Our last post about the Apple supplier audit problems provoked some interesting feedback. Most was supportive, but not all. One reader felt that Apple’s , “… nearly $25B in cash, revenues of nearly $50B and profit margin over 20%…” in some way negated our comment “I’d be very skeptical of any analysis that found the time, money, and potential brand compromise of having to perform this level of diligence (and corrective action!) as being justified by the purchase price advantage achieved from these geographically remote, so-called lower labor-cost solutions?”

Hmm, given that the reader probably knew that we already knew these numbers it looks to us like their premise was that the ends (in this case Apple’s financial results) justify the means. An interesting perspective and perhaps one that’s broadly embraced in today’s secular, unrestrained business climate.

But to set the record straight and remove any ambiguity about our position we point out that the New England slave trade was also a wildly successful commercial enterprise. As historian Douglas Harper explains, “Slaves costing the equivalent of £4 or £5 in rum or bar iron in West Africa were sold in the West Indies in 1746 for £30 to £80. New England thrift made the rum cheaply — production cost was as low as 5½ pence a gallon — and the same spirit of Yankee thrift discovered that the slave ships were most economical with only 3 feet 3 inches of vertical space to a deck and 13 inches of surface area per slave, the human cargo laid in carefully like spoons in a silverware case.”

And while we have Supplier Codes of Conduct, to ensure that suppliers to electronics industry OEMs adhere to minimal standards to avoid human rights violations and that the one from Apple goes beyond enforcing local labor laws and requires its suppliers “must uphold the human rights of [workers] and treat them with dignity and respect as understood by the international community” — still, we are appalled by the news stories contained in the links included in this article and therefore re-ask our questions directly… “Does Apple really understand how important these issues are to its customer base, and its image as a hip, socially responsible leading edge company?”

We commend Apple and other Foxconn customers for conducting supplier audits. But what happens when suppliers like Foxconn, surely one of the most secretive, least transparent organizations on the planet, are caught violating the code of conduct multiple times, and efforts by OEM customers do not seem to be successful in changing long term behavior?

Should the OEM be held accountable in the Court of Public Opinion? We think this is already happening, as evidenced by articles on social media users groups, and accounts on Techie fan sites, as well as articles in the Washington Post and other national media.

Our bottom line, if Apple and other OEMs don’t have the courage to disengage with companies like Foxconn that won’t adhere to human rights standards, and move their production to companies that do (even if prices have to go up) then they deserve  to see their most valuable asset, their brand disgraced! As Warren Buffet once put it, “It takes 20 years to build a reputation and five minutes to ruin it.”

We don’t believe there are any ifs, ands, or buts about it. An OEM is either serious about Corporate Social Responsibility or they are not.

That’s our take, what do you think? Please post a comment below.

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I received some good feedback after my last column about what EMS need to do to get healthy.  Most of it was from colleagues working at smaller tier EMS.  Here is a good example of what I heard:

“I read your article this morning.  I found it very interesting.  One question I have: is your research biased toward larger OEMs with >$50 million in spend, or was it a fairly even blend of the full scale?  My first guess is it is probably biased toward the higher spend OEMs.  I am seeing an uptick in outsourcing activity in the lower tier opportunities, actually the very low opportunities say less $10 million in spend.  I have also noticed a lot of bottom fishing from the big guys; which leads me to believe that your opinion is accurate at the top tier.  Anyway I always enjoy your articles.”

I was planning an article on the difference between large and small tier EMS, but this feedback gave me the impetus to address the issue sooner.

When I previously commented that the years of high growth for the EMS industry were over and that many OEMs are starting to rethink their outsourcing solutions, I was reflecting on the industry as a whole.  This judgment certainly reflects a bias towards larger companies because they constitute the vast majority of the industry.  According to Manufacturing Market Insider, in 2008 the top 50 EMS represented well over 80% of total EMS industry revenues, and these revenues were largely derived from larger OEMs.

But the EMS industry is very diverse consisting of companies varying in size from a few hundred thousand dollars to $40B+ per year.  The business models within the various tiers of the industry can be quite different too, and they usually pursue different sized business opportunities.

The primary value proposition offered by Tier 1 EMS is typically related to their global footprint (i.e. scalability) and purchasing power, while the value of a Tier 4’s offering is more in-line with flexibility, responsiveness, and specialized services.  In between you have many mid-sized companies who position themselves as having the combined benefits of both Tier 1 and 4.  In all candor, there is good and bad quality work being done at all levels of the industry.  Just because you’re big doesn’t mean you’re good, just as being small doesn’t mean you’re bad, and vice versa.

An industry phenomenon worth mentioning is that of “bottom fishing” (or quoting on business that is significantly smaller in volume or scale than an EMS would normally pursue in an attempt to fill underutilized capacity) which seems to occur  every time the EMS industry hits a recession or business downturn.  This is a particularly prevalent practice with larger tier EMS who often do win the business as they bid at significantly lower prices than that level of business would normally qualify for. This hurts both the smaller or regional EMS companies who would normally support this level of business and the OEM.  How?  In spite of the assurances to the OEM that they are important and wonderful, what ultimately happens is that after the market rebounds, and the EMS’ larger customers start ramping again, these OEMs discover that they no longer receive the same level of service and attention they did initially.  This also often results in the OEM incurring more costs when it transfers the manufacturing to a more appropriately sized EMS.

When I was the GM of a Tier 4 EMS focused on prototyping and low volume production work, our largest customer was a Fortune 1000 telecom OEM, and the prototypes we developed for them were launched to a Tier 1 EMS facility in Asia. (That was our model, and we had no aspirations to become their production partner.) During a QBR, this customer told us that the transfer between our facility and the Asian based production site was smoother than when they had allowed that EMS to do both prototyping and production.  According to this OEM, the transfer process within the Tier 1 EMS was like dealing with two large organizations and was very inefficient.  This OEM’s corporate strategy subsequently changed such that they now only partner with Tier 1 EMS (a decision undoubtedly centered on a narrow definition and understanding of cost), and when I speak to that customer he still laments the limitations this places on efficiently getting products launched.  The point here is that an outsourcing solution need not be exclusive to one EMS partner, and can include a combination that leverages the best qualities that the EMS industry has to offer from Tier 1 through Tier 4.

The challenge for the OEM is to find the right match for its requirements.  This is what CBA refers to as the importance of FIT (Flexibility, Integration, Timing). This should include consideration of the value offered by EMS of all sizes, and designing an electronics supply solution that creates competitive advantage for their unique organization structure, technology requirements, and market realities.

So in response to my colleagues working at smaller Tiered EMS companies who report that business opportunities are growing, I say keep up the good work.  And to OEMs who are deciding on the right solution for their outsourcing needs, I would advise an open minded approach that allows you to leverage the best the industry has to offer, at all levels. And as always, if you need help understanding your totals costs and finding the best companies in the industry to help you with these requirements, give us a call.

CBA, a research and consultancy focused on the intersection between electronics OEMs and their EMS suppliers, has launched a new research study that will compile and analyze business intelligence about the Western European EMS industry

This multi-client study is designed to promulgate in-depth and independent data and intelligence about indigenous mid-tier Western EuropeanEMS companies to OEMs seeking to refine and improve their global electronics manufacturing supply solution.

“CBA has been recommending its OEM clients adopt a regional approach to global electronics manufacturing for years,” commented Eric Miscoll, lead analyst on the study. “This study will help identify some western European EMS players and their capabilities for OEMs in North America looking to design a cost effective supply solution that can give them a competitive edge in Europe.”

Manufacturing in Europe is migrating to lower labor cost regions, as in other parts of the world. However, CBA research shows that chasing low-cost labor without proper due diligence about total cost can result in catastrophic failure.

“The odds of supply chain disruption are very high during the critical first year of an electronic product’s launch and ramp to production,” cautioned Miscoll. “CBA’s mission is to help bring more rationality and due diligence to the electronics manufacturing supply solution design through a Total Cost of Outsourcing analysis. This study will bring objective industry intelligence about suppliers to the OEM during that process.”

Indigenous EMS companies that would like to participate in the study, which includes in-depth, on-site interviews, should contact Eric Miscoll at eric@charliebarnhart.com. The study has been launched; data collection commences in Q2 of CY2010. The report will be available by midyear.

January 2010 Leading Indicators Report Click on this link to get the latest report from Charlie’s research. He tracks the data points that matters most to the outsourced electronics manufacturing industry.

Browse the website for more information about Charlie Barnhart’s Leading Indicators, EMSPro workshop, custom consulting, and much more.

By Eric Miscoll

The years of high growth for the maturing EMS industry are over. Based on the forecasts of leading research groups, the five year compound annual growth rate (CAGR) for the EMS industry from 2008 to 2013 will be 7.8% according to Electronic Trends Publications, 1.8% according to International Data Corp, or 0.0% according to InForum Inc. A blending of these three forecasts yields a CAGR of only 4.0%. This is a far cry from the rock and roll years of the late 1990s when EMS was the darling of Wall Street and industry forecasts were routinely in the double digits.

The reason for this slow-down goes beyond our global economic woes. The current EMS model has realized its potential. As Charlie expresses the concept, “The outsourcing dividend has been spent.” OEMs that do not outsource have judged it an unappealing solution for them, while other OEMs have begun a return to self-build. This latter issue, while not yet a significant trend, does mean that some OEMs are judging the EMS industry as inadequate for their manufacturing needs, for whatever reason. The reality is that most electronics manufacturing has and probably will always be done internally by OEMs. This is apparent when you consider the penetration rate, a measure tracked by industry watchers for nearly 20 years. The penetration rate is a comparison of EMS revenues with OEM Cost of Goods Sold (COGS) and it grew to around 20% and seems to have leveled off, regardless of EMS expansion into other services to capture more. What OEMs primarily outsource is the commoditized part of the process – the printed circuit board assembly (PCBA). The more desirable (to the EMS) box build work was harder to come by, and the original design manufacturing (ODM) industry proved to be a strong competitor for this level of work, especially for commoditized products.

Both EMS and ODM will continue to serve a purpose in the electronics industry, but their penetration of overall OEM COGS has reached a plateau at what is likely to be its saturation point unless some things change in the industry.

As I see it, there are essentially three events that would help improve the health of the EMS industry, as defined by higher profitability: a new “killer app”, a drastic reduction in available capacity, and/or a change in the fundamental practice of outsourcing.

New electronic products tend to be good for the EMS industry. The industry’s growth was fueled by computers, cell phones, networking equipment, and game consoles. The EMS industry benefits when OEMs bring new products to market, especially when the OEM’s desire is to maintain IP ownership. The benefits of new products can be significant, but also only offer a short term benefit to the industry.

The electronics manufacturing industry, inclusive of both EMS and ODM, is plagued by too much available capacity. Based on CBA’s assessment, there is approximately 450-500 Million Square Feet of global capacity (being used or not), including EMS and ODM, but excluding India. Using a baseline metric of $1M per annum per 1K square foot, the industry is geared up to produce $450-500B per year, but last year the combined industry only generated about $230B, according to InForum Inc. This glut in capacity allows OEMs to apply pricing pressure on the industry, and there will always be someone willing to low-ball the market. This is the primary issue that challenges the industry, and a drastic reduction in capacity is necessary if the industry is to improve its profitability. This can occur through a combination of consolidations and business failures.

A change in the OEM practice of outsourcing provides the most promise for the EMS industry. OEMs need to focus more on a proper Total Cost of Ownership (TCO) analysis than on just finding the lowest available labor rate. CBA has been advocating this approach for many years, and thankfully people are starting to heed this call, but more need to do so. Most OEMs spend far too much internally overseeing their outsourced manufacturing and very few are taking the steps necessary to do something about it.

Compounding this incongruence is the practice of EMS companies trying to differentiate themselves from other EMS companies by spending more time tweaking the ‘definition’ of their value proposition than actually implementing systemic innovations in their approaches and/or service offerings. . In our experience, almost all EMS value propositions now say essentially some combination of the following obvious attributes:
• Customer focused/centric
• Proactive
• Quality operations
• Reduce costs
• Improve time to market

These traits are not game-changing differentiators, but rather the least common denominators of being in business in any industry. I recall an old Far Side cartoon that captured this challenge perfectly. It showed a herd of penguins all looking the same, and one lone penguin in the middle of the pack was singing “I gotta be me, oh I just gotta be me….”

The reality is, there are many EMS companies that are very good at manufacturing, and many innovative OEMs in all industry sectors. The challenge lies in the intersection between these entities. CBA would challenge the industry to take the outsourcing business model to the next level. To forge, invest-in and nurture long-term, mutually profitable business relationships founded on real-life cross-enterprise, market-sector specific data. That’s what Charlie Barnhart & Associates LLC has always been about and is what our Company will be working on in 2010. We hope you will join us!

Let’s face it. Whether you think the official recession is over or not, the global economy is not in such great shape. US consumers are severely tapped out, and some major changes will have to occur before a growth engine replacement will be found. As one pundit put it recently, most of the ‘green shoots’  in the global economy have been the direct result of ‘manure’ coming from government stimulus programs and are unsustainable at the current deficit spending levels.  They are throwing money at the same tired industries that have failed the requirement for productive sustainable economic health: housing, construction, banking, healthcare. A sustainable recovery will require serious realignment in the investment priorities and assumptions of the policy makers and resource managers, as well as different decision-making at the grassroots level.

Ultimately, an economy is a snapshot of the sum total of what people who have a choice (typically the brightest people) at a given point in time have chosen to do to make a living and to spend that income. When people decide to do something else, things can reverse course quite dramatically. That’s what makes forecasting a challenge.  In the U.S., we are living with the consequence of the general wisdom that holds factories are dirty and a service economy is better, specifically marketing,  finance, insurance, banking and general paper-pushing. But if you spend some time with the Facebook generation, you will get a sense that maybe this is changing. A Wall St. Journal article, entitled, “Tinkering Makes a Comeback,” posits that ‘making cool stuff’ is looking like a better career option.  The article quotes  an MIT professor saying, “I’ve been here 23 years and I definitely see this trend back to hands-on,” he says. “A lot of people are pretty disappointed with an image of a career in finance and they’re looking for a career that’s real.”

The article cites as evidence the mushrooming of engineering playground co-ops called “hackerspaces’ that have sprung up around the globe. For a monthly fee, engineering students, or just everyday folks can work on inventions, using available tools, components, equipment and the shared knowledge of fellow enthusiasts. The cost of essential equipment like CNC metal working machines has become so affordable that these coops have been able to re-ignite the inventing spirit in Everyman.

This is heartening, so we decided to do a little informal, non-scientific research to verify the trend. I spoke to some engineering students I know. One junior at Arizona State University confirmed that he has quite a workshop set up in his dorm room; in fact he operates a cell phone repair business, buying online and repairing for resale to earn some extra money. He notes that a Hackerspace community called ‘Heatsync Labs’ is forming in Tempe, looking for donations and equipment and permanent meeting space. When asked about his future vocation, he comments, “I can’t wait to get out of school and start making things that are useful to people. I don’t want to just make things rich people can buy, I want to solve problems. And, mom, can you send me my December rent check ASAP?” Well, yes, in the spirit of full disclosure, the above-quoted engineering student is a relative.

Hackerspaces and budding capitalism are not the only outlets for this impulse. At Illinois Institute of Technology (IIT), in Chicago, the robotics club is always on the lookout for discarded items to enable their many projects. A group of students recently found a floor scrubber in the dumpster, and you would have thought it was spring break in Ft. Lauderdale. Next month, Southern Methodist University in Dallas, Texas, is scheduled to launch a partnership with Lockheed Martin modeled after the famous “Skunkworks” program.  Skunkworks got its start in 1943 when Kelly Johnson was charged with developing  the top secret P-80 Shooting Star jet fighter plane. That group operated out of a rented circus tent near a plastics manufacturing plant that produced a strong odor. Hence the name. The hallmark of the organization was the ability to by-pass corporate bureaucracy in favor of getting innovative products completed and into production. The SMU version of the  program will apply the same spirit to solving real problems of infrastructure construction, clean energy and so forth, in a brand-new laboratory that probably doesn’t smell that bad.

So there are plenty of reasons to expect a renaissance in innovation and manufacturing across the globe. I imagine many electronics OEMs and EMS companies are already actively seeking out  and supporting these initiatives on campuses and in communities through donations of time and resources. One of our clients, Jabil Circuits, operates a facility in Tempe, Arizona, close to ASU. They work with the industrial engineering department, sponsoring senior projects and interns to give students hands-on experience. We’d love to hear about other programs. Let us know what you are doing by commenting on our blog.

By Eric Miscoll
This is a question that seems to be on people’s minds. There are effectively three issues that are slowing the migration of electronics manufacturing to Asia: rising labor costs in China, greater consideration of proper Total Cost of Ownership analysis in outsourcing decisions, and the new trend of insourcing by certain OEMs.

According to analysis by Charlie Barnhart & Associates, since the end of CY06, the average, non-weighted cost (i.e., the cost to the EMS) of Fully Burdened Labor in China for PCBA is up over 50% and over 100% for Box Build. This rising cost of labor in the most popular destination for electronics manufacturing outsourcing has resulted in other countries, notably Mexico, India, and Vietnam, becoming more cost competitive. Mexico should benefit from this trend especially for goods destined for the U.S. market.

The electronics manufacturing industry has for years pursued the lowest labor rates around the planet in hopes of providing their OEM customers with a lower cost solution. This worked well in some cases and countries for some years, but once fuel prices skyrocketed the risks associated with this approach became clear and OEMs began to rethink their cross hemispheric outsourcing solutions. In a proper Total Cost of Ownership analysis, direct labor rates are one of many issues considered, and the cost improvement it can offer can be quickly eliminated when considering other important issues like transportation, support, and inventory costs.

A significant yet still minor trend in the industry is that of some OEMs returning to a degree of “self build.” Most OEMs always maintained in-house manufacturing capabilities, even while outsourcing a majority of their printed circuit board assembly, which is the primary service of the EMS industry. OEMs had also established their own facilities in the same low cost regions as their EMS suppliers. Whether or not OEMs return to greater self build is subject to debate in the industry. Charlie Barnhart has already stated his opinion that the pendulum towards outsourcing will start to return in 2Q 2012. The issue here is that OEMs are starting to reconsider the impact that outsourcing of their electronics manufacturing has had on their cost structures and product quality levels, and some are deciding that they can do it better than the EMS industry can.

In the meantime, the pursuit of the next low cost region continues with countries like India, Vietnam, Ukraine, Tunisia, and Macedonia garnering the attention of the industry.

CBA’s recommendation has been and continues to be that no two engagements are alike, and lemming-like behavior in search of ‘low cost labor’ can lead to expensive mistakes in outsourcing. OEMs should consider a proper ‘FIT’ – flexibility, integration, and timing – when designing a supply solution for their electronic products.

In another surprising move, the Nobel prize for economics this year went to Elinor Ostrum and Oliver E. Williamson, two academics whose work has little to do with complex financial models or market theories. Since the Nobel award carries great prestige and endows credibility and legitimacy to schools of thought, influencing public policy makers of the future, it’s worthwhile to consider the implications of the award to Ms Ostrum and Mr Williamson.

For one thing, the award has never been given to a woman before, which is heartening for this writer. Some thought the favorite for the award was Eugene Gama, the University of Chicago professor known for the efficient market theory. Last year’s award winner Paul Krugman, got the award for his theories on international trade. In his blog, he notes that the award represents a validation of  New Institutional Economics, a term coined by Williamson. He had never heard of Elinor Ostrum before her win.

Alfred Nobel, the inventor of dynamite among other things,  founded the prizes to award individuals that have ‘conferred the greatest benefit upon mankind’. The economics prize was created years later, ‘in honor’ of Alfred Nobel. Since some of the theories of Laureate economists in the past are said to have caused the global economic meltdown, it is fitting the Committee look at a different approach. Some thought no economist should be awarded a Nobel prize this year, since arguably the field has caused misery rather than benefit to mankind in recent times.

What I find most interesting about Ms Ostrum’s work is in regard to the concept of the ‘tragedy of the commons.’ To refresh, the tragedy of the commons is a political science concept taught to highlight what happens to shared resources such as water, wildlife, forests, and oil reserves.  The theory posits that individuals acting in their own self-interest tend to destroy resources they share, necessitating either government intervention (socialism) or privatization to preserve them. 

Ms Ostrum studied forests in South Asia and Africa, and water management in India and  many other examples and found that the tragedy of the commons is not inevitable. Local communities that rely on scarce resources often manage them very well for long periods of time; government intervention and/or privatization many times hasten their destruction, rather than protect them. When people in the communities understand the problem thoroughly, they can solve it on their own using existing associations.

What does this have to do with job creation and the electronics manufacturing industry?

Most pundits agree that although the recovery may be underway it is threatened by lackluster job growth. The unemployment rate is officially at nearly 10%, and unofficially at 16%, and even higher in some areas. Demand for electronic products is not likely to improve until the unemployment rate goes down. Housing, and other areas of the economy are similarly dependent on more people having better jobs. Arguably the electronics industry is still caught in a kind of paralysis, with lots of bemoaning about trade policies and other government action or inaction. Corporate malfeasance, banking failures, and so forth are all blamed as reasons to stay on the side lines with your head down hoping no one will think to fire you. There is a general sense of doom and foreboding. Is manufacturing dead in developed countries? Is that a good or a bad thing? Can service industry jobs replace manufacturing jobs? Will countries that do not manufacture electronics maintain competitiveness? What shall we do to prevent the collapse of civilization as we know it???

I think the time to ponder about our past transgressions is officially over. The key to a sustainable recovery is jobs. Let’s not agonize too much about which kind of jobs are best. We just need a lot of them. All organizations must focus on that one thing: what can we do to preserve existing jobs and create new ones? This does not have to be a mindless ‘Buy Local’ approach with its unintended global consequences. I think about the history of ‘Google’ — the founders combined far-sighted, patient venture capital support, and a good idea for an until-then unimagined revenue source, with an idealism and focus on its employees that netted over 400 millionaires on the day of the company’s IPO.

What Ms Ostrum’s work demonstrates is if a community understands a problem, they can solve it rationally using local resources to the benefit of all. They don’t need massive government or private intervention. The talented individuals and communities in the electronics industry needs to apply their formidable innovation and business skills to this problem of job creation and help create sustainable global economic well-being. Without lapsing into hopeless Pollyanna-ism, we would do well to adopt some of Alfred Nobel’s principles in our strategic thinking.

If we assume that the global recovery is in fact imminent, if not occurring now, (probable US stock market crash notwithstanding) let’s discuss how companies can ensure success in the new world order. To paraphrase a now-famous saying, a catastrophe is a terrible thing to waste,’ – here’s an opportunity for the industry to reset and perhaps correct some self-destructive behavior that’s been evident since the outsourcing phenomenon began. Since everyone likes lists, here’s mine for how to avoid doing the same things that got us into this mess. So, from now on let’s NOT:  

1. Mindlessly follow the herd.  Media love trends.  The simpler and less nuanced the better.  Industry editors like to quote ‘experts’ and, let’s face it, it is safer to say the things everyone else is saying. Eventually these ‘opinions’ become self-fulfilling prophecies as Wall St. analysts see the articles and then pressure CEOs to follow suit.   Unfortunately business success requires innovation, and when you are talking about business processes, that mean NOT doing what everyone else is doing, but instead doing that which works best for your organization’s unique set of talents, markets, skill-sets, products, assets, resources and capabilities.  Right now, industry editors are discovering a new ‘trend’ – that electronics OEMs are bringing their manufacturing ‘in-house’ and we are returning to a vertically integrated model, as if that were the only recipe for success and those that aren’t following the herd will fail. This will once again result in lemming-like behavior. When you are talking about business strategy, that’s a recipe for disaster.    Ironically, as one of the aforementioned ‘experts,’  Charlie Barnhart & Associates LLC (CBA) is predicting  that the self-fulfilling prophecy phenomenon will occur once again in outsourcing. We predict that, unless some new catastrophe rolls down the pike, by the end of Q2 of 2012, the outsourcing pendulum will have stopped, and will start reversing itself. In other words, outsourced electronics manufacturing as a % of TAM will stop growing and start shrinking by that time. You heard it here first. However, that doesn’t mean that if your organization outsources, or doesn’t outsource, and it’s working for you, you have to do anything in response to trends. We’re hoping that this time, companies will do what’s right, not what’s trendy.  

2. Get trapped in outsourcing as a ‘strategy’. CBA says this often: Outsourcing is a tool, not a strategy. It’s one possible response to a business need, like eating is a response to hunger. You can eat hamburgers, vegetables, or cotton candy. You will feel differently depending on which you choose. The same with electronics manufacturing and outsourcing. One possibility. And what’s more, outsourcing is a powerful tool, like dynamite. If you don’t understand it thoroughly, its implications, unintended consequences and total costs, you will blow yourself up. Outsourcing can work very well for many products, geographies, market segments, and volume levels. But CBA believes that too many companies outsource too much, too often, in geographies that are too remote, for all the wrong reasons.  

 3. Be politically correct, but not honest. Those of us who have been around awhile are somewhat alarmed at the growing tendency to change language to appease one interest group or another. We are concerned that this has led to the practice of labeling (and rejecting) people and arguments without thoughtful analysis. This may be a function of the torrent/flood/tsunami  of information in which we live and work. Quick and easy ways to delete and categorize are critical to get through the day. However, it has led to a cloud of unknowing hanging over us all as we struggle to figure out what the heck anyone is trying to say. For example, in my neighborhood, several of us drive  ‘previously owned vehicles’. However when I call them ‘used cars’ instead of previously owned vehicles, I’m instantly maligned and marginalized. Get over it – they’re ‘used cars’ and there’s nothing wrong with that! We have to start talking to each other more plainly, as big grown up adults, as we negotiate manufacturing issues with other business entities. Nor should we engage in blame games when people make mistakes in order to advance a position. Just solve the problems as they come up, using direct, simple language that honestly addresses the issues as you see them.   

4. Write off China. Another example of something companies should NOT do right now is mindlessly follow the herd about China. Someone should ask all the companies whose CEOs forced them to have a ‘China’ solution, whether facility, supplier, or whatever, ‘how’s that working for you right now?’ At the time, the stated rationale was, ‘to capture the domestic market in China’ – but what they really meant was ‘to find low-cost labor’. In electronics, since labor is only 5% of selling price, that unstated rationale never made sense.  And ask Motorola how that domestic market rationale has played out for cell phones.  Now with the labor costs in China rising rapidly and any advantage easily offset with other internal and external added costs, companies are leaving China in a panic.    The thing is, China is not one thing, especially for electronics manufacturing. Lemming-like behavior will again spell suicide. As time has gone by, the capabilities of China in electronics have improved dramatically. Those that had bad experiences two quarters ago, and are now retreating in horror, will miss opportunities, as there are some very good shops there now and some companies will be able to capture domestic markets in Asia. The key is to carefully craft a rational and innovative manufacturing policy.   

5. Engage in passive-aggressive or terrorist tactics. We are seeing some truly alarming behaviors in EMS-OEM contract negotiations. Desperate, in fact.  We have stated in the past that some toxic OEM-EMS relationships resemble a master-slave situation. The suggestions that are coming out now go way beyond that. They have by-passed a warden-prisoner comparison and are at the terrorist-victim level.  For example, an OEM asked us whether we thought it would be a good idea to introduce ’punitive’ terms into a contract with an EMS. As in, if the EMS misses a shipment, they will be fined some amount that is high enough to be painful. On the other side, we are seeing EMS companies signing up for terms that they have no intention of complying with, if activated. That’s the passive-aggressive side. They figure they are churning business anyway as the relationships have become unprofitable and unforgiving, so what difference does it make? They will just dump the OEM if they try to impose punitive terms. This is insane. No one can be successful under these conditions and these negotiations are suicidal for both parties.  

6. Invent any more management principles. We don’t need any new, cleverly named ’initiatives’ or ’re-engineering’ or ’paradigm-shifting’. Business management is not rocket science. In fact, rocket science is not even rocket science. I know rocket scientists, and the work they perform is fairly straight forward from a practical perspective. The point is, let’s stop all the silliness and focus on what’s important. We have some critical work to do after this latest catastrophe. Let’s not waste time. Let’s just build useful, innovative electronic products, near where the customers who want to buy them live, and save the world.