SOLECTRON : FROM

CONTRACT MANUFACTURER
TO GLOBAL SUPPLY CHAIN
INTEGRATOR Presented by: Group - 8
 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?

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 Evolution of OEM Outsourcing
Requirements (1970s to 2001)
• 1. 1970s - Introduction of Contract Manufacturing: - OEMs
sought outsourcing for cost reduction and short-term capacity
needs. - Solectron provided basic assembly services, acting as an
extension of the OEM's capabilities.
• 2. 1980s - Emergence of Surface Mount Technology (SMT): -
Solectron's adoption of SMT allowed for smaller components and
increased assembly density. - OEMs benefited from Solectron's
specialized capabilities in SMT.
• 3. 1990s - Strategic Shift to Global Supply Chain Integration: -
Solectron transitioned from a contract manufacturer to a global
supply chain integrator. - OEMs began outsourcing entire
product lifecycle management, including procurement, assembly,
and logistics. - Acquisitions of manufacturing facilities from
IBM marked a shift towards long-term supply contracts.
• 4. Late 1990s to 2001 - Concentration on Core Competencies: -
OEMs increasingly focused on core competencies like research,
product definition, and marketing. - Solectron's role expanded to
cover product design, testing, and end-of-life management.

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Changes in Benefits
Derived by OEMs
The outsourcing requirements
of OEMs evolved from basic
assembly needs in the 1970s
to strategic, long-term
collaborations for complete
product lifecycle management
by the late 1990s and early
2000s. The benefits shifted
from simple cost reduction
and capacity solutions to a
holistic approach, optimizing
the entire supply chain and
allowing OEMs to concentrate
on their core strengths.
1. 1970s: - Benefits: Cost reduction and
additional short-term capacity. - Limited
scope, mainly focused on basic assembly.
2. 1980s: - Benefits: Improved assembly
density and smaller components due to
SMT. - OEMs gained from increased
efficiency and capability in product
assembly.
3. 1990s: - Benefits: Comprehensive
outsourcing, leading to reduced internal
production capabilities for OEMs. -
Solectron's global supply chain integration
provided economies of scale, reducing
costs for OEMs.
4. Late 1990s to 2001: - Benefits:
Strategic partnerships for entire product
lifecycle management. - OEMs
concentrated on core activities, relying on
Solectron for end-to-end supply chain
management.
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 Explain how Solectron’s
value creation for its
customers evolved over
the years through
expanded roles and
scope of its offerings.

Question - 2
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• Over the years, Solectron’s 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

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 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.

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Business Ethics – Conduct business with
uncompromising integrity

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
lead-times and rapid information
• Supply Chain Visibility
• Rapid access to reliable information
• Standardized processes, tools, and reports
at all nodes in the supply chain

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 Solectron’s Corporate Culture
Question and its over ridding emphasis
-3 on quality, was an essential
element of its success.
Explain
Solectron’s 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
 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

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 For Continual Improvement:

Meetings on every Tuesday,

Wednesday and Thursday

Contd….. Tuesday:- focus on internal

customer satisfaction

Wednesday:- Focus on Quality &

process improvement and
knowledge sharing

Thursday:- Customer Satisfaction

& Programe Management
 1. Seiri (Organization) :
• Distinguish things that are
needed and those don’t
• Keep needed ones and throw
Five 5 S rest
of 2. Seiton (Orderliness) :
Solectron • Put things in the right order in
designated area
• Organized according to
frequency of Use
• Place for everything
 3. Seiso (Cleanliness) :
• Problems are more visible when
everything is neat and clean
4. Seiketsu (Standardized
5S Clean Up)
• Clean Tools, equipment and job site
Contd…. 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 Solectron’s ability to
move form a contract manufacturing supplier to
Supply chain Integrators?
 Solution
• 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. IBM’s Bordeaux and France
Plants

• Repeatedly continued purchasing Manufacturing facility from customers

• Started Producing goods for other customers adopting Risk Pooling method
 Dimension Elements Benefits
Reduced bullwhip effect
Information sharing and transparency
Early problem detection
Information integration
Faster response
Direct and real time accessibility
Trust building
Collaborative planning forecasting and Reduced bullwhip effect
replenishment Lower cost
Synchronised planning
Optimized capacity utilisation
Joint design
Improved service
Integrated, automated business process Gain in efficiency and accuracy
Coordinated productionn planning & Fast response
Work flow coordination operations, procurement, order Improved service
processing, engineering change & Earlier time to market
design Expanded network
Virtual resources Better asset utilisation
Logistics restructuring Higher efficiency
New Business models
Mass customization Penetrate new markets
New Service Create new products

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 Comment on the ‘new business model’ of
acquisitions that Solectron introduced in
Question – 5 1992. How did the company successfully
integrate these acquisitions?

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 • It enabled them to concentrate on core
competencies.
• Working conditions improved- a completely
different factory.
New business • Allowed for risk pooling, as fluctuating
demands from different companies were

Model •
smoothed.
Safety stock of common components were
reduced.
• Introduced this model when it purchased
manufacturing sites from IBM

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 Contd…
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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 Solution
• The company organized into three business
units:
Technology
Solution

Global
Manufacturing

Global Material
Services

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 pre-
manufacturing 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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 Examine the drivers that led to the difficult
Question - 7 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
• Solectron’s “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
• OEM’s were increasingly attracted to Solectron’s 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

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