Feb 11, 2003 Just as OEMs have outsourced manufacturing to EMS companies to reap lower labor and material costs, contract manufacturers believe there is considerable value in forging partnerships with 3PLs.
Last week, EMS provider Sanmina-SCI Corp., San Jose, enhanced its global logistics capabilities by teaming with United Parcel Services Inc.'s Supply Chain Solutions division.
"We have a massive global footprint with which to support Sanmina-SCI's distribution and logistics requirements without the need for them to invest in any additional infrastructure," said John Sutthoff, vice president of UPS Supply Chain Solutions, Atlanta.
"The volatility of electronics manufacturing in total--the cost of component parts, the cost of finished goods, and the global nature of the business environment--lends itself to the need for built-in efficiency across all the different channel partners," Sutthoff said.
Strengthening relations between EMS providers and 3PLs comes at a time when contractors have scaled back their manufacturing presence in high-cost locations such as Europe and North America and are building their assets in low-cost Asia.
At the same time, OEM procurement managers have expanded their view of logistics from components and hardware to the entire supply chain. That's why OEMs are interested in handing over more logistics tasks to EMS partners that can drive supply chain efficiencies with global 3PLs, according to Randall Sherman, an analyst at New Venture Research Corp., Nevada City, Calif.
"Logistics is not the type of thing that EMS providers do best," Sherman said. "Third-party logistics providers like FedEx and UPS are better at it. When a contract manufacturer works with them, it probably reduces costs."
Expanding reach
The Sanmina-IBM announcement came a month after the contract manufacturer secured a three-year, $3.6 billion deal to make mid- to high-end servers and ThinkPad notebooks for IBM Corp.
The Armonk, N.Y., computer maker had a relationship with UPS, but it was limited to management of some IBM warehouses. However, through the pact signed by Sanmina-SCI and UPS, IBM's direct-order fulfillment needs will now be addressed on a worldwide basis, according to Bhawnesh Mathur, executive vice president of supply chain management at Sanmina-SCI's EMS division.
"There are more UPS locations than there are EMS locations," Mathur said. "As part of our partnership with UPS, we can be in countries like Dubai, while most EMS companies are not in such areas. IBM wants to have products and accessories available in places like the Middle East.
"We want to be able to view our customers' inventories on a global basis," Mathur said. "If a customer in Dubai is short of IBM monitors, we could move some monitors from UPS' Holland location."
In addition to Dubai and Holland, UPS will manage logistics activities for IBM in Australia, China, Hungary, Japan, and Malaysia. Meanwhile, Sanmina-SCI will handle the same kinds of activities for the computer giant in Mexico, Scotland, and the United States.
Mathur believes more OEMs will want EMS partners to play a greater role in outbound logistics activities, sometimes in tandem with 3PLs.
The $2 billion it spends annually on transportation gives Hewlett-Packard Co. greater leverage and choice of working with EMS partners and 3PLs, according to the company, Palo Alto, Calif.
"We're open to working with anyone on logistics that we can show our business requirements to, and ask them to use their wisdom and skills sets to come up with a solution," said John Frasca, HP's director of logistics procurement.
"We don't want our suppliers to only compete on price, but on creative solutions that are of value to HP and our customers," Frasca said.
Celestica's 3PLs
Celestica Inc. has entered into contracts with four 3PLs--Exel Logistics, FedEx, Kuehne & Nagel, and Panalpina--as its core logistics providers, said Paul Blom, the Toronto-based EMS company's senior vice president of worldwide supply chain management.
"They have differing strengths and geographic capabilities, but they provide us with all of the necessary capabilities to provide OEMs with outbound distribution services, outbound logistics, and order fulfillment," Blom said.
Celestica said it has experienced an increase in outbound logistics programs that call for joint efforts by the contractor, OEM, and 3PL.
"With one of our telecommunications customers, we have been co-architects of an order fulfillment service in which we've shipped thousands of packages a day from a Celestica distribution center in partnership with Federal Express. It's a three-way partnership that was developed by all of us," Blom said.
3PLs bring certain skills to the supply chain table such as freight management, transportation acumen, and warehouse operations that make it easier for EMS providers and OEMs to turn to them for assistance, Blom said.
"We have been working with Exel on logistics for aftermarket sales programs, and we have been planning to investigate opportunities with other 3PLs," said Douglas Brenner, president of Elcoteq Americas, Irving, Texas, a division of Finnish EMS provider Elcoteq Network Corp.
Contractor Manufacturers' Services Ltd. (MSL), based in Concord, Mass., has beefed up its logistics and distribution capabilities in the past year by hiring key personnel to focus on working with 3PLs.
"Freight management and distribution are a big part of our core capabilities," said John Boucher, MSL's vice president of supply chain management.
"We need to deliver products to our customer's customers through our virtual partnerships," he said.
Claire Serant
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