By Dennis Peoples
Today's telecommunications industry is moving fast, so fast in fact that anything less than instant is too slow. The accelerating pace of change is so rapid that even the largest manufacturers are challenged to keep up. For telecommunications equipment original equipment manufacturers (OEMs), meeting the needs of this rapidly growing global marketplace has meant sharpening their use of resources, both human and financial,
 A quality-inspection technician uses the latest equipment to test fiber optic connections. |
to focus on core competencies such as research and development and marketing. An integral factor in the success for most telecommunications equipment OEMs has depended, at least in part, on the growth and commitment of electronics contract manufacturers (CMS) servicing this industry, specifically, manufacturers of cable assemblies.
The past decade has seen tremendous growth in telecommunications equipment factory sales — from $40.2 billion in 1993 to $89.6 billion in 1999 in the United States alone.1 There has also been a near-complete evolution from the wiring harness job shops of yesterday that merely filled orders supplied by the OEMs to today's CMs that offer turnkey solutions for a host of cabling and interconnect needs in the telecommunications market.
Today's CMs are a vital link in the OEM business chain. Where once the primary consideration for "component suppliers" was price and delivery, CMs now must offer services that include linking manufacturing planning systems through electronic data interchange (EDI), electronic commerce, and inventory management programs such as Kanban, consignment and automatic replenishment. This level of service has shifted the CM's place in the OEM business model from a short-term solution to handle spikes in demand to a long-term strategy of reducing manufacturing investment, achieving a global marketing infrastructure and improving time-to-market capabilities.
Facilitating the Shift
How has cable assembly contract manufacturing facilitated this shift in the OEM model? One important move for CMs has been their ability to grow with their OEM counterparts to achieve global manufacturing capabilities. Wherever the OEM goes, so too goes the CM. This eliminates many geographic barriers, which often represent the most problematic time-to-market concerns. OEMs are able to expand much more rapidly by shifting their manufacturing investment to CMs.
While the Internet has all but erased the lines that once divided nations, geography is still an important factor when it comes to maintaining a competitive time-to-market for the OEMs' products. Many CMs have made large capital investments to meet their customers' needs throughout the world by acquiring existing manufacturing facilities or building new ones wherever the demand allows. In addition, some CMs have purchased facilities and equipment previously owned by OEMs as a part of ongoing contractual commitments.
Because CMs are willing to bear the lion's share of the manufacturing investments, the OEMs' need for future investment as well as operational costs can take a dramatic decrease. The investment in manufacturing can be spread out by CMs to all of their customers. This "shared cost" enables CMs to purchase leading-edge automated equipment, which, in turn, allows them to efficiently produce cable assemblies.
For cable assembly CMs, their investments have included expanding their capabilities to handle the entire manufacturing process — from engineering design to testing to delivery. Increasingly, CMs are able to understand a cabling or connector problem and engineer a solution at a lower cost and much more quickly than OEMs.
Seemingly, minor value-added services, such as design verification, visual inspection and even including installation instructions and shipping the products in the OEMs' packaging, have helped propel CMs forward because each task represents a potential savings for OEMs in equipment, personnel and time. In addition, current knowledge of trends and the ability to incorporate new technologies such as fiber optics into the manufacture and design of cable assemblies have kept CMs as top-of-mind solution providers to OEMs.
Fiber Optics Market
As the Internet secures its place in the economy as a necessary and important tool for business and communications, and the need for broadband services continues to grow, the fiber optics market has seen a huge increase in demand. In fact, spending in the fiber optics market has tripled in the past decade from $4.1 billion in 1990 to $14.6 billion in 1999.2
Fiber optics, once only a product of OEMs, now represents a growing opportunity for CMs. Building on their successes with manufacturing traditional copper cable assemblies, many large CMs have made the move to fiber optic capabilities. This move has required a number of changes, including new equipment and expanded facilities to incorporate antistatic infrastructures designed specifically for the termination of sensitive optoelectronic devices. The expansion, along with the required significant capital investments, to fiber optics capabilities further solidifies the commitment by CMs to remain competitive business partners with OEMs.
Forecasts for the telecommunications industry, and more specifically for fiber optics, show only signs of increasing demand over the next several years. As the market grows, those OEMs that plan to grow with the market will continue to utilize their CM partners.
References
1. "1999 MultiMedia Telecommunications Market Review and Forecast," Telecommunications Industry Association and MultiMedia Telecommunications Association.
2. "2000 MultiMedia Telecommunications Market Review and Forecast," Telecommunications Industry Association and MultiMedia Telecommunications Association.
DENNIS PEOPLES is vice president, Marketing and Sales, ITG Global, a division of Insilco Technologies Inc., 2801 Slater Road, Suite 120, Morrisville, NC 27560-8437; (919) 319-5600; Fax: (919) 319-5616; Web site: www.insilcotechnologies.com.
