The role of electronic manufacturing service (EMS) providers used to be fairly straightforward: assemble the product, and let the customer slap on a brand name. But things aren't that simple anymore. The underlying makers of computers, cell phones, music players and other devices have ventured into a wide range of value-added services. They're looking for ways to improve margins, while their customers, the original equipment manufacturers (OEMs), shed burdensome assets and focus on marketing their products. One of the first EMS companies to expand its service portfolio is also one of the largest: Milpitas, Calif.-based Solectron Corp. Several years ago, it began offering logistics services to support the movement of product in the supply chain. More recently, it has taken on the task of reverse logistics.
Solectron's Global Services unit actually got under way in July 1999, but it wasn't until about three years ago that the company began signing global contracts. According to Steve Manning, vice president of sales and marketing for the services business, that sector has previously been dominated by small, regional providers. A single OEM might hire dozens of individual vendors to handle its service parts and repair activities in various markets. Now, the business is beginning to consolidate, and companies with global reach are coming into being. With 23 sites around the world, Solectron owns parts inventories, accepts returns, repairs units and ships out replacements. Products range from gaming devices at the low end to expensive networking and telecommunications equipment. Currently the mix consists of 42 percent computing and storage, 33 percent wireless equipment, 14 percent communications and networking, and 6 percent consumer products.
Solectron's aftermarket business is expanding at the rate of 15 to 20 percent a year, says Manning, even though it still represents less than 10 percent of the company's total revenues. He expects the unit to keep growing, however, as clients hand out larger contracts with wider geographical scope. In terms of maturity, he says, the outsourcing of reverse logistics is where the original EMS providers stood 15 years ago, marked by the slow cohering of a fragmented market as customers gain trust in the concept. The rising cost of supporting a reverse supply chain, coupled with intensifying service demands by end users, will prompt more OEMs to outsource that function, Manning says. As for Solectron, it plans to expand into reverse logistics for medical and automotive companies, focusing in the latter case on electronics components such as satellite radios and GPS locators.
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