Contract Manufacturing Opportunities in the United States
Over the past 20 years, test and measurement vendors have seen contract manufacturers (CMs) become an increasing part of their customer base. Electronic CMs, in particular, have grown tremendously as original equipment manufacturers (OEMs) shifted their manufacturing activity over to them and as they expanded their value proposition to design and test.
“Twenty years ago, CMs were build-to-print assembly houses while today they provide a lot more value-added services including product design and test development. As a result, our interaction and level of business with CMs have grown,” explained Jack Rozwat, general manager for the Electronic Measurement Group in Latin America at Agilent Technologies.
Although originally started in the computer industry, contract manufacturing now is an inherent part of any industry. However, while the computer and telecommunications infrastructure industries are heavily penetrated, this is not the case in industries such as medical and industrial.
“Growth sectors going forward include automotive, with the transition toward greener vehicles, smarter navigation systems, and infotainment systems; the solar industry; and the LED industry, which has significantly increased over the past few years with the advent of OLEDs,” said Lavanya Rammohan, research analyst for the Electronics Manufacturing Equipment Group at Frost & Sullivan. There is buzz around the renewable energy industry, especially solar, as CMs are building products for alternative energy.
Electronic Manufacturing Services Market: Revenue Trend for North America, 2006 to 2016. All figures are rounded; the base year is 2009. Source: Frost & Sullivan
While the contract manufacturing market is global in nature and growing in emerging markets like Latin America and particularly Brazil and Mexico, there still is significant contract manufacturing being done here at home. Industries that are IP-sensitive or deal with more complex products, such as medical, aerospace, and energy, are key areas where a relatively large amount of contract manufacturing occurs in the United States.
The other positive trend in the contract manufacturing market in the United States is the expansion of CMs into design as OEMs want CMs to take more responsibility for design and test. “We work very closely with many of these companies,” said Richard McDonell, Americas marketing senior group manager at National Instruments. “Some companies have built standardized test systems based on our products. If a customer comes to them with a product to manufacture and doesn’t have a tester that they want them to use, CMs can make recommendations. It’s part of their value-add to help customers with testing.”
Developing engineering service offerings is a key area of focus for CMs. As such, test and measurement vendors are experiencing more interaction with CMs, especially for functional testing. This is turning out to be quite challenging because it requires intimate knowledge of the products.
While requirements from OEMs and CMs are quite similar, CMs more acutely focus on the reuse of assets. Most have management teams that work with test suppliers to maximize their return-on-test assets, and many of them will move these assets globally to reuse them.
As such, a test solution that can be used for multiple OEM customers is ideal. However, this is more difficult to do for functional test since the solution is much more tied to the end product. This doesn’t mean it cannot be accomplished.
One company that has successfully done so is Benchmark Electronics, which created and deployed a standard tester leveraging PXI instrumentation and software. This not only benefited test developers and production users but, more importantly, translated into savings for customers by using available test capacity as opposed to developing an entirely new test solution.