Like thrill seekers rushing the amusement park gate to ride on a towering new roller coaster, electronics manufacturing services (EMS) companies have ridden to staggering heights then careened down an unprecedented precipice of slackening demand. In 2000, the top 50 EMS companies grew at a breathtaking average pace of 68 percent, fueled by the burgeoning movement of original equipment manufacturers (OEMs) outsourcing their production lines. In 2001, when the EMS roller coaster crested its initial peak, OEMs slashed prices, cancelled orders, and wrote off billions in excess―and soon to be obsolete―inventory. The accelerating decline rattled the EMS sector like the bullwhip effect on the last car in a roller coaster. Many EMS companies knew only the heady days of growth and were not prepared for the downturn. These companies now find themselves at a critical point of inflection. They must take clear, thoughtful actions to prepare themselves to ride out the current phase of the business cycle and position themselves to grow when the roller coaster begins its climb once again. The principles that underlie the outsourced model for the manufacturing of electronic devices remain valid. The challenge is for EMS companies to structure themselves, and their relationships with OEMs and suppliers, to anticipate and work through the volatility embedded in the nature of their business.
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