Charlie Peppiatt the recently appointed new CEO of the Stadium Group Plc, considers the current challenges faced by the UK contract electronics manufacturing sector.
The global electronics market is more competitive than ever and the UK contract manufacturing sector has witnessed many changes over the last decade. The mass move towards low cost Asian production has seen customers now becoming more intelligent in the way they manage their supply chains.
Whilst large scale volume manufacturing continues to be a requirement for Asian economies we have seen customers sourcing shorter life cycle, lower volume and high mix manufacturing closer to home so that the supply chain can be shortened and working capital minimised.
Consequently Eastern Europe is enjoying growth and in the UK we see certain sectors bringing the lower volume or high mix production back, a process currently being called “on-shoring” or “re-shoring”.
At the same time, we have seen a short term reduction in the demand from the domestic UK market resulting in a highly competitive environment where price has become an even more important key driver.
This has resulted in some painful rationalisation. It has also left many of the medium sized contract manufacturing businesses grappling with significantly lower margins whilst some well-positioned smaller highly focussed operations with minimal overheads continue to do well.
We are now living in a world where 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 some of the other headwinds we face such as energy cost increases, commodity price movements, environmental responsibilities and the challenges around ensuring we attract 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 sectors of the electronics market and supporting the initial start-up phase of the resulting new and exciting products can mitigate the continual drag on margins evident with traditional business models.
We have to become smarter. Success is not about the ‘speed’ an organisation is going but about the rate at which it is ‘accelerating’.
We need to be more efficient through investment in the latest technologies that complement the services we provide to our OEM customers. Last year at Stadium we made another strategic acquisition adding Interface & Displays to our technology portfolio which already includes power supplies and emc filters.
We also need to 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 the key electronics component vendors to stay ahead.
Another important trend is the expansion of capability where more frequently the provision of added value services such as design engineering, new product introduction, logistics management and highly integrated line side support or ‘optimised industrialisation’ are becoming the norm. Providing these additional services create lasting relationships between contract manufacturers and OEMs.
In response to the re-shoring trend, it is crucial that we do not close our offshore doors and stop thinking globally in how we address what is becoming a more complex marketplace. When demand increases or products reach maturity in their production life cycle, we need to be able to offer our customers 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 manufacturing and design service offering. Flexibility, speed and a global footprint provide a huge advantage and the right solution when executed faultlessly.
There are as I have said many challenges for our industry but on balance there are also many exciting opportunities. The electronics industry is changing. It is becoming even more competitive and in many ways more intelligent in its approach to supply chain management. By adapting to these changes I believe we have the opportunity to add significant value to the UK electronics industry and ensure it remains a major thriving part of the UK economy into the future.
Published in the July 2013 issue of Electronics Sourcing