CHAPTER9 REMENT AND OUTSOURCING STRATEGIES 295 Solectron: From Contract Manufact
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CHAPTER9 REMENT AND OUTSOURCING STRATEGIES 295 Solectron: From Contract Manufacturer to Global Supply Chain Integrator original equipment manufacturers (OEMs), would often use these shops to supplement their own abilities, or to offload production that did not contribute to their competitive advantage, such as think we're a manufacturing company We're cables or simple printed circuit boards. In the 1970s manufacturing, but we're really a service company,and early 1980s, production was relatively low vol- -Koichi Nishimura, Solectron CEO ume, as consumer electronic products did not require extremely high production levels. ln mid-2001, Solectron Corporat issues that it had never before ion was confronting As the personal computer became a mass-markt product in the 1980s, a few contract manufacturers faced in its twenty four year history. The company was the world's pre- mier supply chain integrator, with $18.7 billion in grew rapidly, led by SCI Systems. The rise in PC use also drove related markets, such as those for printers and memory devices. In the 1990s the industry con tinued its rapid growth, driven by the development of the Internet, with its demand for networking equip- ment such as routers and servers. The exploding demand for mobile phones and other wireless annual revenue.2 Since going public in 1989, its tock had appreciated by a factor of 280 times by the ime it peaked in October 2000 mpany hard. While revenues for the first quarter of fiscal 200l (ending December 1,2000) were twice that of The economic downturn of 2001 hit the co devices, as well as other electronic tools the same quarter in the previous year, quarter-to- sonal digital assistants, also contributed to the heavy 2001, with a 27 percent decrease from Q2 to Q3. The period. Solectron grew rapidly during the 1980s and suarter revenue decreased each quarter during fiscal d demand for manufacturing capacity during this company had large amounts of excess inventory. 1990s, becoming the dominant company i Cllections suffered, and receivables jumping signif- industry by the mid-1990s cantly (Table 9-7) In 2000, the EMS industry was estimated to be By September, the stock had fallen 77 percent $103 billion, or about 13 percent of the total co from its high, and market capitalization was just of goods sold of OEM companies. The penetratior 40 percent of annual revenues (Figure 9-6). The rate was forecasted to increase to 22 percent, o company had laid off 20,000 of its 80,000 workers $231 billion by 2005, for an overall industry com ad closed facilities.4 What should they do now? pounded annual growth rate (CAGR) of 18 percent The same forecast anticipated that the top tier companies should grow at a disproportionatel high rate, averaging 25 percent per year for th five-year period.5 The industry consisted of severa large public companies, the largest of which Solectron, and included Sanmina/SCI System Flextronics, Plexus, Jabil Circuit, and Celestica THE ELECTRONICS MANUFACTURING ERVICES INDUSTRY The electronics manufacturing services industry xiS, also referred to as contract manufacturing) ew out of a large number of small job shops that EMS eufactured assemblies for clients, The clients, and hundreds of smaller companies, most of who were privately held CEO of the Year Koichi Nishimura. Contract rn Visionary," Electromic Business. December 1999. Source: Research Associate David Hoyt prepared this case under t 0, before the terrorist attacks of September I1 that supervision of Professor Hau Lee as the basis for class discussion rnad than to illustrate either effective or ineffective handling of an adminise he fiscal year ended August 31, 2001 ber lExplanation / Answer
1. Solectron’s value to its customers has significantly evolved over time. The company started as an electronic manufacturing company and then gradually it increased its size as well as scope of services. It now has grown into a supply chain integrator. The company was the first company to win the Baldrige National Quality Award. It also developed the surface mount technology – SMT.
2. Global expansion enables Solectron to pool its risks more effectively. The company now holds less safety stocks in its central warehouses. Global expansion also enabled the company to reduce the bullwhip effect as suppliers now deal directly with Solectron.
3. The company has been able to successfully integrate its acquisitions by buying into customers facilities, putting into place business integration teams, developing a detailed integration plan along with an integration checklist.
4. The culture of the company had a positive impact on its success. The emphasis was always on its core values and this led to improved customers service and efficiency. During the downturn of 2001 the company’s core values and beliefs helped it sustain the downturn and the company took steps like reducing its workforce and developing self-directed work teams.
5. In the future the company should provide additional products and services like solutions in the solar energy space, components that have a very high standard of quality and improved logistics.
6. In the short term the company should invest more in research and development. This will help it take advantage of the changes that will take place in the future. In the long term should look at successful diversification and growth opportunities and can even pursue getting into joint ventures.