SMT007 Magazine

SMT-July2017

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110 SMT Magazine • July 2017 AN ALTERNATIVE APPROACH TO VERTICAL INTEGRATION IN MANUFACTURING of the consumer market yet the financial sup- port of the ODM infrastructure within the Ti- er-1's corporate structure is still burdened over the broader base of their corporate costs. MC Assembly prefers to invest in engineering re- sources dedicated specifically to processes like design for manufacturability (DFM) and design for excellence (DFX) where the output is not di- rectly sold to its customer, but rather their cus- tomer benefits from the associated cost reduc- tions gained from the improved efficiencies in the manufacturing processes. Vertical Integration in EMS The vertical integration factor is a little less straightforward. Initially, the movement to- wards vertical integration of manufacturing ca- pability was limited to the exceptionally large EMS companies and, at first, was usually the re- sult of them acquiring an auxiliary manufactur- ing capability as part of the acquisition of cir- cuit board assembly and surface mount tech- nology (SMT) from an OEM. The added capability did improve the mar- keting concept of "womb-to-tomb" manufac- turing but also burdened the EMS company with large capital machinery assets that could not be easily relocated and manufacturing technology that was foreign to EMS companies. Over time, many of the larger EMS companies were better able to harness the technology and by invest- ing even further into the different technologies associated with manufacturing, they could of- fer their customer base the concept of a "one- stop shop" for the supply chain needed to build their customer's product. The expansive EMS corporate campuses we see in China today are the hyper-outgrowth of this vertical integration. In cities such as Shen- zhen, vast industrial areas, walled-off and se- cured from the public eye dominate the land- scape. Supporting employee populations larg- er than most cities in the United States, these manufacturing entities are the apex of vertical integration in the EMS world. Despite the bad press received over the poor working conditions of these mega-factories, the manufacturing model seems to be working partic- ularly for high-volume consumer products where the repetitive manufacturing nature of the prod- uct and the ability to dedicate capital machin- ery to single product minimizes set up costs long term. Plus, the ability to stack margins on the mul- tiple layers of the product bill-of-materials (BOM) enhances the overall profitability of the company and is less transparent to the end customer. Vertical Integration in Low-Volume EMS When you apply the same model to lower- volume manufacturing, directionally the results become much more problematic. The profit- ability equation for any capital-intensive man- ufacturing machinery is utilization and set-up minimization. Figure 1: MC Assembly process lines demonstrating high complexity mechatronics assemblies. Note the metal fabrication and cables that are fed from MC integrated partners. Figure 2: High complexity wire harnesses from MC integrated partners being staged for next step assembly. Figure 3: Fan assembly being integrated in enclosure from MC integrated partner.

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