Think globally, act locally and globally? That's what OEMs say they want from their EMS providers.
But a number of companies aren't entirely happy with their contractors' ability to handle global manufacturing, according to an EBN survey of more than 470 OEMs.
More than half the OEMs polled said global manufacturing capabilities are very or somewhat important when selecting an EMS provider, and almost 85% said proximity is very or somewhat important.
However, only 38% of the respondents considered their contractors' ability to handle global services good or excellent. EMS providers received higher ratings from OEMs with annual revenue of more than $1 billion than from small and midsize customers.
"Manufacturing services have not caught up with the needs of the OEM," said Laura Gloner, procurement manager for contract manufacturing at Hewlett-Packard Co., Palo Alto, Calif. "OEMs often try to backfill what was once in-house manufacturing."
Because the relationships are just beginning to mature, some of the challenges are magnified when the partnerships become global, she said.
In the case of large OEMs, logistics and procurement pose challenges that can strain their relationship with EMS pro-viders, and these problems are often more serious when they are on a global level, said Gene Richter, former chief procurement officer at IBM Corp. who is now a consultant in Katonah, N.Y.
The EBN survey showed that more than three-fourths of the large OEMs consider global manufacturing capabilities very or somewhat important when choosing their EMS providers; that was true among 43% of the small OEMs and 65% of the midsize OEMs.
Despite the weight attached to EMS providers' multinational presence, not all OEMs receive equal treatment when it comes to global EMS services. Large customers with multibillion-dollar contracts may receive preferential treatment, for example.
Last year, major EMS companies downsized their client base to focus on large accounts. Rejected OEMs then turned to second- and third-tier EMS providers that often lacked their larger competitors' global prowess.
"The industry last year was trying to manage so much growth that some EMS companies didn't treat everyone as well as they'd hoped," said Roger Norberg, an analyst at J.P. Morgan H&Q in Minneapolis. "So the guys that got sacrificed were smaller [OEMs].
It cuts two ways
Small and midsize OEMs should look for comfort and fit when selecting an EMS provider, according to industry observers. Quality problems in global manufacturing often arise when any OEM selects EMS partners whose skills don't match its needs.
However, smaller contractors with "poor [global] capabilities and a less competent customer could make things doubly hard to deal with," Norberg said.
Missed deliveries, materials shortages, and the inability to make changes quickly are the chief complaints of managers at small OEMs.
"The biggest problem with small contractors is that they are not good with the materials and assembly line," said Nazakat Ali, director of operations at Dolch Computer Systems Inc., Fremont, Calif. "A single problem can shut down production."
Unable to sign large EMS providers, Dolch uses five small Taiwanese contractors, Ali said. "We just stop doing business with them if they don't meet our standards," he said.
Frequent changes could indicate a larger problem-the OEM doesn't have a good relationship with its contractors, said Jim McElroy, chief executive of the National Electronics Manufacturing Initiative in Herndon, Va.
"Sometimes the product is beyond the capabilities of the supplier," J.P. Morgan's Norberg said. "But sometimes it could be a case of being a bad customer. You have customers that can't give you a decent forecast or transmit reasonable information in real time."
Sometimes small OEMs go through overseas brokers or consultants to set up EMS contracts abroad. But relying on such arrangements rather than going straight to reliable contractors could result in OEM dissatisfaction with small providers, said Allen Berning, president of Pemstar Inc., a midsize EMS company in Neenah, Wis.
Small OEMs shouldn't expect to go global overnight.
JNI Corp.'s products aren't made overseas yet, according to Paul Stumbo, vice president of operations at the designer of Fibre Channel hardware for storage equipment. However, the company is already working with Huntsville, Ala.-based multinational SCI Systems Inc., and that relationship will be in place when JNI is ready to move onto the world stage, he said. The company is also working with a contractor that is a short drive away from its San Diego headquarters.
JNI has stayed away from using a small contractor for its global efforts. "You would have to be 30% of that small contractor's business to get the service you need," Stumbo said.
Regardless of the OEM's size, the quality of the relationship with the EMS provider depends on the quality of the individuals working together, said Bob Blumberg, chief executive of SMS Technologies Inc., San Diego.
"You need agreements to balance how the relationship will work," Blumberg said. "You have to know what the other person needs."
Additional reporting by Corinne Bernstein