Near extinction in the early 2000s, the vertical model is making a comeback.

While OEMs leave no stone unturned in pursuit of cost-cutting, the trend toward outsourcing initially saw deep splintering of once-vertical factories into distinct operations for design, board fabrication, assembly, box-build and system integration.

That trend, which peaked in the early 2000s, appears to be shifting. Led by a mix of EMS firms ranging from some of the world’s largest contractors – including Foxconn (foxconn.com), Flextronics (flextronics.com) and Sanmina-SCI (sanmina-sci.com) – as well as several smaller ones, the one-stop shop, once near extinction, is returning. And some argue it never should have left.

In a presentation at the European Supply Chain Conference last fall, Juergen Seibert, Sanmina-SCI senior director, business development, Central Europe, asserted OEMs will continue to embrace outsourcing by entrusting the right EMS partner with more design and engineering, prototyping, final system assembly and test, supply chain management and other service needs.

Driving the switch is the recognition by OEM procurement staff that it’s not the price per piece that matters so much as the total cost of ownership. Once costs like logistics, freight, taxes, overseas engineering support, and so on were tallied, it became clear that chasing labor rates in a highly automated manufacturing environment was a fool’s game. (That Wall Street has somewhat eased its demands that public companies have “China solutions” has also been a significant factor.) As a result, Mexico and developing markets such as Eastern Europe have seen a rebound in orders as programs are shifted nearer to OEMs and their end-customers.

Sanmina-SCI has gone so far as to brand its one-stop offering, calling it the Gateway concept. Under the plan, Sanmina-SCI develops local outsourcing solutions and services based on a customer’s individual requirements. As Seibert explained, the aim is to provide one local point of contact for commercial representation, technical design and engineering solutions, and at the same time leverage global network and capabilities to offer easy access to volume production in low-cost regions, if required.

With a local point of contact, the OEM benefits from commonality of language, culture and time zone. The design, engineering and technology support offered locally taps into Sanmina-SCI’s global resources to provide a tailor-made solution that can change during the product lifecycle as the customer’s requirements develop, Seibert says.

The concept is probably most beneficial, he says, to mid-sized OEMs outsourcing for the first time, and to startups looking to open up new export markets.

The Gateway offers a pithy name to an idea that is both far-flung and gaining popularity. Indeed, using a single supplier has several obvious advantages that won’t be detailed here. One subtle benefit is in product returns: Instead of the typical process, in which faulty product leads to finger-pointing (and sometimes lawsuits) between the fabricator and assembler, the OEM “knows” who is responsible.

Another is the considerable challenge of producing high-tech boards. Explains Joe O’Neill, president of Hunter Technology (hunterpcb.com), “We assemble as we fabricate” to demonstrate proof-of-concept, he says. “It doesn’t do any good to fabricate it if you can’t assemble it.” Just the difficulty getting around differences in machine software (a problem as old as the industry that yet unbelievably still persists today) is an argument in favor of the single-source factory, where problems of incompatibility don’t appear with each new program.

EMS providers following the vertical model include some of the biggest in the world. Besides the aforementioned, others include Endicott Interconnect Technologies (profiled in the January 2007 issue), Viasystems (viasystems.com) and Videoton (videoton.hu). While EI functions on a single, albeit massive campus, the latter companies are true multinationals: Hungary-based Videoton operates 10 locations in three countries, while Viasystems has 15 sites in six countries.

But the model isn’t exclusive to the big boys. Several smaller companies follow similar models in offering multiple services on a single campus, including Hunter in the Silicon Valley, One-Source (onesource-group.com) in Dallas, and Printed Circuits Corp. (pcc-i.com) outside Atlanta. One notable difference: PCC’s and Hunter’s design, fab and assembly divisions share a name, while the One-Source operations are individually branded.

Competitors are coming online all the time. Just last quarter, Design Solutions Inc. (designsolutions.com) jumped into the fray, adding assembly capability via its acquisition of Paradigm Manufacturing Partners, part of a strategy that will see design, fabrication and assembly facilities throughout Eastern Europe and North America. DSI says that, while it is not a “full-fledged EMS,” as its assembly operations provide “proof of concept” builds for its customers, “this will expand these capabilities as the company expands.”

The guess here is they won’t be alone.

Mike Buetow is editor in chief of Circuits Assembly; mbuetow@upmediagroup.com.