Supply Chain Management at Foxconn

Introduction
• Foxconn is the recognized trade name for Hon Hai
Precision
• Third largest electronic manufacturing services
(EMS) company in the industry
• Produce cables, connectors, sockets, and
motherboards
• Has shown a 30% growth rate a year from 2000 to
2003, $2.9 to over $10 billion respectively
 Introduction
• Supply Chain Management (SCM)
• The close linkage and coordination of activities
involved in buying, making, and moving a product.
• Integrates supplier, manufacturer, distributor, and
customer logistics processes to reduce time,
redundant effort, and inventory costs.
• Network of organizations and business processes
for procuring material into finished products, and
distributing the finished product.
 Developmental History
• Established in 1974
• Based in Taipei Taiwan
• The first overseas facilities, located in
Shenzhen, in the Guangdong Province and
Kunshan, in the Jiangsu Province, were
established in 1993
 Developmental History
• 1996 started the production of PCs enclosures
• The company continued their rapid growth which
included desktop PCs, video games and other
mobile hand-held devices
• 1998 Foxconn established additional electronic
manufacturing facilities in Scotland and the
United Kingdom
• 1999 with additional EMS (electronic
manufacturing services) facilities in Ireland and
the United States
 Developmental History
• Hon Hai’s combination of manufacturing
skills, engineering capabilities, merger and
acquisitions, and low cost control has
caused the other EMS companies to lose
market share.
How Analytics and SCM Applications Fit
Together
Analytics Plan
Operational
Strategic Planning
Planning
Tactical phase

Analyze Execute

Management Transaction
information
Primary data entry
Admin Capture

SCM
 Industry analysis
• ERP - enterprise resource planning - is
defined as a business management system
that integrates all facets of the business,
including planning, manufacturing, sales,
and marketing.
 Industry analysis
• SAP is said to be the market leader in the
ERP business
• top competitors are Oracle, PeopleSoft, Siebel,
and Lawson Software
 Industry analysis
• Suppliers
• power is found to be low
• the ERP firms have a lot of vendors to work with
• can not be any switching cost because the final
product is customized to what the customer wants
• dependent however of the capacity of the systems,
as systems with higher capacity can give the ERP
solution a higher speed when processing data.
 Industry analysis
• Customers
• power is found to be medium
• they have high power
– when it comes to choosing the product
• because there are several firms providing complete
ERP solutions
• there are also several best-of-breed producers that
can provide different specialized applications
• Some customers can also develop systems
themselves.
 Industry analysis
• Customers (cont.)
• power is found to be medium
• They have low power
– Because of high switching cost
– Dependent on a system that can give
them the competitive edge, by making the
processes streamlined and connected
 Industry analysis
• Threat of new entrants
• Threat is found to be fairly low
• Due to the high switching cost for the customers
• Recent trend is to try to extend the life of the
existing system
 Industry analysis
• threat of substitutes
• are found to be low if an ERP system already are
implemented in the customer firm
• switching costs are high
• trend to search for a vendor that can offer stability
• But:
• disconnection between ERP buyers’ requirements and
vendors’ performance
– vendors promote speeds, feeds, and technology prowess,
– decision-makers want service, flexibility and practicality
 Industry analysis
• Traditional industry competitors
• competition is fierce between the major
competitors in the ERP business
• SAP is claiming the No. 1 market share spot in all
major application categories, including ERP, SCM,
SRM, CRM, and PLM, to a 36% share
– strong market lead in Europe
– ability to focus on business processes unique to specific
industries
– full commitment to openness
 Industry analysis
• Strategy for the future:
• build alliances with other software application
providers
• focus on building partnerships within their supply
chains from suppliers to customers
• extend the reach of the enterprise resource planning
system to go across the organizations to also include
collaboration with the ERP vendors’ customers’
suppliers, partners, and customers using portal
technology
 Industry analysis
•switching costs are
high •product selection is great
•trend to search for a Customers •can develop systems
Foxconn
vendor that can offer Flextronics themselves
stability Solectron •high switching cost
•disconnection between •dependent on a
buyers’ requirements and competitive
vendors’ performance Traditional functional system
Industry
Competitors
Substitutes SAP New Entrants
bob Oracle bob
Own software PeopleSoft Merged companies
Siebel
Lawson Software

•high switching
•lot of vendors
costs
•No switching Suppliers
Examples: •Recent trend to
cost Citrix extend life of
•dependent of the IBM
Intel
the existing
capacity of the
system
systems
Procurement Infrastructure Of the Future:
Assemble The Building Blocks
Supplier
Portal
M H-R
L L P Asset
Proc IT Suppliers
E E R Proc Proc.
G G Transaction
II
A A Delivery
C C Future T Network
Category
Y Y Tech- M
Solutions
1 2 nology S

Integration Broker
Sourcing
Buyer Portal Logistics
Contracts
Legacy Purchasing
Data Synchronization Engineering
Outsourcer
 Analytics: From Technology to Business Critical

“Old speak” “New speak”

Business intelligence SCM analytics
Supplier
Performance
Management
ABC Customer
reporting
profitability
Forecast
Workload analysis
accuracy
Inventory
Consolidation
effectiveness
BI/ERP Promotion analysis

Analytics empower enterprises with perspective and insight derived from

access to and analysis of quantitative information sources
 SWOT Analysis for Foxconn
•Original Electronic
Manufacturer
•Largest manufacturer of
STRENGTH connectors
•To gain Design skills •Leading producers of
•To change the culture sockets
•To strengthen the •Improved R & D
management team

FOXCONN THREATS
OPPURTUNITIES

•Many competitors: Flextronics

•Lack of design skills Solectron
•Culture is secretive Sanmina SCI
•Lack of acquisition skills Celstica etc.
•Lack of a deep management
team WEAKNESS
•Lack of proper channels of
entry
CRM, SCM, and ERP II Need a Strong PLM
Foundation to Realize Product Value

Man
a
prod ge resou
PI I uctio rc
n , fi e s a n d
ER nanc
i al s

CRM Product Data Repository

SCM
Care for Align and manage
customers supply chains

Manage Product definition

PLM and innovation
 Strengths
• Original Electronic Manufacturer.
• Largest manufacturers of connectors.
• Leading producers of Sockets.
• Well spread distribution & logistical
network worldwide.
 Strengths continued…
• Acquisitions in 2003 has helped to make
cell phones, servers & networking gears.
• Improved Research & Development.
• Started manufacturing its own brand
motherboards in 2004.
 Weaknesses
• Lack of design skills.
• Culture at Foxconn is secretive.
• Lack of acquisition skills.
• Lack of a deep management team.
• Lack of proper channels of entry.
 Opportunities
• To improve in their design skills.
• Necessary to change the culture in the
company.
• To strengthen their management team.
• Improve the methods of entry in to new
products.
 Threats
• Many competitors like Solectron,
Flextronics, Sanmina SCI, Celstica, Jabil
Circuit etc.
• The company shows no sign of changing in
terms of culture.
 ROI Measurement in the supply Chain
Sales and
Planners Logistics
Manufacturing Marketing

Customers
Suppliers
Supply Chain Applications

Performance
Measurement
Visibility and Business
Event E – Business
Process
Management Marketplace
Analysis
Effectiveness and
Trading Continuous Improvement Third Party
Partner data History
Analysis for all Data Repository
Trading partners

SC Response Supplier Forecast Inventory Cycle Delivery

Time Performance Accuracy Analysis Time Performance
 SCOR: a model for SCM
Plan

Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source
Return Return Return Return Return Return Return Return

Suppliers’ Supplier Your Company Customer Customer’s

Supplier Customer

Internal or Internal or
External External

SCOR MODEL
Building Block Approach

Processes Metrics

Best Practice Technology