What is EMS (Electronics Manufacturing Service)?
EMS (Electronics Manufacturing Service) refers to providing electronic product brand owners or product designers with a series of supply chain services from components procurement, manufacturing, warehousing and logistics, and even part of design services. The supply chain management of EMS mainly includes raw material procurement, manufacturing, warehousing and logistics, corresponding demand management, inventory management, NPI ( new product introduction), etc. Still, the core and the most difficult part is PCBA manufacturing and electronic assembly, most supply chain management activities are based on the production of PCBA.
The emergence of EMS companies results from globalization and specialization. Globalization drives companies to seek cheaper electronics manufacturing solutions. At the same time, specialization
requires companies to focus on their professional advantages as much as possible, especially for brand factories or companies with certain R&D capabilities，outsourcing to EMS companies can focus their resources on product development and design, marketing and promotion, and avoid big capital investment in production. In contrast, EMS companies will focus on electronics manufacturing and complex supply chain management. The efficiency of the supply chain is improved through large-scale manufacturing, the unit cost is reduced, and the efficiency of the whole industry is improved through standardized management.
EMS Value Chain
The EMS model is a popular business model in the global electronics manufacturing industry. It belongs to both labor-intensive and capital-intensive industries. In the past decades, its development has made the whole electronics industry boom, and more and more brand companies rely on outsourcing electronic manufacturing business to professional EMS providers. Electronic manufacturing service companies are responsible for supply chain management in the value chain. Electronic assembly manufacturer provides manufacturing services to electronic product brand owners with their rich industry experience and professional electronics manufacturing capabilities. Meet the needs of brand owners by prioritizing product development, and management, reducing production costs, rapidly expanding production capacity, and shortening product time-to-market.
From the value chain perspective for electronics products, the upstream of the EMS industry is mainly PCB, semiconductors, hardware, injection molding parts, modules, packaging materials, etc. The cycle time, quality, and price of materials supplied by upstream manufacturers will affect the EMS manufacturers’ performance on the lead time, finished goods price, etc. The downstream is mainly brand manufacturers. The EMS manufacturer provides manufacturing, back-end logistics management, product logistics and transportation, and product quality management by purchasing production equipment, mainly SMT machines, DIP machines, assembly lines, and test lines.
EMS industrial barriers
With the innovation and development of global electronic products, the EMS industry has also become one of the industries with high entry barriers.
For large enterprises, the certification cycle of an EMS provider usually takes 1-2 years. When electronic product brand customers choose an EMS company, the EMS factory must undergo strict quality system audits, trial production, price or solution contest, etc. However, it is generally challenging to change suppliers after the two parties have formed a stable cooperative relationship. The two parties will also deepen this cooperative relationship in continuous practice, including early engagement in new product design and joint development of equipment.
2. Capital investment
The EMS industry is capital-intensive, and the investment in equipment is huge, including various SMT, DIP machines, and testing equipment, and the capital threshold is relatively high. EMS manufacturers must invest large-scale capital and have a relatively high demand for working capital to meet the daily operation of EMS business.
3. Scale management
EMS companies must obtain profits at the lower end of the value chain through large-scale and standardized operations, effectively balance demand fluctuations, and eliminate waste. The Asian region has always been the best region with the highest efficiency due to its population and culture. We have also seen the rapid growth of the EMS industry in the Asian region.
4. Supply chain management
Usually, an electronic product uses hundreds or even thousands of components with different properties. The scope and complexity of EMS supply chain management will increase with product models and complexity changes. How to improve customer satisfaction through effective supply chain management? The major supply chain management problems are responding timely, meeting the order fulfillment rate, maintaining a good inventory, simultaneously improving the quality and standard products according to the customer’s requirements, and achieving a high yield rate. Usually, only a certain scale EMS with capability can achieve.
From the above characteristics, it is not difficult to find that scale is the absolute path for the survival and growth of EMS manufacturers, which can be proven from the research data of New Venture Research.
According to its public data, the cap of the global EMS market has grown steadily in the past five years. The market cap will reach US$674.8 billion in 2021, of which the sales of Top 50 EMS companies will be $417 billion, an increase of $38 billion over 2020 with a 9.9% YoY increase. Foxconn achieved 10.9% revenue growth from 2020 to 2021, accounting for nearly half (48%) of the top 10 EMS revenue. The Asia-Pacific region accounted for about 82.0% of the top 50 EMS companies revenue, the Americas accounted for 16.0% of the revenue, and the EMEA region accounted for 1.9%.
|Rank||Company||City of HeadQuarter||Region|
|1||HonHai Precision (Foxconn)||New Taipei||Asia|
|4||Jabil||St. Petersburg, FL||North America|
|5||Flex||San Jose, CA||North America|
|8||Sanmina||San Jose, CA||North America|
|9||New Kinpo Group||New Taipei||Asia|
|10||Celestica||Toronto, ON, Canada||North America|
|11||Plexus||Neenah, WI||North America|
|14||Benchmark Electronics||Scottsdale, AZ||North America|
|16||Fabrinet||Grand Cayman, Cayman Islands||North America|
|17||SIIX Corp.||Osaka, Japan||Asia|
|19||Integrated Micro-Electronics, Inc.||Laguna, Philippines||Asia|
|21||Kimball Electronics||Jasper, IN||North America|
|23||ATA IMS Berhad||Johor Bahru, Malaysia||Asia|
|24||V.S. Industry Berhad||Senai, Malaysia||Asia|
|25||Global Brands Mfg.||New Taipei City,||Asia|
|26||Kaga Electronics||Tokyo, Japan||Asia|
|27||Creation Technologies||Burnaby, BC Canada||North America|
|28||VTech Communications||Hong Kong||Asia|
|30||NEO Tech||Fremont, CA||North America|
|34||3CEMS Group||Taipei City,||Asia|
|35||Connect Group||Kampenhout, Belgium||Europe|
|36||KATEK SE||Munich, Germany||Europe|
|37||Enics AG||Zurich, Switzerland||Europe|
|38||TT Electronics||Rogerstone, Wales, UK||Europe|
|39||Neways Electronics||Son, The Netherlands||Europe|
|40||SVI||Bangkadi, Pathumthani, Thailand||Asia|
|41||Shenzhen Zowee Tech||Shenzhen||Asia|
|42||Orient Semiconductor Electronics||Kaohsiung||Asia|
|43||LACROIX Electronics||Saint Herblain cedex, France||Europe|
|44||Key Tronic||Spokane Valley, WA||North America|
|45||GPV Group||Aars, Denmark||Europe|
|46||SKP Resources||Batu Pahat, Malaysia||Asia|
|47||WKK Technology||Hong Kong||Asia|
|48||SMT Technologies||Kedah, Malaysia||Asia|
|49||Hana Microelectronics||Bangkok, Thailand||Asia|
The following innovations have mainly driven the growth of the whole EMS industry over the past few years.
1. 5G technology has attracted people’s attention and continued investment. The increased demand for telemedicine, the Internet of Things, and online office education has promoted the further expansion of the PCB design and electronic manufacturing service market.
2. IOT intelligent hardware intelligently transforms traditional equipment by combining hardware and software. Intelligent hardware products have information collection, processing, and connection capabilities and can realize functions such as intelligent perception, interaction, and big data services. They are an important carrier of “Internet +” artificial intelligence. , intelligent medical, and other fields.
2. Electric vehicles The proportion of automotive electronics continues to increase in traditional vehicles, while the penetration rate of electric vehicles is growing rapidly. According to Gasgoo, the total vehicle cost of automotive electronics is expected to account for 50% in 2020. At the same time, from 2017 to 2022, the global automotive electronics market will continue to grow at a compound growth rate of 6.7%
In addition, the accelerated development of big data, cloud computing, AR equipment, artificial intelligence, and other industries has also provided new impetus for the development of the EMS industry.
In these new fields, tens of thousands of small and medium-sized enterprises appear yearly to promote and reform these industries. Even though the EMS industry is developing rapidly together, it is a big challenge to find a suitable EMS partner for the majority of small and medium-sized design or brand companies, especially for the vast number of non-Asian brand customers, because these top EMS manufacturer cannot meet their needs.
Disadvantages of Top EMS
Traditional EMS manufacturers have pursued volume and production efficiency as the core strategy for their development. This strategy can ensure they can obtain more orders with limited investing resources. Still, the opposite effect leads to dependence on large customers, especially on top customers.
- High total cost
Top EMS manufacturers can generally achieve lower direct costs. But most small brand customers will be surprised by the total price offered. They can’t offer the low direct cost to end customers due to extremely high indirect costs or overheads. Top EMS manufacturers can achieve the lowest price on direct material and fixed cost per unit. But traditional EMS providers have to invest huge amounts of money in maintaining this system, including various software and hardware. These investments are eventually converted into management costs or overheads, so these EMS providers will usually have very high management costs. Brand customers with a small volume can’t afford such a high overhead allocation.
2. Slow response and loss of efficiency
Another disadvantage of pursuing large-scale and efficient production is the loss of rapid response capability and the loss of efficiency in non-manufacturing factors. To ensure the efficiency of large-scale manufacturing, traditional EMS companies have formulated a very strict standardized process. This process means that after the process is started, it can be manufactured and produced quickly and efficiently. However, there are usually many checkpoints before the start of the compliance process. These checkpoints can block any need that does not meet the process at any time, even if it is a small flaw. These defects are not so critical and fatal for many small and medium-sized customers. To them, these are not even problems that require a lot of resources to solve. For example, some non-critical or common sense documents need to be included, and auxiliary materials do not appear in the BOM. Labels did not meet automatic scan needs, the packaging material needed to provide the specification, etc. These can be minutes for an engineer, as non-compliance with standards or regulations often misses several feedback cycles. For SMEs, The cycle time means the entire period from document release to getting a prototype, while for EMS manufacturers, they monitor the time from the full process kicking off to product delivery. The two are usually vastly totally different. The quick response has always been the key for small and medium companies to win contracts, and if they choose these large EMS manufacturers, they usually lose control of the project schedule.
3. Production locations are concentrated in Asia
While Europe and the United States remain the source of electronics design and innovation, these customers will find it increasingly difficult to find a suitable PCBA manufacturer nearby. There will be branches and factories of the world’s leading EMS manufacturers in these regions. Still, these EMS factories’ priority is serving top global customers or big or regional brands. Even for local SMEs, service is not easy to obtain. In addition, these top EMS manufacturers do not have the process to serve local small and medium-sized customers. In addition to comparative low logistics costs, the overall cycle time and cost are much higher than those of Asian manufacturers. There may also be some small EMS companies left in the local area, but they do not have the volume production capacity and meet the quality requirements. And their supply chain is also heavily relying on resources from Asia. In the end, the response cycle time is no faster than that of Asian suppliers, and the cost is not competitive.
4. Fluctuations in demand and redundancy in capacity
The biggest challenge that EMS factories that pursue large-scale operations need to face is balancing the fluctuations in demand and maintaining the utilization rate of production capacity as much as possible between the peaks and troughs. Affect the performance of financial statements. To them, small and medium-sized customers cannot provide enough orders and help them smooth the wave, causing they usually have the same demand trend against the leaders in their industry. EMS’s core strategy is improving capacity utilization to create profits instead of focusing more on customer needs.
Needs from the Small & Middle Companies
Although tens of thousands of small and medium-sized electronic brands and enterprises are in the market, they continue to contribute to innovation. But it is very challenging for them to find a suitable EMS partner, especially for some design companies in Europe and America, finding a long-term EMS partner is one of the most important things in supply chain management. The challenges that small and medium-sized electronic enterprise brand customers usually face are as follows:
1. Product Complexity
Small and medium-sized companies tend to serve regions and segments where the market cap is not big. Differentiation or customization is one of the main product strategies. Specific to PCBA, it will show the feature of low volume, high mix. The demand for a single model is not many. Still, the supply chains involved in each small and medium-sized brand customer are variant and as complex as the leading products from global leaders, and it isn’t easy to concentrate. But there are multiple product mixes in the portfolio. These demand quantities are negligible for head EMS factories. Unless the needs of customers of the same type and multiple brands are combined, but for the top EMS manufacturer, a lot of market development resources need to be invested in obtaining customers. Their needs are difficult to match with each other.
2. No shrink Quality standards
Volume does not mean the shrink of quality standards. Small and medium-sized electronic enterprises need to provide the same quality standards as industry leaders to end users and comply with industry standards and quality requirements of different industries. Especially for high-end automotive and medical customers, automotive and medical quality management systems and device traceability systems are also essential.
3. Long-term cooperation with suppliers
Although small and medium-sized brand enterprises are one of the sources of innovation, due to the limited resources they control, they will not invest many resources in non-core R&D fields in the early stage of development, especially the limited investment in electronics manufacturing resources. Their product development and control over the manufacturing process are based more on the historical experience of their engineers. They are not clear on how to match the standards for mass production. Engineers are not aware to fully consider the needs of the supply chain, such as manufacturability, sourcing, and even cost-effectiveness in their initial designing work. Therefore, they also need to find long-term partners to truly grow together, relying on EMS partners’ manufacturing resources and industry experience. A win-win situation is achieved based on benign interaction.
4. Dependence on the supplier’s supply chain system
For customers, the PCBA factor is the core manufacturing part. This factor includes two convenient challenges: the management capability of the supply chain and the quality system. Both points have strong manufacturing attributes, emphasizing system control and on-site management and needing a strong IT system to achieve the procurement, inventory, and complete management of thousands of raw materials. There must also be an effective quality management system to ensure the consistency of product quality. Because any future reliability problems are crucial for small and medium-sized brand enterprises to bear.
5. Competitive price
For the majority of enterprises, competitive price is one of the core requirements of survival. No matter whether the company chooses the award standard, price is always one of the top factors. When comparing prices, it is necessary to clarify the scope of cost comparison first. Usually, it is problematic to compare the bit between the quotation of the top EMS and some poor small EMS. In the quotation of the bid from a small poor EMS, a lot of additional costs, such as materials expedite fee, loss of quality failure, rework costs, etc. However, in addition to the high price of top EMS, the quotation cycle time and the harshness of the quotation documents are also very challenging. It may take several times of workforce and time to meet their standards. This may lead to losing the opportunity to customer orders.
The capability of a new generation EMS provider
From the above analysis, it is easy to find that there is a huge gap in the EMS tiers. On one side are a few large EMS manufacturers. They have a global layout, leading hardware, and perfect systems, but they do not care about the needs of small and medium-sized brand customers. For those who get cooperation with them, even if they are paying a high premium to set up the relationship, it is difficult for small and medium-sized brand customers to obtain high-quality services in contrast. Most importantly, they do not have priority resources to ensure delivery during peak demand seasons. At the other end are many poor EMS factories. They usually win with price advantages but do not own a capable system and supply chain management capabilities, which brings continuous challenges to product quality and reliability. We believe that a new generation of competitive EMS providers will have the following capabilities:
- Strong hardware capability
First, they are not small and have strong hardware capability even if the capacity is as big as the top EMS. they don’t need to own the same size. But they own the leading and up-to-date hardware equipment and suitable systems. Regarding software, they have cost-effective management systems and methods on the foundation of compulsory industry certification. They have ways to systematically drive the efficient operation of the supply chain.
2. Quick response
They can quickly give feedback on customers’ needs and are truly customer-centric, and customers’ concerns can be dealt with the first time. Their organization is flat, their decision chain is short, and their process is effective and quick.
3. Competitive price
They can offer competitive prices. The price here refers to the total price, including time and quotation costs. This means that on the one hand, their bid is lower than the top EMS on the solution level. However, the price is slightly higher than that of the small, poor EMS factories. Still, they do not require customers to have additional cost expenditure like small and poor EMS factories request and provide the same quality level as the head EMS factory.
4. Experience in multi industries
They are suppliers and long-term partners of small and medium-sized brand customers. Small and medium-sized brand enterprises are responsible for R&D, and they are responsible for manufacturing and supply chain management. They work together like two internal cross-functional teams. They need to own experience in different industries. Share electronics manufacturing experience with brand customers in different industries during product design and production, and interact to improve the product experience.
You can view Eashub as a second-generation EMS provider, and Eashub meets all the requirements above for a new-generation EMS. Not only can Eashub offer competitive prices and fast responsiveness, but we also offer the same quality, standards, and production hardware compared to industry-leading EMS.
Because we not only have in-house factories but also have a long history of cooperation with IMI and KAGA factories in the TOP 50 EMS, sharing their hardware resources. We offer a mixed factory portfolio to our customers against their requests on price, certification, quality, etc.
In terms of cost control, we will identify customers’ needs and break their product value chain, assign appropriate factory resources, consolidate the demand of high mix low volume together to high volume and get a good price deal. And our management costs are much lower than those of these top EMS. Our development is rooted in the Bay Area, and our network of qualified suppliers also provides a basis for us to obtain competitive quotations.
In our electronics manufacturing assembly solution portfolio, there will be choices of different costs and industry characteristics for customers. These solutions are the crystallization of our electronics manufacturing solutions for various industries. Customers can find the solutions on our website. We also develop customers and improve supply chain management through our self-own internet tools. These tools also help us have a faster response cycle and reduce operating costs.