Globalisation of Manufacturing - A New Paradigm Emerging from Electronics Industry
Jukka Ranta
Helsinki University of Technology, Department of Industrial Engineering and Management,
Po Box 9500, 02015 HUT, Finland (www.tuta.hut.fi/people/jranta)
The full version of this paper can be found on the World-Wide Web at http://www.tuta.hut.fi/people/jranta/
ist99_elecind.pdf
The automobile industry was long regarded as an industry creating the dominant production
paradigms and setting the best practices for the manufacturing industry. This is not anymore
the case, but the electronics industry is setting now the new global paradigm by creating a
virtual or networked enterprise. This makes it possibly to compete with speed, flexibility and
knowledge.
Behind this power shift and global phenomenon is the fast structural change that the
electronics industry has experienced in the -90's. Some key characteristics of this
transformation have been:
- intensified technology evolution and ever faster and shorter product life-cycles
- transformation of the overall structure from vertical integration to networked production;
the fast development cycles in product technologies have forced to separate production
development, to share risks and capital spending along the chain
- module manufacturing and assembly from local suppliers towards global electronic
manufacturing services (EMS)
- the telecom industry, especially the mobile communication industry has become the
driver of the technological and structural change
Through the evolution and transformation the electronics industry has created new
operation practices and production systems concepts and has become the leading edge
industry creating the best practice in terms product development, demand-supply chain
management and organisational solutions - the electronics industry is the one who is creating
the new dominant industrial paradigm.
This structural transformation, however, has changed the relationships and competition
within the electronics industry itself. It also means that the role and position of the module
producers, interconnection circuit and component industries are different than it was 10-15
years ago. From the module and component manufacturing point of view these trends have
brought significant impacts - the main changes are:
- the products and customer requirements are tighter in terms of technology and quality
- the process development is more demanding and there are shorter technology life-cycles
in the used manufacturing processes
- the former captive factories of the main electronics companies have now become
independent companies through outsourcing, consolidation and buy-outs - some of the
new companies are global players
- the development previously done in-house by the big companies is now done by the network in a form of partnerships
- the component and interconnection circuit industry needs two kind of partnerships: one
with the key customers in order to understand product trends and the future requirements
and one with the key suppliers in order to guarantee proper technology choices and to
forecast the technology prospects in the future
- the demand-supply chains of the electronic industry is become more complex and
interconnected
- the global EMS industry means one layer and information processing node more between
the interconnection circuit and component producer and final product developer; it means
that the information related to both product development and chain operations is more
complex and challenging to manage
Even in the near future and in a short time range there are technology challenges for the
module, interconnection and component industry. At the moment there are several various
process and technology options available. In two year period ahead it can be expected that the
situation is even more diverse. At the moment a module or component producer has to make
choices, which impact its capability in two or three years from now without knowing exactly
what can be expected as customer needs and requirements. It is also interesting to note that in
some cases the critical node is not the module or component producer itself, but its technology, process or material suppliers, which may have difficulties scale up the production capacity for a sudden demand growth due to the technological change.
The classical value chain thinking is focusing usually on how the economic value is
created in an operative chain. The modern demand-supply chain thinking adds on the value
and supply chain thinking the concept of information and especially of the control
information chain. For a more long term and extended substance view one has to elaborate
these basic models.
Material/
Machine
supplier
Module/
Component
Producer
Final product
manufacturer
Supply chain
Demand and
control information
chain
Technology and
know ledge chain
Figure 1 Value Chain: supply chain, information (demand) chain and knowledge chain
Thus we can conclude that the value chain as well as the demand-supply chain
include different levels of abstractions - the most abstract is the knowledge chain. Therefore
there are some prerequisites for research and development, which are based on the modern
structure of electronics industry - on a networked organisation. This structure implies that the
knowledge chain (research and development - creation of new knowledge) has to be based on
the network of partners - on a virtual research organisation. This is in the harmony and
concert with the distributed and decentralised structure of the supply and demand chains.
Therefore in the modern industry it is critical build partnerships rather than tight
subcontractor relationship. These partnerships have a global character - the partnership has to
be build among the leading edge companies at the each point of chain or network.