By E. L. Fox, Jr., President, Fox Electronics

Reprinted from the September 13th issue of EBN Magazine

In the past few years, the use of Contract Electronic Manufacturers (CEMs) by Electronic Original Equipment Manufacturers (OEMs) has increased dramatically. While OEMs are still involved in initial design work and prototype assembly, many (as many as 40%) subcontract out their production because they can't afford to continually invest in the high expense of new production equipment and highly trained personnel required to do the job right.

This business model allows the OEMs to focus on their core competencies. It also allows the CEMs to become experts in volume production techniques and achieve true economies of scale manufacturing.

Overall, this seems to be a win-win situation for both the OEMs and CEMs. The OEMs don't have to invest in capital equipment and trained staff. The CEMs benefit by the enormous purchasing and negotiating power they have with their suppliers by combining bills of materials for several customers at once.

Where do the component manufacturers like Fox fit in? We still need to work closely with the OEMs during the design-in process. The key to our success in the future will be developing new programs to serve the specific needs of the CEMs. These programs must allow for dramatically increased ordering and scheduling flexibility, so that the CEMs aren't at the mercy of the OEMs when there's a need to reschedule, redesign, or receive parts immediately.

Just-in-time delivery and build-to-order scheduling can alleviate some of the delivery problems - but, not unless the supplier offers a high degree of flexibility. At Fox, for example, our JITO� (Just-in-Time Oscillators�) program allows our customers extremely fast shipment of custom and standard oscillator products (prototypes and test samples immediately, production quantities in ten working days). Even more important, it allows CEMs to reschedule or cancel any order - including custom parts - up to two weeks before the scheduled delivery with no penalty. This will prevent the CEMs from getting caught with product that can't be used or must be inventoried for a long period of time.

In today's competitive environment, time to market is everything. Fast, flexible order and scheduling programs like JITO provide the CEMs the support and solutions they require. Furthermore, as the trends of globalization, mass customization and E-commerce grow, the degree of flexibility required to provide the CEMs with the service they require will be tremendous.

The future of our business depends on the value we bring to our customers. By providing true Just-In-Time service and Build-to-Order scheduling, component manufacturers enable the CEMs to reduce their cycle times, improve their asset management, and respond to their customer needs more effectively�thus increasing the CEMs and OEMs efficiency and profitability.

My guess is in the future, as much as 80% of all production will be done by CEMs. If we component manufacturers don't change the way we do business, there's no way we'll be part of the win-win equation.