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2020 was a turbulent year for manufacturing and no one in the C-suite was left out from the aftermath of this perfect storm of disruption. I am in a privileged position and speak regularly to the big and good in the manufacturing and supply chain world. In my conversations with CEOs, COOs, CTOs and CMOs, I see the beginning of a new era. The way companies operate, from the basics of their business models, operations, work-from-home strategies, to the way companies market and sell their products, is being fundamentally reset.
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What to expect in the twenties and how can you make sure you are ready for 2021?
After the trauma of 2020, I still believe the twenties will roar again and deliver the most innovative decade in history. Necessity is the mother's invention and this year's pandemic created the mother of all necessities! It was an extreme accelerator for creativity and innovation, a tumult that forced companies to rethink and adapt.
An EMS revolution is underway
For those directly involved in manufacturing and supply chain strategy, it has been necessary to re-evaluate business models that are decades old. The EMS (Electronics Manufacturing Services) industry is almost fifty years old and has hardly changed since its rapid growth in the 1990s and the turn of the millennium.
Supply drives the traditional model. EMS companies build capacity, often on a large scale, and sell that capacity. Their performance is closely related to how well they can use this capacity. New models turn the equation of supply and demand upside down to focus on demand and take advantage of the elastic capacity that is always available in the market. These business models are gaining in importance. In addition, these models are far more digital than their predecessors and often more customer or user-friendly. This is not dissimilar to the model used by industry disruptors like Uber, who switched the model from a supply-based taxi to one that focuses on flexible, on-demand capacity and tied into an intuitive digital interface.
Many companies cite this disruption, including those that created digital manufacturing ecosystems for parts like 3D Hubs, Fictiv, and Xometry. There are also ones in the PCBA (Printed Circuits Board Assembly) and box-build space like MacroFab and Tempo Automation, as well as exciting new entries like Launchpad.build, which use AI to provide assembly instructions and instant pricing for lower volume manufacturing or CloudNC create an autonomous CNC factory in the UK that will be the model for factories around the world.
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These brave, ambitious disruptors are just the tip of the iceberg. Hundreds more are working to digitally transform an industry that has relied on tribal knowledge and outdated planning and execution methods for too long. They're leveraging key technologies like AI, machine learning, customizable automation, and robotics to shake up an industry that many see as stuffy and outdated.
The established companies in the industry with impressive capacities and capabilities are not unconscious of the challenges and are on their own path of digital transformation as they consider the existential challenge of moving from a supply model to a demand-driven solution.
The race to be smarter
I have said repeatedly that the challenge of the late nineties and early nineties of striving to be the biggest or the cheapest is a relic of the past. Now those who outsource their manufacturing want a solution that is digital, agile, and resilient to disruptions lurking around the corner. Now the challenge for any EMS company is to be the smartest.
The greatest players face the greatest challenge. They have a China dominated footprint and need to review it as the brands they serve are exploring the best location for their factories. They have longer, more complex supply chains. You must adapt the fastest to survive and thrive in this post-pandemic world.
These traditional EMS companies are also transforming digitally, some of them rapidly. The advanced will benefit from the changes in the industry. They can adapt quickly and have the resources to invest in transforming and developing their footprint and asset base. They are very aware of the changes and are examining how to prepare for the new phase of development in their industry. They are changing their factories, their customer-facing systems, their business practices, and even exploring their own new business models.
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The picture is not black and white. It's not just about the newcomers and the disturbers. The traditional EMS model has a lot going for it, and certain products, especially higher volume consumer products, are ideal for very large scale production. In addition, smaller EMS companies operating in narrow niches such as B. remain the preferred solution in certain industries or regions where expertise is valued. However, the manufacturing industry has to adapt to accommodate all of these models. I expect hybrid solutions to emerge and EMS companies to start acquiring the upstart eating their lunch. And who knows that even some of these exceptionally well-funded Upstarts could acquire one or the other EMS company.
Looking to the future
The COVID-19 pandemic, while not the ultimate cause of turbulent change in the industry, has focused and accelerated it. Current reality is accelerating transformation, urging executives, investors, customers, and even governments to take a closer look at how manufacturing works. A little over a year ago I wrote a column suggesting 2020 would be a pivotal year for the industry. I was right, but not as I expected. I don't think anyone saw it coming. After seeing what happened this year, I remain convinced that this is a crucial time and that the twenties will be the most innovative decade in our history. The world is changing and the manufacturing industry is changing with it. This decade will be one of the most exciting as a new EMS industry emerges.