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Perspectives

The Internet of Things in Contract Manufacturing: Impact and Applications (Part 2)

2015-11-25


Original design manufacturers and electronic manufacturing services vendors need to transform their operations and maintenance mechanisms to meet the changing needs of the IoT.

Original design manufacturers and electronic manufacturing services vendors need to transform their operations and maintenance mechanisms to meet the changing needs of the IoT.


The Internet of Things (IoT) is slowly yet steadily transforming businesses worldwide. Given its core IP, it comes as no surprise that the high-tech space is on the cusp of major change. Across the industry, the IoT is creating opportunities for new models, channels and ways of delivering adjacent services to end customers, meeting users’ evolving needs for more personalized products. To take advantage of the proliferating IoT, high-technology vendors must first define pertinent business cases that not only anticipate customer requirements but also enable them to outmaneuver the competition. 

Here is how contract manufacturers can leverage the IoT to increase sales and improve operations.

Overhauling the Operating Model

Traditionally, original design manufacturers (ODMs) and electronic manufacturing services (EMS) vendors have manufactured high-tech products in low-cost geographies and shipped finished goods to customers across the globe. This operating model, though efficient for long-established product categories such as desktop computers and servers, has led to increased price competition with low-cost, second-tier Asian manufacturers and reduced industry profitability. 

However, with the advent of the IoT, contract manufacturers must adjust their client/product base as IoT devices have a much shorter life span, require personalization and respond to demand that is often difficult to pinpoint.

To address this supply chain challenge, ODM and EMS companies can move production closer to demand. This trend, known as near-shoring, involves splitting the production process and moving the last step of product integration and packaging to locations such as Mexico (for the U.S.) and Eastern Europe (for Western Europe). Near-shoring also optimizes last-mile customization, for instance, enabling IoT devices such as wearables to be customized to users’ tastes and preferences. This helps contract manufacturers create a differentiated offering (from second-tier vendors), tailored to customer demand, and improve long-term profitability. 

Proactive Maintenance 

Surface mount technology (SMT) production lines and wave solder machines are a major capital expenditure for high-tech manufacturers, such as EMS, ODM and OEM companies. A single fault in one machine in an SMT production line can cause significant production delays and repair expenditures. Traditional preventive maintenance approaches are inefficient in predicting and averting breakdowns, as they do not properly account for the progressive degradation of the production asset. 

IoT-driven predictive maintenance uses sensors placed in different parts of the machine to provide continuous visibility into the machine and its operating conditions (Figure 1). 

Figure 1

This data can be analyzed in real time and alarms can be triggered whenever the data falls outside standard operating limits, indicating that the machine needs maintenance. Moreover, the sensor data can be distilled using predictive analytics tools to suggest a more appropriate maintenance schedule that maps with the anticipated deterioration of the machine. Over the long term, companies can align their repair resources – human, cash and spares – to be in sync with the manufacturing footprint and increase throughput by reducing downtime.

Looking Ahead

The changes that the IoT brings to the world of high-technology would require contract manufacturers to rethink their operations strategy, as the current model of competing on price by offshoring becomes untenable. Moreover, to remain viable, manufacturers must be able to perform predictive maintenance while also taking preventive measures to mitigate the need for maintenance intervention.

This is part two of a four-part series on the impact of IoT in the high-tech industry. Read more about the impact and applications of IoT in the semiconductor, product distribution and OEM space in the other installments of this series. For more on the impact of IoT in high-tech industry, please read our whitepaper The Internet of Things: Impact and Applications in the High-Tech Industry. Visit Cognizant Digital Works and the IoT section of our website for more.  

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The Internet of Things in Contract Manufacturing: Impact and Applications (Part 2)