EMS industry targets mechatronics systems
As EMS providers build more systems that blend electronics and mechanical parts, buyers face new purchasing challenges.
By James Carbone -- Purchasing, 9/13/2007 6:00:00 AM
The electronics manufacturing services (EMS) industry made a name for itself in the supply chain by building printed circuit boards and then entire electronics systems for computer and communications OEMs.
While those industries are still the biggest customers for EMS services, EMS providers are finding more nontraditional industrial customers who manufacture systems such as automated teller machines (ATMs), vending and electronic kiosk machines, semiconductor manufacturing and test equipment, factory-automation systems and other equipment that blend electronics and mechanical systems. These electromechanical, or mechatronics systems are proving to be a growth segment for EMS providers who have set up business units or dedicated factories to service them.
While there are no market figures available for the mechatronics systems, they are included in the industrial segment along with medical equipment and defense and aerospace. That segment of the EMS industry will post nearly 12% compound annual growth through 2013 as it rises from $19.2 billion in 2006 to $29.2 billion, according to Adam Pick, an analyst with researcher iSuppli in El Segundo, Calif..
"These systems are appealing to EMS providers because they have long lifecycles," says Pick. "Lifecycles are not six months like a handset or a laptop. You're talking three to 20 years," he says. Margins are higher too.
Different BOMs
For EMS buyers, purchasing parts and materials for such systems poses sourcing challenges. Mechatronics or electromechanical systems require a different supply base than computer or telecom products. The components and materials that need to be bought are more customized and many parts are sole sourced. Often, suppliers are local or regional and small. In addition, there tend to be fewer suppliers in the space compared to computers and communications. And, though many system components can be state of the art, on the electronics side, such systems tend to use more mature parts, so buyers often have to deal with component end of life issues (EOL).
Tim McGrath, director of industrial systems architecture for St. Petersburg, Fla.-based EMS provider Jabil Circuit, says the bills of materials for such equipment are different than the BOM for a computer. With a computer, about 80% of the BOM would be electronics. With EM systems, about 65% of the BOM is for mechanical parts.
He says a typical BOM would have microcontrollers, analog chips, resistors and capacitors, as well as transformers, coils and motors and a variety of metal and plastics parts.
 The industrial segment of the electronics manufacturing services industry which includes mechatronics systems will grow from $19.2 billion to $29 billion. |
Sourcing for mechatronics systems is challenging for several reasons, according to John Caltabiano, vice president of global sourcing for EMS provider Solectron, headquartered in San Jose, Calif. Solectron builds a variety of mechatronics systems including Redbox, the DVD dispensing machine commonly seen in fast food outlets and grocery stores. It also builds ATMs and robotic disk array systems, among others.
One reason the segment is challenging is that the electronics supplier base is limited and the suppliers are small, revenue wise, he says. He adds sourcing is also challenging for mechatronics systems because most of the parts have single sources.
Risky business
Having suppliers who are small, regional and single source introduces risk into the sourcing process, he says. "You have to manage within those constraints. A small supplier will not have the ability to invest in China if they are local to the Carolina market," says Caltabiano. "So, now what do you do if you want to globalize your product? You have to qualify another supplier in China."
He says sourcing for such systems is also challenging because mechatronics systems tend to be low-volume, high-mix systems. They have a variety of different parts, but the production volume of the end product is low.
"With mechatronics you have lots of part numbers, maybe 300-400 custom mechanical parts in volumes of just 300-400 per month" and a small number of suppliers. An example is motors.
"There may be 10 motor suppliers who are all very specialized," says Caltabiano. "Some supply to the disk drive industry, some to the large mechanical subassembly business. It's hard to leverage."
He adds that castings are also very challenging because they, too, have a limited supply base.
"The automotive industry uses a lot of castings and can capture the entire volume of a facility," he says. Bearings, specialized bracketry, and displays are often difficult to source, he says.
Going obsolete
Electronics components can also be a problem for mechatronics systems because trailing-edge technology is often used. Electronic components needed may be approaching end of life. Some systems may last 20 years or more, but suppliers don't like to build parts for that long if they can't sell many of them.
"It does present a challenge," says Caltabiano. "Decisions have to be made about last time buys and whether to continue to buy from suppliers that don't want to make the components any more."
To address those sourcing issues, Caltabiano says Solectron has developed a supply base around its "chartered sites that build electromechanical systems."
While sourcing can be challenging in some ways for mechatronics systems, there are advantages. "For one thing, we don't have to deal with large semiconductor suppliers with fabs in Taiwan and the Philippines, testing in Thailand and distribution is in California. We are talking about small suppliers and we can develop very close relationships," says Caltabiano.
An example is Redbox, the DVD dispensing machine company. "We have a chassis frame supplier for Redbox literally across the street from our factory. We developed that relationship and three or four times a day we have pulls and they build at about the same pace as we do," he says.
Caltabiano says he believes that industrial OEMs will outsource more mechatronics systems to EMS providers because many EMS providers are a one-stop solution.
Mechatronics is a growing application for EMS “Industrial products are an interesting play for EMS providers,” says Adam Pick, an analyst with researcher iSuppli. “You have companies like Singapore-based Flextronics sub-branding themselves with their Special Business Solutions (SBS) group.” That group is dedicated to industrial products including electromechanical systems. Enics, an EMS provider based in Switzerland, derives 95% of its revenue by building industrial equipment, he says. “Jabil is also getting more aggressive in this nontraditional market because long term the benefits are huge,” says Pick. “We build and design these systems for the OEM,” says Tim McGrath, director of industrial systems architecture for EMS provider Jabil Circuit, based in St. Petersburg, Fla. “We engage with OEMs very early in the design cycle.” He estimates that about 10% of Jabil’s business is electromechanical products and that percentage is growing. Such products include white goods that have sophisticated electronics and motor controls and displays. “We are imbued in the meter space. We have seven of the top 10 meter customers worldwide,” says McGrath. “We do design and manufacturing for these customers so we get involved in electronic water meters that used to be strictly mechanical. We do garage door openers, vending machines, and building control systems.” All of the equipment blends mechanical subsystems with electronics. |
Now Playing:
Top 10 EMS providers suffer revenue declines
03/10/2009EMS industry goes car shopping
10/18/2007
