Beyond Outsourcing Blog #3: OEM’s Risk Assessment of EMS Services

2013-06-07 06:10:00


When we asked OEMs to rank EMS service offerings in terms of level of risk in engaging with them, we found out that the conventional wisdom about outsourcing, once again, is wrong.

OEM attitudes about risk differed considerably depending on the type of services.  OEMs are more comfortable handing over their PCBA or Box Build tasks to the EMS than they are losing control of design. This reality addresses the fundamental challenges facing the EMS industry: OEMs just don’t want to hand over the design function to an outside enterprise. They prefer to either develop product designs completely on their own or in a joint development arrangement with most of the control held by the OEM.

Design Services

OEMs believe employing a full ODM model for design carries the most risk. Somewhat less risky, they believe, is a combined ODM/OEM model, where the ODM shoulders most of the design responsibility. After that, they think a combined model where the OEM has more control is somewhat less risky. The full OEM/private label approach, they believe, carries less risk than engaging with an ODM. Hooking up with another OEM for joint design services is less risky still; working with a JDM/OEM where the JDM company controls the design is even less risky; reversing the balance of control where the OEM controls the design when working with a JDM is less risky. Finally, OEMs believe the safest approach is to design products in-house. This hierarchy is summarized below.

Design:

risk

 

  • Full ODM
  • Combined ODM/OEM
  • Combined OEM/ODM
  • Full OEM (w/Private Label)
  • Combined OEM w/OEM
  • Combined JDM/OEM
  • Combined OEM/JDM
  • Full OEM

PCBA Services

OEMs are comfortable with letting their EMS provider handle PCBA services. They rank the EMS model as the least risky; even less risky than performing those services in-house, surprisingly. Going back up the ranking, OEMs believe allowing their ODM to perform PCBA services in-house is next safest; subcontracting with an ODM is more risky. The riskiest model for PCBA is the JDM (subcontracted) model. Again, this hierarchy is summarized in the figure below.

PCBA:

risk

  • JDM (Subcontracted)
  • ODM (Subcontracted)
  • ODM (In-house)
  • OEM (In-house)
  • EMS

Systems Build

OEMs’ ranked performing systems build in-house as the safest approach, with using an EMS as more risky. They believe that using a private label OEM is more risky than using an EMS, but less risky than using an ODM to perform those tasks in-house. Subcontracting systems build to an ODM is riskier still, and the most risky approach for systems build is to use a JDM model. Again, this hierarchy is summarized in the figure below.

Systems Build:

risk

  • JDM (Subcontracted)
  • ODM (Subcontracted)
  • ODM (In-house)
  • OEM (w/Private Label)
  • EMS
  • OEM (In-house)

Our next blog in this series will outline some of the outsourcing alternatives the OEM community is considering. Watch for it the first week of July.

For more information about how to gain access to the complete Outsourcing Navigator Council Special Report, Beyond Outsourcing: The Future Landscape of Electronics Manufacturing, please contact Jeff Tomassoni (jeff@charliebarnhart.com) or Eric Miscoll (eric@charliebarnhart.com). 

 

 

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