Last month, EBN posed the question of how much of the electronics industry's procurement spend is destined to migrate overseas in recognition of the greater role Asia is playing in the global manufacturing environment.
A number of our readers responded that they see this developing trend as a foregone conclusion. Many of the industry's manufacturers have already bolted the United States for lower-cost locales, and this is slowly but inexorably dragging purchasing with it. However, several forces are at work here that will influence the pace and extent to which procurement jobs are pooled within a centralized Asian structure.
For starters, there are a limited number of WalMart-size electronics manufacturers for which the case to effect a wholesale relocation of purchasing is clear cut. The same reasons that are causing mid-tier OEMs to challenge the assumption that a move to Asia will yield greater production efficiencies and a healthier bottom line also apply to procurement.
Even among larger OEMs, there is resistance to the notion that components must be bought near the production lines on which they will be used. As EBN noted last week, Palm and Sun Microsystems intend to retain control over many strategic components, such as batteries and ASICs. But they also appear reluctant to outsource the purchasing of parts that are commodities or quasi-commodities, such as memory, disk drives, and displays.
Perhaps the central question to ask is what was the impetus that drove manufacturers to Asia in the first place. These decisions, it appears, were made defensively. It's no fluke that the bulk of the Asian migration coincided with the biggest downturn in the history of the electronics industry.
But will the strategy prove as sound when business begins to rebound? We've seen that Asia can help manufacturers cut costs, but can it also help them grow revenue?
In the meantime, we recommend that buyers monitor the performance of OEMs that have either moved a large percentage of their purchasing to Asia or outsourced the bulk of their procurement operations to EMS companies operating in the Far East. These strategies will be put to their first true test as prices for flash memory, DRAM, and a handful of other components start to climb.
Buyers should also critically eye the EMS industry's ability to manage purchasing functions as business conditions improve. Outsourced procurement may sound like a good idea when companies are operating in a buyer's market, and contractors have shown they can be tough negotiators. But major questions remain as to how well they have integrated their IT systems, and they have yet to distinguish themselves as prudent managers of inventory.
E-mail comments to Andrew MacLellan at firstname.lastname@example.org.