Information Technology (IT) products are a special type of goods in the supply chain, whose characteristics, structures, and participants are different from the other common goods of the global supply chains. The supply chain of the IT industry is often characterized by a very high degree of outsourcing and off-shoring because there are many actors and “sub” supply chains in an overall chain…
IT industry and IT industry supply chain?
The IT industry is a high-tech economic – technical industry that manufactures and supplies IT products, including: hardware products, software products and digital information.
The IT industry supply chain will include all activities involved in providing, manufacturing and delivering an IT product or a complete IT service, starting from the primary supplier to the end-customer.
Key features of IT products are scale, complexity, and fragmented manufacturing processes in global supply chains. The IT industry covers many different sectors and products (computers and peripherals, components in automotive and aerospace products). Therefore, it has very large market segmentation in consumer, business and industrial equipment.
IT products also have similar characteristics in terms of modularity, standardization and ease of exchange in the market. As Multinational Companies (MNEs) transfer designs to their suppliers, it is easier for IT products to be mass-produced. In addition, there is more flexibility and competition because product design plans and processes can be easily transferred between different suppliers and locations. Therefore, the supply chain of the IT industry often has a higher level of off shoring and outsourcing than other industries.
Participants in the supply chain of the IT industry
The supply chain of the IT industry is often characterized by a very high degree of outsourcing and off shoring. The natural starting point of the IT industry supply chain also starts with supplies and raw materials, then, the outsourcing stages and original design manufacturers. Next is the original equipment manufacturer. Finally, to branded companies, distribution channels through customers at level 1,2,3,..n, and to the end consumer.
Each industry can have many different global supply chains. Each global chain consists of many member companies participating in supplying each other. A company can simultaneously participate in many global supply chains. Participation in the global supply chain means that the enterprise becomes a member of the chain, the country in which a domestic enterprise or a foreign direct investment enterprise participates in the chain.
The main actors participating in the supply chain of the IT industry include:
CM (Contract Manufacturer) are manufacturers that specialize in outsourcing for other manufacturers whose input and design products as well as output are taken care of by the orderer. In the electronics industry, these outsourcing manufacturers are called ECM ( Electronic Contract Manufacturer).
EMS (Electronic Manufacturing Services) are manufacturers specializing in the production of electronic components to supply OEMs in the electronics industry. The top EMSs are Foxconn, Flextronics, Jabil Circuit, etc.
ODM (Original Design Manufacturer) is the design and manufacture of products to order. They design and manufacture a prototype of a product with the specific requirements of another company, then brand it with that other company and sell it. ODM designs themselves and often registers patents and intellectual property rights for their designs. They can also hire other designers to design the small details that are part of their overall design.
OEM (Original Equipment Manufacturer) means the original manufacturer of ancillary components, or the manufacturer of the final product but branded it other businesses. In supply contracts, OEMs are required by OBMs to deliver products to the ordering party exactly as required. In turn, OEMs hire ODMs to design and produce prototypes for themselves, and then hire EMS, ECM, and CM to manufacture for themselves components, accessories, and support assemblies according to prototypes.
Example: Many iPhone and iPad mobile devices from Apple Inc. have screens made by Samsung (for iPad mini), LG (for iPhone 5 and iPad 3), Foxconn (for iPhone 5S), chip manufactured by Samsung (chip A series). These components are manufactured by Apple Inc. ordered and delivered to the OEM to assemble the final product. So, in the case of networks that produce iPhones and iPads, Samsung, LG, and Foxconn are the OEMs.
OBM (Original Brand Manufacturer) are manufacturers that do not actually manufacture, they only own and develop their own brands and labels. Even the materials and design for actual production, they are not in charge, but only in the stages of brand development, marketing and sales. They order other manufacturers to produce and supply them which are sometimes called global buyers. The production networks established by these OBMs are called buyer-led production networks, or rather buyer-led trade item chains. These buyers are essentially large retailers. They buy products from manufacturers, put their brands on them, and then retail them to consumers. There is another name for these production networks, which is the footloose manufacturing network. This type of production network is commonly found in the textile-garment, leather-shoes, toys, furniture, and food industries. Examples of such firms are WalMart, Tesco, Marks and Spencer (in apparel, food). IKEA is a global buyer leading a production network of 1,300 members in 53 countries and territories in the manufacture of assembled furniture, curtains, interior lights and a number of other everyday household items.
OSM (Original Strategy Manufacturer) are manufacturers that do not actually produce, and do not own their own brands, although their names are important brands. They promote lean and flexible production, so they don’t own any factories, they don’t own warehouses or transport teams. They are the one connecting OEM, OBM or ODM.
A global supply chain is a supply chain that spans many countries and regions. The global supply chain, when viewed from a primary production perspective, can be called a global production network. And when viewed from the perspective of supply and production segments according to the value added created in each segment, it can be called a global value chain. At the top of the IT industry supply chain are ‘top businesses’ or ‘branded’. These businesses are also known as Original Equipment Manufacturers – OEM.
However, while today’s leading business becomes aware of the product. And they begin to manufacture and brand it, very few businesses manufacture the products directly. These enterprises often contract manufacturing to contract suppliers, ‘contract manufacturers’, also known as Electronic Manufacturing Services (EMS); the largest of these are today multi-billion dollar global companies (e.g. Foxconn, Flextronics, Sanmina, Jabil Circuit). Some contract manufacturers (original design manufacturers, or “ODMs”) also offer product design services in addition to manufacturing a finished product on behalf of one or more brands, notably Most notably, these products are found in Taiwan. Contract manufacturers can manufacture products themselves, but also work with large networks of subcontractors that manufacture specific parts for integration into the final product.