The following posting can also be viewed and commented upon in the Kinaxis Supply Chain Expert Community web site.
Last week, Rapture World in Europe hosted a follow-up webcast concerning AMR Research/Gartner designation of the Top Twenty-Five Supply Chains for 2010. This webcast was designed as an opportunity for European supply chain professionals to ask some specific questions related to the process, criteria, and characteristics related to companies that were named Top 25, and the questions were all very probing and insightful. You will find other commentaries related to this year’s AMR Top 25 within this community.
One of the questions that really caught my interest, and perhaps readers as well, concerned why any contract manufacturing service providers (CM’s) were not included in the listing. Kevin O’Marah, senior vice-president of supply chain research at AMR Research (Gartner) responded quickly that in his view, contract manufacturers should have been considered. He did however raise a rather interesting qualification to this consideration, namely, how much of the total global supply chain responsibility does any one contract manufacturer have? What process capabilities and competencies do certain CM’s provide, and how does this compare with the OEM’s that are also considered for Top 25 designation? The answer may be closer than once believed.
I believe that is an interesting question for discussion and comment and not being bashful, I would like to get the ball rolling.
From my perspective, contract manufacturers most definitely should be considered in anyone’s top listing of supply chains. The scope of supply chain activities performed, the volume / scope of supply purchasing, manufacturing and distribution, the adoption of SCM related technology and the agility in managing all forms of globally-based manufacturing are noteworthy. Hon Hai Precision Industry Co. Ltd. (Foxconn) alone is probably one of the world’s largest manufacturers in terms of volume and headcount, and other CM’s bring their own set of unique competencies. A recent article appearing in Electronic Design makes note that a recent three-in-one merger completed by Hon Hai could allow this CM to be one of the most vertically integrated manufacturers of LCD TV’s. The merger included control of three top suppliers of LCD panel displays that make-up the majority of component material costs in today’s high tech devices. In addition, OEM Sony, under considerable cost and profitability pressures, has been outsourcing a significant portion of its previous owned LCD TV manufacturing capacity to Foxconn. When Foxconn’s current original design manufacturing (ODM) capabilities are combined with a horizontally integrated supply chain, this CM could well be positioned to control a significant portion of the entire LCD TV market, or at least provide significant competition to existing players such as Samsung.
When I ponder the broader criteria of being demand-driven, overall financial performance, time-to-market, sales and operations planning and customer responsiveness, I can’t help but stumble upon a conflict. If a CM indeed demonstrates most of the outlined supply chain competencies or characteristics of anyone’s Top 25, then by definition, they are actually a self-contained independent entity as opposed to a ‘supplier’. In the case of Foxconn in LCD TV’s and perhaps other consumer electronics products. the only missing element is ownership of the brand. (e.g. Apple, Cisco, Dell, HP, Sony…)
Now some readers may be chomping to point out at this point that I may be making too many broad assumptions and disparaging the complete set of competencies and proven capabilities that have been established by Top 25 designees. I’m purposely being provocative to point out a broader view and spur a discussion.
If and when a global CM makes the Top 25 listing, it will most likely be at the displacement of an exiting brand owner. In another words, that CM will be a de-facto brand owner. And when that happens, it will be not only a breakthrough but a huge wake-up call to the existing industry players.
Those that control all aspects of the supply chain, including product innovation, ultimately control the brand. That is when and industry has been disintermediated.
Should CM’s be considered- yes! When they make the list- watch out!
What’s your view? How close are CM’s to becoming Top 25?