Focus on electronics prototypes, pilot runs

During my brief interaction with Kumar Natarajan, who is the VP (Operations) of Chennai-based Kantel Technologies (http://bit.ly/F4TKantel), the discussion is about the changes in the electronics manufacturing landscape. As someone who is involved in the supply chain for the new product development of electronics manufacturers, Kumar shares his experience about the domain, even as fireworks fill the night sky, and his batch-mates of REC Trichy (1981-85) party around the SRM Hotel swimming pool. Our conversation resumes over email…

Excerpts from the interview.

What are the emerging trends in electronics manufacturing that impact the supply chain?

The electronics industry is heavily involved in the design, fabrication, testing, and selling processes. Manufacturing from OEMs (Original Equipment Manufacturers) is shifting towards the outsourcing of processes. The emergence of EMS players (Electronics Manufacturing Services) such as Flextronics, Sanmina, Jebil, and Celestica, and their subsequent growth in skill-sets is pointing in this direction.

These global EMS companies organise their teams around customer accounts, emphasise centralised information technology and business processes across all units for quality control and seamless integration of the supply network and manufacturing processes.

These companies project global manufacturing as an important component of the strategy of selling services in different regional markets. They demarcate along the skill-sets that are deployed at the regional facilities — choosing to base the higher technology services in the higher cost and higher skill regions, and the backend manufacturing in the lower cost regions. Examples of Indian companies in this area include: SFO-Kochi, Rangsons-Mysore, Smile Electronics-Bangalore, Avalon Technologies-Chennai, and, of course, dozens of companies in Noida and other parts of the country.

Let me explain how this trend affects SCM (supply chain management). EMS companies enter into a contract with most of the manufacturers directly and tend to get global contract pricing. However, in this process, they either virtually eliminate the distributor/dealer /stockist, or control the distributor's pricing and margins.

So, in most of the cases, the distributor orders the material on back-to-back basis only; and the EMS has to wait for the supplies as per the lead time trends in the market. Now, this is the real problem. Customer wants the product in 4-8 weeks and the component lead times run to 8-16 weeks.

Then the EMS starts locating stock support from independent distributors (of course, that cost is higher than the global contract rate), and put it forth to the customer for the price increase impact, and after approval, go ahead. In the entire process, a lot of time is lost and the original schedules are never adhered to.

Can you describe some of the major developments in the above supply chain over recent years?

More and more manufacturers and distributors have started selling their products online: The advantage of online selling is that you are able to reach new customers, new markets, globally. Technology plays a major role in this. For instance, DigiKey of the US is a company that has mastered its site in this regard and ships products globally the same day. Offering online in local currency has also started. Element14 leads the way in India, but there is a long way to go in terms of pricing, delivery, user friendliness, etc.

Independent distribution is the new trend catching up in India in an organised way: For instance, we set up Kantel Technologies in 2005 to cater to sourcing requirements specially focusing on the proto/pilot runs. As an independent distributor, we have the advantage of picking up stock from any of the authorised distributors. We give the certificate of conformance, trackable up to the manufacturer, and have been fairly successful in having 20-30 blue-chip companies in our list as customers.

In your view, what are the key challenges in the sourcing activity for new age electronic manufacturing?

TTM (time to market) is going to be the major consideration in the success of new product launch. Typically, 9-12 months is the TTM from concept to commercial product of modern gadgets to rollout successfully. Let us not forget that today's age is very fast; everyone wants the latest and that too yesterday! Hence, how fast all the raw materials are going to be made available determines the success.

On the other hand, the lead time to manufacture many of the semiconductors and other raw materials is increasing. Sometimes, unusually long lead times are quoted by the manufacturer. While normal lead times are 6-8 weeks, of late, for a few items the lead time has shot up to 24-48 weeks.

On the one side, competitive edge can be obtained by reducing the TTM, whereas on the other, component lead times are increasing. This is the real challenge that electronic manufacturing faces. Independent distributors and stockists help in meeting these challenges. However, many of them lack transparency in traceability to the manufacturer and that is the challenge EMS companies are facing.

Where are the advantages for India, as compared with China, in the sphere of electronic manufacturing?

I really don't see any specific advantage compared to China in the sphere of electronic manufacturing as of today. But let me put forth my views on what we could possibly do to achieve self-sufficiency in electronics manufacturing, as a strategy for the next decade.

1) We need to strengthen the front-end:

Typically the manufacturing process is divided into three sub-processes, viz. the front-end (sales and design), coupled with the back-end (logistics and banking), and the labour-intensive middle portion of assembly and testing. India traditionally has a strong back-end (banking and accounting); thanks to the initiative on infrastructure development, we will see a lot of growth in the area of logistics in the coming years.

Right now, opportunities in the front-end are enormous. India is producing millions of engineers; and the talent pool from this needs to be converted as an advantage, and the front-end (i.e. design and sales) needs to be consolidated as a strength. In this process, we will generate employment for high-skill technicians. More and more ancillaries will emerge. So, in short, design, prototyping and pilot runs should be our focus area at this point. There should be manufacturing companies with semi-automatic or fully automatic machines focussing only on proto and pilot runs.

>dmurali@thehindu.co.in

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