Managing Uncertainty

Presenter

Caroline Dowling President Tech Services and NOVO Flex Flextronics

Change is inevitable.

Change is constant
- Benjamin Disraeli

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A Decade Looking Back

2000

Housing Boom 2000 - 2008

US boost home ownership to 70% Fed dropped discount rate to 1% S&P Case-Shiller Home Price Index grows 93% from 2000 - 2006

US GDP grows for 28 consecutive quarters 2001 2008 (17%)

Design. Build. Ship. Service.

US Market sourced from S&P500 World Market sourced from MSCI World Period: Dec 23 to Jan 05

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A Decade Looking Back

2000 2001 2003 2004

Asian Tsunami
US Market plunged (2%; $231B) East Asia GDP down World Market plunged (2%; $366B)

Design. Build. Ship. Service.

US Market sourced from S&P500 World Market sourced from MSCI World Period: Dec 23 to Jan 05

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A Decade Looking Back

2000 2001 2003 2004 2006

Digitization, Tech Convergence & Social Media Explosion

Convergence drives mobile internet device market 2/3 of Global Internet users visit social networking or blogging sites Social media companies are going mainstream, LinkedIn IPO with others to follow.

Design. Build. Ship. Service.

US Market sourced from S&P500, World Market sourced from MSCI World Period: Dec 23 to Jan 05

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A Decade Looking Back

2000 2001 2003 2004 2006 2008

Subprime Crisis
US Market plunged (28%; $3.1T) World Market plunged (29%; $7.5T) Commodity crashed US Dollar rose Unemployment soared GDP dropped

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US Market sourced from S&P500 World Market sourced from MSCI World Period: Sep 12 to Oct 10

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A Decade Looking Back

2000 2001 2003 2004 2006 2008 2010

Growth Focus of China & Emerging Markets

China becomes 2nd largest economy. BRIC drives economic growth around the world GDP Growth 2010: Brazil - 7.6%, Russia - 4.0%, India 9%, China 10+% Chinese Yuan appreciation

Design. Build. Ship. Service.

US Market sourced from S&P500 World Market sourced from MSCI World Period: Dec 23 to Jan 05

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A Decade Looking Back

2000 2001 2003 2004 2006 2008 2010 2011

Japan Earthquake/Tsunami/Nuclear Crisis

US Market plunged (3%; $352B) World Market plunged (4%; $1.2T) Japan recession

Yen hit all time high since WWII

Design. Build. Ship. Service.

US Market sourced from S&P500 World Market sourced from MSCI World Period: Mar 10 to Mar 16

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TodayChange is Accelerated

Stock Market Consumer Confidence

Exchange Rate Inventory Changes

CPI

GDP
(Coincident Indicator)

Interest Rate

Unemployment

Corporate Spending

Raw Materials Wage Inflation

Energy & Food Prices

Transportation Prices

Purchasing Managers Index

Cost of Capital
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China Cost is Escalating

Average Hourly Wages of Chinese Workers / Staff
2.50

VAT Tax Refund

Decreased VAT rebates for Low Tech e.g. Phones, PCs

USD

2.30
2.10 1.90 1.70 1.50 1.30 1.10

Increased VAT refund for High tech production products e.g. CleanTech

+ 265%

From Dec 2010 Foreign MNCs need to pay Urban Maintenance Construction Tax & Education Surcharge Amount of 12% of VAT payable.

0.90
0.70 0.50
2000 2002 2004 2006 2008 2010
Source: National Bureau of Statistics of China, Bloomberg Hourly wages calculated based on 2080 work hours per year
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Oil Prices (Brent Crude)

$20
US$ per barrel

Today

+ 585%

$137

$117

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11 11 Source: Bloomberg, US Energy Information Administration

Product Price Change requires continuous monitoring of trade-offs (Example Smart Phone)
$154
Hungary
China Malaysia

Total Landed Unit Cost

$152 Mexico $150

Indonesia

Indonesia Mexico Central Europe

Malaysia China Ukraine

$148
Source: SimFlex analyses

$146 2

4 6 8 Average Delivery Time (in days) to Customers

10

The cost parity between China and other low cost regions is closing rapidly as we look at trade-offs between costs of labor, freight, inventory, ROIC vs. Time and Risk
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Technology Landscape

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Big Data Sharing

SOCIAL

662mn USERS +41% Y/Y 550K+ apps 500MM+ downloads

253mn USERS Unique visitors +85% Y/Y

INFORMATION SHARING

1472mn USERS +8% Y/Y CQ4: CPCs +4% Q/Q Paid clicks +18% Y/Y *

SEARCH
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Lagging has consequences

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And defenders eventually lose

100
90

Expected Years in S&P 500

Many Pathologies
1. 2. 3. 4. Lack of focus too much activity

80 70
60

50
40

Blindness to disruptive technologies

Strategic-operational imbalance Competitor Shifts Big Global Consumer Shifts

30 20
10

0 1935 1955 1975 1995 2005 2011E

5.

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Your Next Step Is Critical

Growth Focus of China & Emerging Markets

Japan Earthquake/Tsunami/Nuclear Crisis

Connected Devices: 80Bn+ by 2020

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Simplify

Simplicity is the Ultimate Sophistication

- Leonardo Da Vinci

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Here is what we learned at kindergarten

Choose a few best friends Share everything Clean your room Use your imagination

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Chose a few best friendsand Share everything

Monitor Understand What If? Decide

Transparency is scary, but essential: TRUST enables SPEED

Connect the pieces Starts with Raw Component availability and ends with right product right location Assure Supply Manage a Complex Network Sync Global Distribution Manage Return & Repair Building linkage between the consumption end of product life cycle and the supply chain members Find a partner who is equipped with an integrated platform that orchestrates the entire value network Create Demand based Integrated Supply Platforms to channel feedbacks from the market in real time and made visible across the network
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Imagine the possibilities

Chaos caused by natural disasters, social un-rest and financial crisis Constantly Monitor Explosion of technology convergence at unrelated speeds,

everything now, everything quicker, faster, better - Stay Ahead

Social Media, big data collection used to drive business decisions, product selection, product sales Access the KEY Data

Evolution of end markets and how you will get your products to the
right customers, and right time Be FAST
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Source: Thomson Reuters, CEIC, Nomura Global Economics, US Government, Reuters EcoWin

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You cant expect to meet the challenges of

tomorrow with yesterdays tools

- Un-Named

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Creating Relationship Network that is

Value Chain Performance Management Value Chain Network Design

Sup p lier S1
VM I Hub (3PL/ 4PL)

Ret ailer R1
OEM Plant

Sup p lier S2

DESIGNED FOR CHANGE

Flextro
nics / OEM
Rep air Cent er CM Plant

Ret ailer R2

(3PL/ 4PL)2

Ret ailer R3 Sup p lier S3

B2 B In t e g r a t io n

& Co l l ab o r at i o n

Pl at f o r

Adaptive Supply Management

Intelligent Demand

Retail/Client Replenishment

Closed-Loop Return

Fulfillment

Management
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Right Now..
A product is leaving a shelf A shipment is stuck in customs

A supplier has 45% available upside

A promotion is driving 37% better than expected results

X 10,000

A component aftermarket is forming

What are you going to do about it?

A child is using a sharp pencil on his moms tablet

Tomorrow it will all be different

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Flextronics & Friends our FAST Platform

ACHIEVE

Velocity
Time to Market

Value
Competitive Edge

Visibility
End-to-End Transparency

HANDLE
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Volatility
Uncertainty

Variability
More Choices

Adapted from Curing Supply Chain Indigestion, Boston Consulting Group

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Whats Next

No one knows for sure The new normal is there is no normal speed and change Having a best friend with a loaded tool shed has never been more valuable As for us, we have been blessed with some great friendships ....but you can never have enough friends

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Managing Uncertainty is a given

Design for change is a must

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Thank you

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