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Seeking Higher Ground: How One EMS Provider Is Redefining an Industry

There was a time when contract manufacturers performed one specific task: making products, usually of a high-tech nature, while staying well behind the scenes. But that time is long gone.

The contract manufacturer, rebranded as an electronic manufacturing services (EMS) provider, was born out of a desire by the so-called original equipment manufacturer (OEM) to shed itself of the mundane job of actually making products. The latter reserved for itself the tasks of designing and marketing, under its own brand. Never mind that the "unique" item in question might be churned out by the same EMS for multiple OEMs, the only difference being the nameplate and the size of the advertising budget.

Contract manufacturers (sorry, EMS providers) soon bridled under that arrangement, realizing that they had been stuck with a perilously low-margin activity with minimal assurance of continued business. So they began venturing into the area of value-added services.

Today, an EMS can also perform product design, engineering, testing, distribution and repair. Its prowess is no longer defined solely by the ability to run an assembly line with maximum speed and efficiency (often made possible by an army of low-paid workers). In the process, the EMS has discovered a valuable yet previously overlooked entity: the customer.

At Celestica, Inc., which bills itself as “a global leader in the delivery of end-to-end product lifecycle solutions,” that realization has led to creation of a Customer Experience Center in Santa Clara, Calif., in the heart of Silicon Valley. According to president and chief executive officer Rob Mionis, the initiative is intended to provide a showcase for the company’s range of services, with the ability “to connect with any facility we have around the world.”

The idea is to draw on Celestica’s pool of designers, engineers and market experts, with an eye toward promoting continuous innovation. The actual center takes the form of a 360-degree amphitheater equipped with a smart table — “like a giant iPad,” Mionis says. Customers discuss the products they want to produce, and Celestica offers input on possible modifications and improvements.

More than a traditional design laboratory, the Customer Experience Center is built around the notion of “a virtual Celestica,” says Mionis. It could be replicated in Europe and Asia if the concept proves out, with all locations linking up with the company’s central design center in Shanghai. It’s all part of what Mionis describes as “a little bit of a facelift for Celestica.”

Getting an organization of Celestica’s size and scope to pivot in any meaningful way can be tough. The company employs 27,000 people in 28 locations within 14 countries. It serves customers in aerospace and defense, “smart” energy, healthcare technology, semiconductor capital equipment, and cloud communications, among others. Revenues are in the $6bn range.

All of those sectors demand constant innovation, relying on design and manufacturing partners whose services are anything but commoditized. For the EMS, the customer profile changes accordingly. At one time, Mionis notes, BlackBerry was a major account. More recently, Celestica has shifted into products that are more highly engineered and less consumer-oriented. The former are less subject to market volatility, with relatively longer lifecycles.

“We like markets that play to our strengths,” Mionis says. Hardware, he adds, used to be viewed as a commodity in support of sophisticated software. Now, it’s becoming more customized, in order to run complex algorithms.

There’s been less of a change in the physical location of manufacturing plants, says Mionis. The early 2000s saw a shift in sourcing, driven by rising wages in China and the desire of some western OEMs to make product closer to their markets. But the network has been stable for the last several years, with electronics supply chains “fairly entrenched in the regions that they’re in, from fabs to logistics providers,” Mionis says.

Within the plant walls, it’s another story. In 2016, Celestica tripled its investment in factory automation. It’s aggressively pursuing innovations in both manufacturing hardware and software, with a heavy reliance on emerging artificial intelligence.

In certain cases, that can mean the creation of totally automated facilities. For one customer, Celestica produces nearly a million inkjet printer units a day, and the only humans inside the plant are the those who are monitoring the equipment. When it comes to automation, says Mionis, “we can’t go quickly enough.”

He considers the adoption of new technologies as the company’s biggest challenge. And he expects A.I. and machine learning to play key roles in Celestica’s service offering in the coming years. In a broader sense, the company will continue to typify the industry-wide trend of redefining EMS providers as much more than just manufacturers of product. Mionis prefers the label of “supply-chain solutions company.”

Whether Celestica and its competition can thrive over the long term under such a nebulous identity remains to be seen. But it’s clear that the industry must innovate in order to survive. As Mionis puts it: “Everybody’s trying to find higher ground.”

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