Solectron : From Contract Manufacturer to Global Supply

Chain Integrator

Presented by: Group - 3

Jay Prakash Gopal

Jyoti Ashish

Jyoti Chetna

Kumar Shashwat

Kumari Rashmi

Mayur Khandelia

2

Question – 1

Explain how the outsourcing requirements of OEMs evolve during the time period from 1970s to 2001. Did the benefits they derived from outsourcing also change during the same period?

3

Outsourcing requirement of OEM

• In 1970 and early 80s, relatively low volume production.

• As personal computer became a mass – market product in late 1980s and 90s, there was rapid growth in few contract manufacture.

• Solectron allows the OEM to concentrate on their core competencies and gain benefits, which are shortened time-to-market, cost savings through the economies of scale and access to important new technologies

4

Derived benefits

• Yes, benefits derived from outsourcing also change between 70s to 2001.

• Outsourcing made OEMs to allocate their resources on core competencies such as research & development and marketing. These three benefits were time-to-market, economics and technology.

5

Time to Market –– The pace at with which a company could service the markets

became a progressively competitive concern in the 1990’s– OEMs could increase the time to market for their products while

working with EMS company

Economics –– Asset utilization was better in case of EMS companies as they

could use the same asset to multiple companies – thus saving the cost

Technology – – OEMs used to get exposed to latest technologies, and could

access the same, thus, saving high costs on startup and production, due to outsourcing

6

Question - 2

Explain how Solectron’s value creation for its customers evolved over the years through expanded roles and scope of its offerings.

7

• Over the years, Solectron’s value to its customers has evolved drastically from a player in the Electronics Manufacturing Service industry to a Supply Chain integrator

• Its customers are major firms like IBM, HP, Sony, Ericsson, Cisco etc.

• Solectron manufactured a wide range of products for its customers in many business segments like Networking, Telecommunications, Computers, Computer peripherals, avionics, consumer electronics, GPS etc.

• It provided high quality electronics manufacturing services

• It concentrated on quality and supreme company culture to strengthen its offerings

8

Solectron beliefs• Customer First-strengthen customer partnerships by

providing products and services of the greatest value through innovation and excellence.

• Respect for the Individual-emphasize associate dignity, equality and individual growth.

• Quality-execute with excellence; drive to six-sigma capability in all key processes; exceed customer expectations.

• Supplier Partnerships-emphasize communication, training, measurement and recognition.

9

• Business Ethics – Conduct business with uncompromising integrity

• Shareholder Value – Optimize business results through continuous improvement

• Social Responsibility – Be an asset to the

community.

10

Expansion of businessIt expanded its services and by the end of 90s it had three strategic business units:• Technology Solutions – Which provided technology

building blocks which helped customers minimize time-to-market for new products

• Global Manufacturing – Which provided design, new product introduction, and manufacturing and distribution services

• Global Services – Which provided repair, upgrade, maintenance etc.

11

Value creation

• It concentrated on offering high quality, responsiveness, communication, service and technical support.

• The main objective was to achieve customer satisfaction by providing high quality. 

• Highest possible service• The ability to reliably meet variable end-market

demand• The ability to capture upsides and accommodate

downsides at lowest possible cost.

12

Contd…

• Faster, more predictable and measurable performance• Continuous Cost and Risk Reduction• Lowest total cost of ownership through optimized

supply chain networks• Continuous improvements through shorter lead-times

and rapid information• Supply Chain Visibility• Rapid access to reliable information• Standardized processes, tools, and reports at all nodes

in the supply chain

Question - 3

Solectron’s Corporate Culture and its over ridding emphasis on quality, was an essential element of its success. Explain

• Focus on highest quality standards and fast delivery– Achieve six sigma in all key processes– Execute with excellence– Exceed customer expectations– Malcom Baldrige National Quality Award-1991 and 97– Superior Customer Service

• Customer first• Respect for individuals• Supplier partnership• Business Ethics• Shareholder Value• Social responsibility

Solectron’s Corporate culture

15

Continued• Rapid Feedback System and Customer

Satisfaction measure process• Weekly P & L statement analysis for each

production line• Highly diverse group of employees called

“associates”• Benchmarked Baldrige Award for continuous

improvement• In 1991 & 1997 won repeatedly the Baldrige

award

Contd…..

• For Continual Improvement:• Meetings on every Tuesday, Wednesday and

Thursday• Tuesday:- focus on internal customer

satisfaction• Wednesday:- Focus on Quality & process

improvement and knowledge sharing• Thursday:- Customer Satisfaction & Programe

Management

Five 5 S of Solectron

• 1. Seiri (Organization) :• Distinguish things that are needed and those don’t• Keep needed ones and throw rest

• 2. Seiton (Orderliness) : • Put things in the right order in designated area• Organized according to frequency of Use• Place for everything

5 S Contd….• 3. Seiso (Cleanliness) :

• Problems are more visible when everything is neat and clean

• 4. Seiketsu (Standardized Clean Up)• Clean Tools, equipment and job site quickly after use• Equipment that are kept clean runs faster

• 5. Shitsuke (Discipline) :• Follow standard procedures company rules and

regulations & Safety procedures

Question - 4

How did global expansion and technological developments contribute to Solectron’s ability to move form a contract manufacturing supplier to Supply chain Integrators?

Solution• Size and scope of the Business Increased• Got Negotiation power • Technological Developments – Surface Mount Technology (SMT)– Pit to Hole (PTH)

• New Business model was developed • Strategically acquire facilities near OEM

customers and high potential markets• Provide logistical support worldwide

Continued….

• Acquisition of various manufacturing Sites e.g. IBM’s Bordeaux and France Plants

• Repeatedly continued purchasing Manufacturing facility from customers

• Started Producing goods for other customers adopting Risk Pooling method

22

Dimension Elements Benefits

Information integration

Information sharing and transparencyReduced bullwhip effect

Early problem detection

Direct and real time accessibilityFaster responseTrust building

Synchronised planning

Collaborative planning forecasting and replenishment

Reduced bullwhip effect

Lower cost

Joint designOptimized capacity utilisation

Improved service

Work flow coordination

Integrated, automated business processGain in efficiency and accuracy

Coordinated productionn planning & operations, procurement, order processing, engineering change & design

Fast responseImproved serviceEarlier time to marketExpanded network

New Business models

Virtual resources Better asset utilisationLogistics restructuring Higher efficiencyMass customization Penetrate new marketsNew Service Create new products

23

Question – 5

Comment on the ‘new business model’ of acquisitions that Solectron introduced in 1992. How did the company successfully integrate these acquisitions?

24

New business Model

• It enabled them to concentrate on core competencies.• Working conditions improved- a completely different

factory.• Allowed for risk pooling, as fluctuating demands from

different companies were smoothed.• Safety stock of common components were reduced.• Introduced this model when it purchased

manufacturing sites from IBM

25

Contd…Company integrated these acquisitions by:– Increasing close relationship between OEM and their

suppliers– Moving production of high volume predictable products

to low cost regions– Facilities close to customers and emerging markets.– Used information system to improve its operation and

optimize supply chain.– Web enabled extranet – Enterprise resource planning system.– Acquired manufacturing facilities from customers and

used them to fulfill long term supply contracts

26

Question:06

How did Solectron change its organizational structure to facilitate end-to-end supply chain management?

27

Solution• The company organized into three business

units:

Technology Solution

Global Manufacturing

Global Material Services

All three supported by “Global Material Services Group”

28

Contd…

• Technology solution– modular and embedded systems design– manufacturing system offering:• Memory and I/O products• Embedded boards and systems

• Global manufacturing– new product introduction service and pre-

manufacturing capabilities

29

Contd…

• Global Services – Offered product repair, upgrades and maintenance

service centres worldwide– offered services such as warehousing, logistics,

returns management, engineering change management and end-of-life management

30

Question - 7

Examine the drivers that led to the difficult situation Solectron faced in 2001.

31

The drivers were:• Economy meltdown– Falling demand during late 2000 & early 2001, especially from

important customers like telecommunications – Orders fell from $6.5 billion to $2.1 billion during December 1,

2000 to June 1, 2001

• Wrong forecast– Estimation far more than even the most optimistic scenario– Pressure from OEMs to meet production demand– Solectron’s “Consumer First” belief worsened the situation

further

• Increase in inventory levels– Orders from 4000 suppliers of Solectron– Large inventory supply was not able to control, rose by $1 billion

32

Question - 8

Comment on the short term and long term measures that the company took during the business downturn of 2001. What measures would you have taken in the same situation?

33

Short term measures– Restructuring–Workforce reductions and facility closures– New cost structure, more efficient organizational

designs and improved customer relationship management.• SMT lines cut from 1,100 to less than 700• Reduction in floor space from 14 million to less than 11

million sq. ft.

– Two facilities acquired in Hungary and Mexico were closed and production moved to other plants.

34

Long term measures– Use of outsourcing as an OEM strategy continued to accelerate– Economic and industrial climate favored the concentration of

small number of large suppliers of services in OEM– OEM’s were increasingly attracted to Solectron’s value

proposition as a global supply chain integrator– Quality and customer satisfaction have been key factors in the

success of the company. That would give excellent qualifications to focus the business more to the service side and grow revenue of global services in longer term

– Also Solectron expected dramatic growth in the Asia (excluding Japan)

– It also expected that pent-up demand, combined with rapidly developing disposable income, would lead to large markets in central and eastern Europe

35

The measures that we would have taken:• First of all, we would critically analyse the costs and

other figures, e.g. cost of sales seems to be very high. • Second, combine facilities by geographical location or

business function,• When combining the facilities, one has to pay attention

to the balance of global presence and proximity to the customers and resources.

• Reduce the basic pay of the employees– Identify and adopt best known practices that can lead to

superior performance– Rehiring and training cost will cost to the company high

Our measures

36