The global electronics industry is more competitive than ever, presenting UK CEMs with both threats and opportunities, explains CEO of the Stadium Group, Charlie Peppiatt
Many changes have been witnessed over the last decade in the UK contract manufacturing sector, with many customers becoming more intelligent in their management of the supply chain. Although volume manufacturing continues to move to Asian economies, shorter life cycle, lower volume and high mix manufacturing is being sourced closer to home, keeping the supply chain short and minimising working capital.
Consequently, Eastern Europe is enjoying growth and in the UK, certain sectors are bringing lower volume or high mix production back, in a process called ‘on-shoring’ or ‘re-shoring.’
At the same time, we have seen a short term reduction in demand from the domestic UK market, resulting in a competitive environment where price has become an even more important driver. This has left many medium sized contract manufacturing businesses grappling with significantly lower margins, while some smaller, highly focussed operations with minimal overheads, continue to do well.
In this environment, the terms of doing business as a contract manufacturer are becoming more difficult. Schedule changes are more frequent, payment terms are getting longer, cash flows are tighter and banks less flexible. This, combined with energy cost increases, commodity price movements, environmental responsibilities and attracting the right talent, all add to the harsh reality of the current climate.
It is not, however, all bad news. The UK is driving innovation in many electronics sectors and supporting the initial start-up phase of these exciting new products can mitigate the continual drag on margins evident with traditional business models.
CEMs have to become smarter. We need to be more efficient by investing in technologies that complement the services
we provide to our OEM customers. Last year, for example, Stadium added interface and displays to its technology portfolio, which already includes power supplies and EMC filters.
It is also vital that CEMs become more effective at implementing operational excellence from early design, through the life of products, and be able to drive strong, long term relationships with key electronics component vendors to stay ahead.
Another important trend is the expansion of capability. Value services such as design engineering, new product introduction, logistics management and integrated line side support or ‘optimised industrialisation’ are becoming the norm. Providing these additional services creates lasting relationships between contract manufacturers and OEMs.
Finally, despite the re-shoring trend, it is important not to eliminate offshoring as a means of addressing an increasingly complex global marketplace. When demand increases, or products reach maturity in their production life cycle, CEMs need to offer cost effective offshore solutions that can be switched on or off seamlessly.
This year at Stadium, we have actually transferred more customer products to Asia than we have brought back to the UK, proving that offshore manufacturing, when applied in the right way for the right products, still provides value and is an important part of our overall offering. Flexibility, speed and a global footprint provide a huge advantage when executed faultlessly.
There are many challenges for our industry, but there are also many exciting opportunities. The electronics industry is becoming even more competitive and in many ways more intelligent in its approach to supply chain management. By adapting to these changes, we can add significant value to the UK electronics industry and ensure it remains a major part of the UK economy into the future.