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

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?

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
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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.

Time to Market
The pace at with which a company could service the markets became a progressively competitive concern in the 1990s 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
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Question - 2
Explain how Solectrons value creation for its customers evolved over the years through expanded roles and scope of its offerings.

 Over the years, Solectrons 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
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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.
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 Business Ethics Conduct business with uncompromising integrity Shareholder Value Optimize business results through continuous improvement Social Responsibility Be an asset to the community.

Expansion of business
It 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 timeto-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.
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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.
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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
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Question - 3
Solectrons Corporate Culture and its over ridding emphasis on quality, was an essential element of its success. Explain

Solectrons Corporate culture

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

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

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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 dont 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 regulations & Safety procedures rules and

Question - 4
How did global expansion and technological developments contribute to Solectrons 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. IBMs Bordeaux and France Plants Repeatedly continued purchasing Manufacturing facility from customers

Started Producing goods for other customers adopting Risk Pooling method

Dimension
Information integration

Elements
Information sharing and transparency

Benefits
Reduced bullwhip effect Early problem detection

Direct and real time accessibility

Faster response Trust building Reduced bullwhip effect Lower cost Optimized capacity utilisation Improved service

Synchronised planning

Collaborative planning forecasting and replenishment

Joint design

Integrated, automated business process Work flow coordination

Gain in efficiency and accuracy

Fast response Coordinated productionn planning & Improved service operations, procurement, order Earlier time to market processing, engineering change & design Expanded network Better asset utilisation Virtual resources Higher efficiency Logistics restructuring New Business models Penetrate new markets Mass customization Create new products New Service

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Question 5
Comment on the new business model of acquisitions that Solectron introduced in 1992. How did the company successfully integrate these acquisitions?

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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

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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
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Question:06
How did Solectron change its organizational structure to facilitate end-to-end supply chain management?

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Solution
The company organized into three business units:
Technology Solution Global Manufacturing Global Material Services

All three supported by Global Material Services Group

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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 premanufacturing capabilities

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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

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Question - 7
Examine the drivers that led to the difficult situation Solectron faced in 2001.

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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 Solectrons 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
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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?

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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.

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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 OEMs were increasingly attracted to Solectrons 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
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Our measures
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
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