet sites
on which new orders are posted. Buyers can log on to the site, see the orders,
and buy the needed components for the orders. Flextronics promises that
suppliers soon will be able to see and respond to orders as well.
Flextronics also has web-based tools for customers. OEM customers can
log onto the Flextronics web site and view a variety of real-time information
concerning a product being built on a Flextronics line, including quality data,
engineering notices, yield rates, and failure rates.
Solectron
The information systems of Solectron, its suppliers, its customers and its
3PLs are for the most part incompatible, so Solectron customizes information
by using the web for data interchanges. It tells the customer what data it
needs and then it formats the received data as appropriate. Suppliers are
provided with weekly reports, while VMI suppliers are provided with daily
reports and are also able to access real-time information. This seems to
be a more viable solution than working with EDI, as it is much simpler to
implement.
Solectron is focusing on developing an e-commerce strategy which uses
the Internet to reduce waste and cost in the supply chain.
In 1999, Solectron, one of RosettaNet’s6early members, launched a pilot
Partner Interface Process7in which customers were given access to the com-
pany’s purchase orders, management processes, catalog updates, and other
services.
In May 2000, Solectron joined several major OEMs such as HP, Compaq,
Samsung and one other CM (SCI) to reveal plans to create an e-marketplace
that would boost supply-chain initiatives by connecting component suppliers,
distributors, and OEMs. The initiative, called High-Tech Exchange, is slated
6RosettaNet is a consortium of IT and electronic-component suppliers working to adopt
standards for business-to-business solutions for the industry.
7RosettaNet’s foundation is the development of a master dictionary to define properties
for products, partners, and business transactions, coupled with exchange protocols, termed
Partner Interface Processes.
44

to begin operations within 90 days to implement joint web-based supply-chain
management among several companies [23].
Solectron also participates in another electronic commerce mega-consortium,
E2open.com, which plans to launch its operations in mid-July of 2000, and
which has attracted other big players in the PC, electronic-component, and
telecommunication sectors, including Hitachi, IBM, LG Electronics, Mat-
sushita, Nortel, Seagate, and Toshiba. E2open.com will help companies plan,
manage, and execute supply-chain transactions over the Internet.
JIT Holdings
JIT works with a purchasing hub called AMO (renamed EC-Net) which part-
ners with HP for material procurement. EC-Net, a software tool developed
by a US company named Advanced Manufacturing Online Inc., helps JIT
to facilitate the ordering processes with its suppliers but not to perform e-
procurement.
45

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48

A Top EMS Providers
SCI Systems www.sci.com Revenue: $6.7 Billion (1999). Headquarter:
Huntsville, AL. Production Sites: AL, CA, SD, ME, CO, NH, Mex-
ico, Canada, Brazil, Europe, Singapore, Thailand, Malaysia and China.
Customers: ECI Telecom, NEC, Marconi Communications, Nortel Net-
works, HP, Symbol Technologies, Philips and Nokia.
Solectron www.solectron.com Revenue: $8.4 Billion (1999). Headquar-
ter: Milpitas, CA. Production Sites: GA, MA, NC, SC, TN, TX, WA,
CA, Brazil, Canada, Mexico, Europe, China, Japan, Malaysia and Tai-
wan. Customers: NCR, HP, Dell, Zhone Technologies, Nortel, Alcatel,
Acer, IBM and Trimble Navigation.
Celestica www.celestica.com Revenue: $5.3 Billion (1999). Headquar-
ter: Toronto, Ontario, Canada. Production Sites: US, Canada, Mex-
ico, UK, Ireland, Czech Republic, Thailand, Hong Kong and China.
Customers: IBM, Dell, Sun Microsystems, Hitachi, Silicon Graphics,
HP, Cisco, EMC Corp, Lucent and Nortel.
Flextronics www.flextronics.com Revenue: $1.8 Billion (1999). Head-
quarter: Singapore. Production Sites: Malaysia, CA, NY, TX, CO,
FL, NH, Mexico, China, Czech Republic, Hungary, Ireland, UK, Scot-
land, Austria, France, Germany and Switzerland. Customers: 3Com,
Nortel, Cisco, Compaq, Ericcson, HP, Lucent, Microsoft, Philips and
Motorola.
NatSteel Electronics www.nel.com.sg Revenue: S$3.23 Billion (1999).
Headquarter: Singapore Production Sites: Singapore, Malaysia, In-
donesia, Thailand, Taiwan, China, UK, Hungary, Mexico and US. Cus-
tomers: Apple, Compaq, IBM and HP.
Jabil Circuit www.jabil.com Revenue: $2 Billion (1999). Headquarter:
St. Petersburg, FL. Production Sites: FL, CA, ID, MA, MI, China,
Hong Kong, Italy, Malaysia, Mexico and Scotland. Customers: HP and
Cisco.
Benchmark www.bench.com Revenue: $880 Million (1999). Headquar-
ter: Angleton, TX Production Sites: TX, OR, NH, AL, TN, MN,
49

Brazil, Mexico, Ireland, Hungary, Scotland, Sweden and Singapore.
Customers: Lucent, EMC and Sun.
Manufacturers’ Services www.msl.com Revenue: $921 Million (1999).
Headquarter: Concord, MA. Production Sites: UT, CA, MN, TN,
VA, NC, Spain, Ireland, Malaysia, Singapore and Japan. Customers:
Siemens and Rockwell.
Sanmina Corporation www.sanmina.com Revenue: $723 Million (1998).
Headquarter: San Jose, CA. Production Sites: CA, TX, AL, NC, UT,
NH, MA, WI, Canada and Ireland. Customers: Harris, Alcatel and
Nortel.
Universal Scientific Industrial www.usi.com.tw Revenue: $28,906 Mil-
lion (This includes the whole company, not just EMS business unit).
Headquarter: Taiwan. Production Sites: Mexico, Scotland, Portland,
OR, China, Japan and Raleigh, NC. Customers: Lucent and IBM.
JIT Holdings Limited www.jit.com.sg Revenue: S$972 Million (2000).
Headquarter: Singapore. Production Sites: Malaysia, China, Indone-
sia, Hungary and US. Customers: 2 Wire, Allied Telesys, Canopus,
Dataflex, Finisar, Fujitsu, GW Comm, Hewlett-Packard, Kulicke &
Soffa, Mitsubishi Electronics, Motorola, Pfaff, Philips and Schlum-
berger.
50