flextronics supply chain management

By: Jose Vega Rob Blakely Suresh Madhuvarsu

MGB-282 Supply Chain Management

Flextronics

http://www.flextronics.com/

1 • Flextronics Overview

2 • CM, CDM and ODM Timeline

3 • Key Case Issues

4 • Beyond the Case

Agenda


Global Supply Chain Enabler

~120,000 Employees in Asia (~90,000 in China)

~$24 Billion in Annualized Revenue

200,000+ Employees Globally; 20,000 Logistics/Services

Operating in 30 Countries; 27M Sq Ft of Capacity; 9 Industrial Parks


Service Model

Design.

• Flextronics employs over 4000 design engineers.

• Flextronics owns 364 patents

Capabilities

• Industrial Design

• System Architecture

• Mechanical Design

• Embedded System Design

• Software Systems

• Product Launch/NPI

• DFx Services

Build.

• Flextronics runs 9 industrial parks around the world focused on building the worlds leading technology products.

Capabilities

• PCB/Flex Circuits

• Optomechatronics

• LCD Displays

• Cables

• Machining

• Plastics

• Metal Fabrication

• SMT Assembly

• System Integration and Final Test

Ship.

• Flextronics is involved in doing BTO and CTO for many of the most complex technology products in the world from industry leading companies such as Cisco, HP, Huawei, Lenovo, RIM, Juniper, and many others.

Capabilities

• Build-to-Order (BTO)

• Configure-to-Order (CTO)

• Distribution and Direct Fulfillment

• Outbound Logistics and Hubbing

Service.

• Flextronics Global Services is the global repair leader for electronic products servicing 30M cell phones, 2M laptops, 9M PCBA’s, and 2M game consoles phones per year.

• Global Services’ sites dedicated to Service Parts Logistics process and ship over 12M spare parts for customers every year.

Capabilities

• Repair/ Refurbishment and Warranty Support

• Service Parts Logistics

• Remarketing

• Retail Technical Services (RTS)

• Asset Recovery

• Reverse Logistics


Europe

Tczew, Poland

East Hungary

West Hungary

Americas

Guadalajara, Mexico

Juarez, Mexico

Sorocaba, Brazil

Asia

Chennai, India

Doumen, PRC

Shanghai, PRC

Sustainable Growth – Limitless Scale, Repeatable Execution

Powerful Flextronics Differentiator

Operations revenue breakout by country:

9 Month Sales %

China $6,252,200 34%

Mexico $2,665,900 15%

U.S $2,531,400 14%

Malaysia $1,808,500 10%

Hungary $1,197,900 7%

Other $3,714,700 20%

Total $18,170,600 100%


Customers*


Products*






Agenda


• Original Electronics Manufacturer (OEM)

– “Turnkey”: they did everything

Product Design and Marketing

Manufacturing, Assembly, and

Testing

Distribution and Sales


Birth of EMS

OEMs start outsourcing to Electronics manufacturing Services (EMS) in the 80s into the 90s. Why? 1. Core Competencies (Strategic): OEMs better and

design and marketing. (better access to customer data?)

2. Economies of Scale (Economic): EMS firms could leverage their fixed assets more efficiently than the individual OEMs.

3. Broad Geographic Presence (both Strate and Econ): Reduced risks of OEMs from manufacturing in one place.


OEM • Product Design

EMS • Manufacturing,

Assembly, and Packaging

OEM •Sales and Marketing

Industry in 1980s into 90s


EMS Industry Growth in 90s

• OEM growth, especially in electronics, meant more outsourcing to EMS for their manufacturing needs

• EMS companies rapidly expanded, usually through the acquisition of underutilized OEM manufacturing plants (they don’t have economy of scale)

• Many acquisitions involved companies with significantly cheaper labor (e.g., China) – as much as 75% cheaper compared to U.S. and Western Europe


Two Segments of EMS firms

Contract Design and Manufacturing (CDM)

Product Design and Engineering

Supply Chain and Logistics

Contract Manufacturing (CM)

Manufacturing and Assembly

Packaging and Distribution?


Original Design and Manufacturing

• As EMS firms tested the CDM model and became more vertically integrated upstream, they started to infringe upon the territory of Original Design Manufacturers (ODM)

• ODMs would initiate a new design and market the finished product to OEMs.

• The model allowed ODMs to colocate design and manufacturing. The ODM already knows the design aspects of the manufacturing, so they can pass on that knowledge, which makes things more efficient. In the end you’re able to design something that you know you can manufacture efficiently and ultimately remain competitive.

• After studying the model of ODM in Taiwan, Flextronics VP notices that because notebook computers are commoditized the OEMs feel comfortable purchasing completed products from ODMs






Agenda


1997 1998 1999 2000 2001 2002

Flextronics $640 $1,335 $3,952 $6,959 $12,109 $13,104

Solectron $3,694 $6,102 $9,669 $14,137 $18,692 $12,276

Celestica $2,006 $3,249 $5,297 $9,752 $10,004 $8,271

Jabil Circuit $987 $1,484 $2,238 $3,558 $4,330 $3,545

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

Tota

l Sal

es

(Mill

ion

s $

)

Top CM Firms - Sales


1997 1998 1999 2000 2001 2002

Flextronics 1.8% 1.6% 1.3% 2.3% -3.7% -1.2%

Solectron 4.3% 4.1% 3.6% 3.5% -0.7% -25.3%

Celestica -0.3% -1.5% 1.9% 2.1% -0.4% -5.4%

Jabil Circuit 5.3% 3.8% 3.8% 4.1% 2.7% 1.0%

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

Pro

fit

Mar

gin

(%

)

Top CM Firms - Profit Margin


1998 1999 2000 2001 2002

Hon Hai 13.8% 12.8% 10.6% 8.5% 6.5%

Quanta 17.7% 12.3% 9.4% 10.6% 7.6%

Compal 13.1% 11.5% 8.0% 7.0% 6.8%

Acer 4.4% 5.7% 9.6% 1.1% 8.1%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

Pro

fit

Mar

gin

(%

)

Top ODM Firms - Profit Margin


1999 2000 2001 2002

CM 42% 39% 24% -21%

ODM 29% 23% 28% 30%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Sale

s G

row

th (

%)

Yr/Yr Sales Growth - CM vs. ODM


1998 1999 2000 2001 2002

CM 2.0% 2.6% 3.0% -0.5% -7.7%

ODM 12.2% 10.6% 9.4% 6.8% 7.3%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Pro

fit

Mar

gin

(%

)

Average Profit Margins - CM vs. ODM


$0

$10

$20

$30

$40

$50

$60

$70

$80

CM CDM ODM Revenue $80 $80 $78

Cost $75 $72 $69

Profit $5 $8 $9

$80 $80 $78 $75

$72 $69

$5 $8 $9

Cell Phone Comparison


Key Issues to consider for an ODM

Hiring and developing new people

The location of the design department

Relationship with customers


Cost & Benefits of becoming an ODM

Benefits

Aligned

Agile

Costs

Added risk






Agenda


IDC’s EMS and ODM Revenue Growth Forecast

$191

$229

$267

$280

$233

$249

$274

$301

$329

$150

$190

$230

$270

$310

$350

2005 2006 2007 2008 2009 2010 2011 2012 2013

EM

S +

OD

M R

eve

nu

es

Source: IDC, Nov 2009

US$B


Growth Potential & Market Position

FLEX Portfolio TOTAL

MARKET

FLEX RANK

FLEX MARKET SHARE

TOP CUSTOMERS

INFRASTRUCTURE $34B No. 1 31% Cisco, Huawei, Ericsson

INDUSTRIAL $25B+ No. 1 14% App Materials, Siemens, Philips

MEDICAL $8B No. 2 10%

Boston Scientific, Medtronic, Agilent, Johnson & Johnson, Smith & Nephew

ODM COMPUTING $101B No. 7 1% HP, Lenovo, Dell

MOBILE & CONSUMER $44B No. 2 19%

RIM, LG, Microsoft, Sony, Philips, Kyocera, Motorola, Sharp, Toshiba

COMPONENTS $109B N.A 2%

Apple, RIM, Motorola, Honeywell, Cisco, Huawei

SERVICES (Excluding Freight) $22B N.A 7%

Apple, Dell, Verizon, Avaya, HP, Cisco, Juniper, Toshiba, Huawei

Source: IDC, Prismark, Micro-Tech Consultants, Display Search, TSR, Blumberg Advisory, FLEX estimates


1

ODM and EMS Markets

5

2

3

4

Ethernet switches & routers

Broadband access

equipment

Servers and storage

Customer premise equipment

Set-top boxes

Optical transport equip.

Telephone switching &

PBX equipment

INFRASTRUCTURE

Capital equipment

Appliances

Smart grid

meters/controls

Automotive

Aerospace

Defense

Energy/Solar

Self service –kiosks

Consumer diagnostic

devices

Diabetes products

Drug delivery devices

Lab/Life science equipment

Imaging & Patient monitoring

Diagnostic equipment

Disposable devices for

wound management

Catheters

Instrumentation

PC Desktop All-In-One

Desktop All-In-One

Notebooks

Servers

Storage

Netbooks

Smart phones

Cellular handsets

Data cards

Embedded modules

Digital cameras

Gaming consoles

Print & Copy

Security tags

Audio & Video

equipment

Including flat panel TVs,

DMPs and audio

accessories

INDUSTRIAL

MEDICAL

COMPUTING (ODM)

MOBILE & CONSUMER


Q&A

Thank You !


flextronics supply chain management

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