Survey Reveals Electronics Companies' Operations Not Keeping Up With Outsourced Business Model; Collaboration Maturity Model Points to Best Practice Solutions

SAN JOSE, Calif.--Nov. 17, 2005--Industry Directions, Inc. in collaboration with the Electronics Supply Chain Association (ESCA) today released findings of their groundbreaking survey, Regain Control to Manage Risk: Practices Must Catch up to Electronics Outsourced Model, at the ESCA Catalyst 2005 Winter Symposium. The study demonstrates that the outsourced business model has resulted in electronics companies losing increasing degrees of control and visibility across their extended supply chain, resulting in increased levels of risk.

Survey respondents were grouped into outsourcers (OEMs and fabless semiconductor companies) and providers (contractors, suppliers and service providers). Both groups report that as a result of the outsourced model they have suffered a serious loss of visibility over their supply chain activities. Specific examples of problems include:

• 69% of respondents have less control over at least five of their key supply chain processes since the outsourced model has taken hold; issues are most frequent with non-strategic suppliers and customers.
• 66% of providers feel their aggregate risk with customers is high or very high.
• Twice as many providers feel increased risk from uncertainty now compared to their uncertainty risk prior to the outsourced model (17% vs. 36%).
• Poor visibility jumped by 9-fold from first tier to second tier suppliers and customers in their business ecosystems (3% to 27%). Meanwhile, less than half of outsourcers report good or excellent visibility into their second tier suppliers.
• 62% of respondents describe as problematic at least two core trading partner management practices, which include performance management and simply agreeing on results.
• Only 3% of the smaller companies (under $500M) indicate they are using RosettaNet, and only 11% are using fully automated systems.

While the largest portion of respondents indicated that shared risks and objectives are the most effective form of trading partner agreements, they are the least used. In fact, outsourcers perceive increased cost from sharing risk. Some 40% of all respondents encounter resistance to sharing risk.

Collaboration Maturity Model points to best practices

Another outcome of this research is a new Collaboration Maturity Model developed by Archstone Consulting in conjunction with Industry Directions. The model indicates that few companies have reached best-in-class status in the six fundamental areas: objectives, risk management, people/culture/organization, processes, and IT/enablers, and metrics. To achieve excellence, companies must:

• Flexibly align their supply chain and business objectives
• Minimize risk across the entire business ecosystem
• Create a collaborative, inherently network-focused culture and organization
• Jointly develop concurrent business processes that handle volatility and change
• Use technology to enable concurrent interaction and consistent metrics and data.

The research was conducted in July through October by independent industry analyst firm Industry Directions by means of an online quantitative survey of 121 electronics industry participants plus qualitative telephone interviews with a group of industry leaders. Archstone Consulting assisted in the qualitative research and built the collaboration maturity model. The effort was guided by an industry council of top executives from Amkor, ConSentry Networks, Flextronics, LSI Logic, On Semiconductor and Palm.

Respondents to the survey represented every aspect of the electronics supply chain including semiconductor foundries, test and assembly, and integrated device manufacturers, fabless semiconductor companies, third party logistics companies (3PLs), distributors, component manufacturers, original design manufacturers (ODMs), electronic manufacturing services (EMS) and contract manufacturers (CMs), peripheral manufacturers, subassembly and system OEMs. They also represented a broad industry cross-section, including companies ranging from under $500M to over $2B in revenue.

The study was sponsored by Archstone Consulting (www.archstoneconsulting.com), Microsoft (MSFT) (www.microsoft.com), RiverOne (www.riverone.com) and Viacore (www.viacore.net).

About the ESCA

The Electronics Supply Chain Association (ESCA) is dedicated to promoting thought leadership, awareness and education of best practices throughout the electronics supply chain, accomplished largely in part by building a community of industry professionals at leading companies. As a significant link and resource to this dynamic industry, the ESCA plays a valuable role in facilitating information exchange and collaboration efforts within the electronics supply chain through its many educational forums, symposiums, benchmarking, progressive research, industry news and market intelligence.

About Industry Directions

Industry Directions is an industry analyst firm that conducts research on the business processes and enabling technologies used in manufacturing value networks in specific vertical industries. These industries include electronics and industries that use electronics such as automotive, aerospace and defense, consumer durables, industrial equipment, and telecommunications equipment, plus other manufactured and processed goods. Areas of focus include supply chain, business-to-business, production, lean & other improvement initiatives, enterprise management, product lifecycle management and performance management. To learn more, visit: www.industrydirections.com