High Tech Industry:Supply Chain Structure
The high tech industry has the most complex supply chain structure of any industry sector. Whereas the automotive industry has a tiered and fairly logical structure, the high tech industry is very matrix structured by comparison. The industry relies on the use of many outsourced design consultancy and contract manufacturers, known as Electronics Manufacturing Service companies. To give you an idea of how prevalent contract manufacturing has become within the high tech industry, Cisco, one of the world’s leading providers of networking based solutions, does not manufacture any of their own equipment. All of Cisco’s products are manufactured by outside contractors. So you could say that Cisco has become a ‘branded integrator’, responsible for the design and marketing of their products, but the actual manufacture of their goods is handled by external EMS providers. This model is common across many high tech companies now including Apple, one of the world’s leading high tech consumer brands.
In order to try and explain how the high tech supply chain is structured, the following diagram illustrates the key players across both the supply and demand chain. On the supply side there are the fabless semiconductor manufacturers, these companies will typically design the semiconductor chips but will then outsource the manufacturing of the chips to a specialist chip manufacturer such as Global Foundries who in turn will source their materials from the raw material providers. Once the chips or other electronic components are manufactured they will be distributed to a number of strategically located distribution hubs so that they can ship the components to the EMS or contract manufacturers as and when required. Meanwhile, on the demand side of the chain, the OEMs, such as Dell, HP and Cisco, work in partnership with a number of contract manufacturers, such as Celestica, Flextronics and Jabil. These contract manufacturers will be responsible for either designing the entire product, to which the OEM would simply apply their logo or they will build a number of sub-systems that make up the final product. It is not unusual for an OEM to work with many different contract manufacturers in order to manufacture one product.
Once these products are manufactured they are shipped via specialist high tech distributors such as Avnet and Arrow to the OEM’s storage and distribution facilities before finally being forwarded to retailers or resellers. The diagram below illustrates both inventory and information flows across the high tech value chain.
Being able to exchange business documents across a relatively complex and fast moving supply and demand chain is important to the smooth running of these high tech operations. Due to the number of contract manufacturers, design partners, logistics partners and retailers, etc., that are involved across this value chain, (across geographically dispersed plants and offices), means that it is important to work with an EDI or B2B vendor that can support a complex and global value chain such as this.
