Is EMS supply chain cluster a viable option?

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Indian industries have an urgent need to set up efficient supply chains for electronic manufacturing services (EMS) and contract manufacturing services (CMS). But the dearth of quality raw materials such as PCBs, semiconductors and other components, which are the most important drivers of manufacturing, is forcing companies in India to source from abroad. It means that manufacturers have to deal with longer waiting periods and the cumbersome paperwork involved with customs clearance. However, as the lead time of larger suppliers needs to be shortened, EMS companies can ensure a steady raw material supply, if they start procuring at least domestically available raw materials from local vendors.

By Jesus Milton Rousseau S.

Friday, June 19, 2009: Developing a local supply chain

The success of Bengaluru based Unified Electronics (India) Ltd in handling this issue is a case in point. The company has devised a unique way to nurture a local supplier base. It utilises the services of raw material manufacturers from nearby areas and supports them both technically as well as financially. “Having suppliers around the parent manufacturing unit comes with logistics benefits that reduce the cost of production and improve the delivery time. It also enables us to train the local supplier’s team involved in the project, reduces the packing material costs and makes it possible to share common resources,” says Tarun Mehta, director, Unified Electronics.

The raw material supplier companies and the electronics manufacturing unit benefit in this win-win model. In this cluster approach, where both parties are interdependent, they can grow together with each other’s aid. Naveen Jain, promoter, Mahaveer Plastics, a plastics injection moulding partner of Unified Electronics adds, “The benefits of having your manufacturing partner right next door include a closer customer-supplier relationship in all the aspects of product development, reduced lead times and savings in terms of time and manpower through all the stages of development.”

SN Chandir, partner, Divya Enterprises, a wire harness supplier for Unified Electronics, reports, “A relationship develops between the manufacturer and supplier and this, in turn, generates mutual trust and understanding. These are the key factors that help in understanding the requirements of customers, precisely.” The strategy also ensures that any modification in the product design is addressed immediately.

According to Mehta, Unified Electronics also gives its supplier partners sales leads to other potential customers who may be interested in similar products and services. “We also give technical training and some financial support, depending upon the capability of the supply chain partner with respect to financial strength and resources.”

Mehta goes on to add, “Though the suppliers give preference to Unified, they are free to supply to any other company. With a few supplier partners, we are also consciously making an effort to ensure we load them with a minimum of 50 per cent of their manufacturing capacity.” In short, the arrangement works to give the supply chain partners not only a balanced work load, but also a steady turnover.

Unified Electronics employs high standards of management and monitoring systems like Six Sigma and automated PPC, which raises the quality of its local supply chain partners. With the added advantage of having established a dedicated supply cluster network, they can start supplying to even multinational original design manufacturers (ODMs).

But, Subhash Goyal, managing director, Digital Circuits, feels that such raw material supply chain clusters are feasible only at a micro level or for certain customers. “Since at the macro level each customer’s needs are unique, this cluster approach is not a feasible option on a larger scale. The customers design products around specific components and give their bill of materials and the manufacturers they prefer to the EMS companies/ suppliers, so we need to use the same part number and make. Since purchase of raw materials and components is customer centric, we have to source them from both local and global vendors. For EMS manufacturers, clusters will cover a very small fraction of their requirements and it will not be a viable option for cluster partners either, unless big OEMs like Samsung, LG, Nokia or Dell set up their base in India. Only then can component clusters become viable with many industries coming together.”

Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine

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