Solectron : From Contract

Manufacturer to Global Supply

Chain Integrator
Presented by: Group -6

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

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

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

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.

Business Ethics Conduct

uncompromising integrity

business

with

Shareholder Value Optimize business results

through continuous improvement
Social Responsibility Be an asset to the
community.

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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 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.

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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 leadtimes 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
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

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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 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 rules and regulations
& Safety procedures

QUESTION - 4
How did global expansion and technological
developments contribute to Solectrons ability to
move form a contract manufacturing supplier to
Supply chain Integrators?

 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

Elements

Benefits

22

Reduced bullwhip effect

Information
integration

Information sharing and transparency

Early problem detection
Direct and real time accessibility

Synchronised
planning

Collaborative planning forecasting and

replenishment
Joint design

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

Integrated, automated business process

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
Work flow
coordination

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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

Contd

25

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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The company organized into three business units:

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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THANK YOU