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Outsourcing

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  • 1. 1© 2004 Superfactory™. All Rights Reserved. Outsourcing StrategiesOutsourcing Strategies Superfactory Excellence Program™Superfactory Excellence Program™ www.superfactory.comwww.superfactory.com
  • 2. 2 © 2004 Superfactory™. All Rights Reserved. Disclaimer and Approved useDisclaimer and Approved use  Disclaimer  The files in the Superfactory Excellence Program by Superfactory Ventures LLC (“Superfactory”) are intended for use in training individuals within an organization. The handouts, tools, and presentations may be customized for each application.  THE FILES AND PRESENTATIONS ARE DISTRIBUTED ON AN "AS IS" BASIS WITHOUT WARRANTIES OF ANY KIND, EITHER EXPRESSED OR IMPLIED.  Copyright  All files in the Superfactory Excellence Program have been created by Superfactory and there are no known copyright issues. Please contact Superfactory immediately if copyright issues become apparent.  Approved Use  Each copy of the Superfactory Excellence Program can be used throughout a single Customer location, such as a manufacturing plant. Multiple copies may reside on computers within that location, or on the intranet for that location. Contact Superfactory for authorization to use the Superfactory Excellence Program at multiple locations.  The presentations and files may be customized to satisfy the customer’s application.  The presentations and files, or portions or modifications thereof, may not be re-sold or re- distributed without express written permission from Superfactory.  Current contact information can be found at: www.superfactory.com
  • 3. 3 © 2004 Superfactory™. All Rights Reserved. OutlineOutline  Where in the world should productive activities be located?Where in the world should productive activities be located?  What should be the long term strategic role of foreign productionWhat should be the long term strategic role of foreign production sites?sites?  Should the firm own foreign production sites or outsource thoseShould the firm own foreign production sites or outsource those activities to independent vendors?activities to independent vendors?  How should a globally diverse supply chain be managed and what isHow should a globally diverse supply chain be managed and what is the role of the Internet in managing global logistics?the role of the Internet in managing global logistics?  Should the firm manage global logistics itself or outsource theShould the firm manage global logistics itself or outsource the management to enterprises that specialize in this activity?management to enterprises that specialize in this activity?
  • 4. 4 © 2004 Superfactory™. All Rights Reserved. Strategy, Manufacturing, and LogisticsStrategy, Manufacturing, and Logistics Focus Production Logistics Performed internationally To lower costs of value creation Add value by better serving customer needs
  • 5. 5 © 2004 Superfactory™. All Rights Reserved. Materials ManagementMaterials Management  Materials Management:Materials Management: the activity that controls thethe activity that controls the transmission of physical materials through the value chain, fromtransmission of physical materials through the value chain, from procurement through production and into distribution.procurement through production and into distribution.  Logistics:Logistics: the procurement and and physical transmission ofthe procurement and and physical transmission of material through the supply chain, from suppliers to customers.material through the supply chain, from suppliers to customers.
  • 6. 6 © 2004 Superfactory™. All Rights Reserved. Strategic ObjectivesStrategic Objectives  Lower costs.Lower costs.  Increase product quality.Increase product quality.  Total Quality Management.Total Quality Management.  Increases productivity.Increases productivity.  Lowers rework and scrap costs.Lowers rework and scrap costs.  Lowers warranty costs.Lowers warranty costs.  Accommodate demands for local responsiveness.Accommodate demands for local responsiveness.  Respond quickly to shifts in customer demand.Respond quickly to shifts in customer demand.
  • 7. 7 © 2004 Superfactory™. All Rights Reserved. Total Quality ManagementTotal Quality Management (TQM)(TQM)  The leaders:The leaders: W. Edwards Deming, Joseph Juran, and A.V.W. Edwards Deming, Joseph Juran, and A.V. FeigenbaumFeigenbaum “We have learned to live in a world of mistakes and defective products as if they were necessary to life. It is time to adopt a new philosophy in America.” W. Edwards Deming
  • 8. 8 © 2004 Superfactory™. All Rights Reserved. The Relationship Between QualityThe Relationship Between Quality and Costsand Costs Figure 16.1 Lowers Rework and Scrap Costs Increases Productivity Lowers Warranty and Rework Costs Improves Performance Reliability Lowers Service Costs Lowers Manufacturing Costs Increases Profits
  • 9. 9 © 2004 Superfactory™. All Rights Reserved. Where to ManufactureWhere to Manufacture Country Factors Technological Factors Product Factors Locating Manufacturing Facilities
  • 10. 10 © 2004 Superfactory™. All Rights Reserved. Country FactorsCountry Factors  Political economy.Political economy.  Culture.Culture.  Relative factor costs.Relative factor costs.  Global concentrations of activity.Global concentrations of activity.  Skilled labor pools.Skilled labor pools.  Supporting industries.Supporting industries.  Formal and informal trade barriers.Formal and informal trade barriers.  Transportation costs.Transportation costs.  Rules regarding FDI.Rules regarding FDI.  Exchange rate movements.Exchange rate movements.
  • 11. 11 © 2004 Superfactory™. All Rights Reserved. Technological FactorsTechnological Factors  Fixed costs.Fixed costs.  Minimum efficient scale.Minimum efficient scale.  Flexible manufacturingFlexible manufacturing  Lean Production.Lean Production.  Reduce setup times.Reduce setup times.  Increase machine utilization.Increase machine utilization.  Improve quality control.Improve quality control.  Flexible machine cells.Flexible machine cells. Product customization Mass Customization Low cost
  • 12. 12 © 2004 Superfactory™. All Rights Reserved. A Typical Unit Cost CurveA Typical Unit Cost Curve Figure 16.2 UnitCosts Volume Minimum Efficient Scale
  • 13. 13 © 2004 Superfactory™. All Rights Reserved. Product Factors and Location StrategiesProduct Factors and Location Strategies  Two product features affect location decisions:Two product features affect location decisions:  Value to weight ratio.Value to weight ratio.  Product serves universal needs.Product serves universal needs.  Two strategies for locating manufacturing facilities:Two strategies for locating manufacturing facilities:  Concentration.Concentration.  Decentralization.Decentralization.
  • 14. 14 © 2004 Superfactory™. All Rights Reserved. Product FactorsProduct Factors  Value-to-weight ratio.Value-to-weight ratio.  Influences transportation costs.Influences transportation costs.  High value-to-weight.High value-to-weight.  Electronic components.Electronic components.  Low value-to-weight.Low value-to-weight.  Bulk chemicals.Bulk chemicals.  Does the product serve universal needs?Does the product serve universal needs?  Industrial products.Industrial products.  Modern consumer products.Modern consumer products.  Handheld calculators.Handheld calculators.  Personal computers.Personal computers.
  • 15. 15 © 2004 Superfactory™. All Rights Reserved. Manufacturing LocationManufacturing Location  Factor costs have substantial impact.Factor costs have substantial impact.  Low trade barriers.Low trade barriers.  Externalities favor certain locations.Externalities favor certain locations.  Stable exchange rates.Stable exchange rates.  Minimum efficient scale is high and flexible manufacturingMinimum efficient scale is high and flexible manufacturing technologies available.technologies available.  Product’s value-to-weight ratio is high.Product’s value-to-weight ratio is high.  Product serves universal needs.Product serves universal needs.
  • 16. 16 © 2004 Superfactory™. All Rights Reserved. Manufacturing LocationManufacturing Location  Factor costs do not have substantial impact.Factor costs do not have substantial impact.  High trade barriers.High trade barriers.  Location externalities unimportant.Location externalities unimportant.  Exchange rate volatility.Exchange rate volatility.  Production technology has low fixed costs, low minimum efficientProduction technology has low fixed costs, low minimum efficient scale, flexible manufacturing technology unavailable.scale, flexible manufacturing technology unavailable.  Product has low value-to-weight ratio.Product has low value-to-weight ratio.  Product does not serve universal needs.Product does not serve universal needs.
  • 17. 17 © 2004 Superfactory™. All Rights Reserved. Location Strategy and ManufacturingLocation Strategy and Manufacturing Technological Factors Flexible manufacturing technology Available Not Available Minimum efficient scale High Low Fixed costs High Low Product Factors Serves universal needs Yes No Value-to-weight ratio High Low Country Factors Differences in factor costs Substantial Few Substantial Few Trade barriers Few Many Differences in political economyDifferences in culture Substantial Few Concentrated Decentralized Favored Manufactured Strategy Table 16.1
  • 18. 18 © 2004 Superfactory™. All Rights Reserved. Strategic Role of Foreign FactoriesStrategic Role of Foreign Factories  Initially, established where labor costs low.Initially, established where labor costs low.  Later, important centers for design and final assembly.Later, important centers for design and final assembly.  Upward migration caused by:Upward migration caused by:  Pressure to improve cost structure.Pressure to improve cost structure.  Pressure to customize product to meet customer demand.Pressure to customize product to meet customer demand.  Increasing abundance of advanced factors of production.Increasing abundance of advanced factors of production.
  • 19. 19 © 2004 Superfactory™. All Rights Reserved. Make or BuyMake or Buy Make Lower costs Proprietary Product Technology Protection Facilitating specialized investments Improved scheduling Buy Strategic flexibility Lower costs Offsets Trade-offs
  • 20. 20 © 2004 Superfactory™. All Rights Reserved. Strategic Alliances with SuppliersStrategic Alliances with Suppliers Attempting to reap benefits of vertical integration Building long-term relationships Mutually beneficial Pressure from JIT CAD CAM Trust May limit strategic flexibility Risks giving away key technology know-how
  • 21. 21 © 2004 Superfactory™. All Rights Reserved. Coordinating a Global Manufacturing SystemCoordinating a Global Manufacturing System  Materials management (includes logistics):Materials management (includes logistics):  Activities necessary to get materials from suppliers toActivities necessary to get materials from suppliers to manufacturer, to distribution system, to end user.manufacturer, to distribution system, to end user.  Achieve lowest possible cost that meets customer’s needs.Achieve lowest possible cost that meets customer’s needs.  Power of ‘Just-in-Time’:Power of ‘Just-in-Time’:  Economize on inventory holding costs.Economize on inventory holding costs.  Drawback: no buffer inventory.Drawback: no buffer inventory.
  • 22. 22 © 2004 Superfactory™. All Rights Reserved. The Role of the OrganizationThe Role of the Organization  Organizational linkages are more numerous and complex.Organizational linkages are more numerous and complex.  More difficult to control costs.More difficult to control costs.  Functionally separate materials management:Functionally separate materials management:  Equal weight with other departments.Equal weight with other departments.  Purchasing, production and distribution are one basic task:Purchasing, production and distribution are one basic task:  controlling material flow from purchase to customer.controlling material flow from purchase to customer.
  • 23. 23 © 2004 Superfactory™. All Rights Reserved. Potential Materials Management LinkagesPotential Materials Management Linkages Plant 1 Market A Source A Source B Plant 2 Market B Source C Plant 3 Market C Markets Manufacturing Locations Source Locations Far EastEuropeNorth America Figure 16.3
  • 24. 24 © 2004 Superfactory™. All Rights Reserved. Traditional Organizational StructureTraditional Organizational Structure CEO Distribution Production Planning and Control Purchasing Manufacturing Marketing Finance Figure 16.4A
  • 25. 25 © 2004 Superfactory™. All Rights Reserved. Organization Structure with Materials ManagementOrganization Structure with Materials Management as Separate Functionas Separate Function Strategic manager/CEO Production planning and control Purchasing Materials management Manufacturing Marketing Finance Distribution Figure 16.4B
  • 26. 26 © 2004 Superfactory™. All Rights Reserved. Role of Information Technology and theRole of Information Technology and the InternetInternet  Track component parts to assembly plant.Track component parts to assembly plant.  Optimize production schedulingOptimize production scheduling..  Ability to accelerate (or slow) production.Ability to accelerate (or slow) production.  Electronic data interchange coordinates flow throughElectronic data interchange coordinates flow through into/through manufacturing to customers.into/through manufacturing to customers.  Suppliers, shippers, and purchasing firms canSuppliers, shippers, and purchasing firms can communicate with each other without delay.communicate with each other without delay.  Flexibility and responsiveness.Flexibility and responsiveness.  Paperwork is decreased.Paperwork is decreased.
  • 27. 27 © 2004 Superfactory™. All Rights Reserved. IssuesIssues How do you manage an outsourcedHow do you manage an outsourced manufacturing relationship formanufacturing relationship for success?success? What are the best practices for getting off to a good start and building a solid relationship? What are the dopey things that happen? • What you do to us • What we do to you What practices and processes are essential for overcoming these challenges and keeping the relationship strong?
  • 28. 28 © 2004 Superfactory™. All Rights Reserved. Managing a Successful OutsourcedManaging a Successful Outsourced Manufacturing RelationshipManufacturing Relationship  Building the foundationBuilding the foundation  Framing the relationship and start-up planFraming the relationship and start-up plan  Managing for long-term successManaging for long-term success
  • 29. 29 © 2004 Superfactory™. All Rights Reserved. Building the FoundationBuilding the Foundation  Your objectives and needsYour objectives and needs  CM feedback—the budgetary quotationCM feedback—the budgetary quotation  Discussion and negotiationDiscussion and negotiation  ““Agreement in principle”Agreement in principle”
  • 30. 30 © 2004 Superfactory™. All Rights Reserved. Understanding your objectives and strategic intentUnderstanding your objectives and strategic intent CM’s accomplish this through an in-depth Q&A process.CM’s accomplish this through an in-depth Q&A process. Where are you now?Where are you now?  What products do you design, manufacture, source—or want to?What products do you design, manufacture, source—or want to?  Where do you plan to sell them: Now? In the future?Where do you plan to sell them: Now? In the future?  Who are your target customers?Who are your target customers? – Price metricsPrice metrics – Manufacturing locations and other factorsManufacturing locations and other factors  How established is your current supply chain?How established is your current supply chain? – Fully established?Fully established? – ““Back of a napkin”Back of a napkin”  Future supply chain plans?Future supply chain plans? ……Where do you need to be in 3 years? 5 years?Where do you need to be in 3 years? 5 years?
  • 31. 31 © 2004 Superfactory™. All Rights Reserved. PossibilitiesPossibilities • Components • Modules • Products • Electrical • Mechanical • Industrial • DFX (test, manufacturing, supply chain, etc.) • Systems • New product introduction • Prototyping • Subsystems manufacturing (e.g., PCB assembly) • System assembly • Logistics and fulfillment • Repair • End-of-life product management TECHNOLOGY DESIGN MANUFACTURING SERVICE
  • 32. 32 © 2004 Superfactory™. All Rights Reserved. Address any part of the end-end supply chainAddress any part of the end-end supply chain The ChallengeThe Challenge  Cut costCut cost  Extend product lifeExtend product life withoutwithout majormajor redesign that would necessitate FDAredesign that would necessitate FDA review…review…  ……Despite extensive use of obsolete pinDespite extensive use of obsolete pin through hole (PTH) technologythrough hole (PTH) technology Customer Outcome • Product life successfully extended • Cost reduced significantly • Increased product reliability and quality Example: PCB Redesign for Aging Medical Diagnostic Equipment The SolutionThe Solution  Revamp designRevamp design – PTHPTH  SMTSMT – Cut part count 30% (e.g., multipleCut part count 30% (e.g., multiple DRAMsDRAMs  one)one)  Improve manufacturing yields andImprove manufacturing yields and quality using this new designquality using this new design
  • 33. 33 © 2004 Superfactory™. All Rights Reserved. Budgetary QuotationBudgetary Quotation Core QuotationCore Quotation  Scope of work—our understanding of your needsScope of work—our understanding of your needs  Recommended supply chain activities…Recommended supply chain activities… TECHNOLOGY DESIGN MANUFACTURING SERVICE  ……And supply chain design recommendations—for exampleAnd supply chain design recommendations—for example manufacturing sites—consistent with your time-to-market andmanufacturing sites—consistent with your time-to-market and cost requirementscost requirements
  • 34. 34 © 2004 Superfactory™. All Rights Reserved. Budgetary QuotationBudgetary Quotation PricingPricing  Materials (selection and pricing)Materials (selection and pricing) – Your AVL?Your AVL? – CM AVL?CM AVL? – ““Supplier profiles”Supplier profiles” – VMI opportunitiesVMI opportunities – Comprehensive BOM analysis andComprehensive BOM analysis and recommendationsrecommendations  Manufacturing (assuming your standard times)Manufacturing (assuming your standard times)  ““Turns”Turns”  Orders/forecast liabilityOrders/forecast liability  Feature setsFeature sets  Nonrecurring engineering (NREs)Nonrecurring engineering (NREs) Tip: Only a sophisticated partner can make a turnkey price quote. • Capital to finance the inventory • Skill/capability to select it properly • Supply base expertise and investment (AVL) • Spend leverage • Risk
  • 35. 35 © 2004 Superfactory™. All Rights Reserved. Budgetary QuotationBudgetary Quotation includes an in-depth discussion ofincludes an in-depth discussion of the processesthe processes  Set the stage for futureSet the stage for future successful relationshipsuccessful relationship  Help flag issues that needHelp flag issues that need to be discussed togetherto be discussed together  Initiate key provenInitiate key proven processesprocesses  Define handoffs & cross-Define handoffs & cross- functional relationshipsfunctional relationships Materials Management and Procurement ECO Management Quality and Engineering Organization: Customer Focus Team Communications and Reporting • Quarterly business reviews • Reporting and meeting requirements • Customer Complaint Resolution Process (CCRP)
  • 36. 36 © 2004 Superfactory™. All Rights Reserved. Discussion and NegotiationDiscussion and Negotiation  ““Your price is too high…”Your price is too high…”  ““Where?”…the price discussionWhere?”…the price discussion – Materials (80% to 90% of total cost)Materials (80% to 90% of total cost) – LaborLabor – NRENRE – FreightFreight – OtherOther  Time—When can it be in production?Time—When can it be in production?  Gates/constraintsGates/constraints  Scope of servicesScope of services  ……Sign the Memorandum of UnderstandingSign the Memorandum of Understanding  Begin formal contract negotiationsBegin formal contract negotiations • Your material assumptions • CM AVL and our assumptions • Sources of variance BOM Review • AVL • Prices and margins (V) Reconciliation
  • 37. 37 © 2004 Superfactory™. All Rights Reserved. Framing the RelationshipFraming the Relationship  Contract developmentContract development  Operational requirementsOperational requirements  New Product Start-Up ChecklistNew Product Start-Up Checklist
  • 38. 38 © 2004 Superfactory™. All Rights Reserved. Contract DevelopmentContract Development Business DiscussionBusiness Discussion  Synthesize the Manufacturing Services AgreementSynthesize the Manufacturing Services Agreement  Incorporate “all requirements” from both parties (Legal,Incorporate “all requirements” from both parties (Legal, Operational, Account Management)Operational, Account Management)  Solidify the quotationSolidify the quotation  Ongoing price reductionsOngoing price reductions
  • 39. 39 © 2004 Superfactory™. All Rights Reserved. Contract DevelopmentContract Development OperationalOperational DiscussionDiscussion • VolumesVolumes • Final AVLFinal AVL • Schedule and timelineSchedule and timeline • ForecastsForecasts • Cycle timesCycle times • Lead times, especiallyLead times, especially long lead time partslong lead time parts • SeasonalitySeasonality • Quality expectations &Quality expectations & other metricsother metrics • Change ordersChange orders • KanbansKanbans • Semi-finished goodsSemi-finished goods • StockingStocking • What if there areWhat if there are failures?failures?
  • 40. 40 © 2004 Superfactory™. All Rights Reserved. CUSTOMER Manufacturing and Test Engineering Quality Program Manager Account Manager Service and Repair Production Control Materials Exchange ContactsExchange Contacts  Account managerAccount manager  Program managerProgram manager  Engineering (operations)Engineering (operations)  ManufacturingManufacturing  TestTest  Materials (CSCM, SBM)Materials (CSCM, SBM)  ITIT  ……Equivalent functions onEquivalent functions on your teamyour team New Product Start-Up ChecklistNew Product Start-Up Checklist
  • 41. 41 © 2004 Superfactory™. All Rights Reserved. New Product Start-Up ChecklistNew Product Start-Up Checklist Set key parametersSet key parameters  Start dateStart date  Factory qualification (e.g., QS9000)Factory qualification (e.g., QS9000)  RampRamp  VolumesVolumes  Communication channels/escalation pathsCommunication channels/escalation paths  Materials—BOM, AVL, drawings, etc.—current pipeline & EDIMaterials—BOM, AVL, drawings, etc.—current pipeline & EDI linkslinks  Transfer of fixturesTransfer of fixtures
  • 42. 42 © 2004 Superfactory™. All Rights Reserved. Managing for Long-Term SuccessManaging for Long-Term Success  The project planThe project plan  Communications and organizationCommunications and organization  Managing the key processesManaging the key processes
  • 43. 43 © 2004 Superfactory™. All Rights Reserved. Project PlanProject Plan  TimelineTimeline  Milestones and ownersMilestones and owners  Overall ramp planOverall ramp plan  Subsidiary plans, e.g.,Subsidiary plans, e.g.,  Site readiness plansSite readiness plans  Equipment plansEquipment plans  2 to 6+ months2 to 6+ months  Materials-drivenMaterials-driven
  • 44. 44 © 2004 Superfactory™. All Rights Reserved. CommunicationCommunication Weekly customer meetingsWeekly customer meetings  CM/Customer equivalent functionsCM/Customer equivalent functions – Program ManagerProgram Manager – Quality EngineerQuality Engineer – Supply Base ManagerSupply Base Manager – Manufacturing ManagerManufacturing Manager ““As needed” customer discussion of issues, changes, problems ~dailyAs needed” customer discussion of issues, changes, problems ~daily  Flag topics for weekly meetingFlag topics for weekly meeting  Program Manager tracks issues/owners/due datesProgram Manager tracks issues/owners/due dates – NewNew – CurrentCurrent – ClosedClosed Daily CM meetingsDaily CM meetings  Issues as they arise, e.g., SMT or QE issuesIssues as they arise, e.g., SMT or QE issues  Flag topics for weekly customer meetingFlag topics for weekly customer meeting Quarterly business reviewsQuarterly business reviews  90 day look back/ahead90 day look back/ahead
  • 45. 45 © 2004 Superfactory™. All Rights Reserved. Scalable and Dedicated TeamsScalable and Dedicated Teams Account Management Team A scalable Account Management Team is created to meet the needs of the account and to manage all customer projects globally Customer Focus Team (CFT) Provide cross-discipline linkage to all facets of project execution CUSTOMER Manufacturing and Test Engineering Quality Program Manager Account Manager Service and Repair Production Control Materials Account Executive NPI Program Manager Customer Supply Chain Manager Site 1 Program Manager and CFT Account Manager Site 2 Program Manager and CFT Global Program Manager
  • 46. 46 © 2004 Superfactory™. All Rights Reserved. Managing the Key ProcessesManaging the Key Processes  Planning and forecastingPlanning and forecasting  ECOs and change managementECOs and change management  QualityQuality  Ongoing price reductionOngoing price reduction  Supply chain optimization and site transfersSupply chain optimization and site transfers  Repair and post-manufacturing servicesRepair and post-manufacturing services
  • 47. 47 © 2004 Superfactory™. All Rights Reserved. Planning and ForecastingPlanning and Forecasting The Process…The Process…  Customer issues “non-binding” forecastCustomer issues “non-binding” forecast  Jointly reviewed and updated monthly, or when changes occurJointly reviewed and updated monthly, or when changes occur  Forecast drives:Forecast drives: – Materials purchasingMaterials purchasing – Capacity planningCapacity planning  Forecast is reviewed under Solectron Forecast AcceptanceForecast is reviewed under Solectron Forecast Acceptance ProcessProcess  By mutual agreement:By mutual agreement: – Assignment of liabilitiesAssignment of liabilities – Customer issues POsCustomer issues POs – CM “loads” the “accepted” forecastCM “loads” the “accepted” forecast  MRPMRP  Order partsOrder parts
  • 48. 48 © 2004 Superfactory™. All Rights Reserved. Planning and ForecastingPlanning and Forecasting ……When Changes OccurWhen Changes Occur  ExamplesExamples  Major rapid demand fluctuationsMajor rapid demand fluctuations  Materials shortagesMaterials shortages  CM proposes solutions for customer considerationCM proposes solutions for customer consideration  Switch from Supplier A to Supplier BSwitch from Supplier A to Supplier B  Substitute componentSubstitute component  Escalation if necessaryEscalation if necessary
  • 49. 49 © 2004 Superfactory™. All Rights Reserved. Engineering Change Orders (ECOs) andEngineering Change Orders (ECOs) and Change ManagementChange Management Initiating An ECOInitiating An ECO  Change requests can be originated by the customer or CM,Change requests can be originated by the customer or CM, typically at the weekly meetingtypically at the weekly meeting  Typical issues include:Typical issues include: – Product revisionProduct revision – Component feed format change [e.g., tape & reelComponent feed format change [e.g., tape & reel  tray]tray] – Supplier changeSupplier change – Replacement of part X due to low ICT yieldReplacement of part X due to low ICT yield The CM ResponseThe CM Response  CM reviews now-obsolete material on hand or on orderCM reviews now-obsolete material on hand or on order  We develop a response proposal according to the urgency ofWe develop a response proposal according to the urgency of Customer needCustomer need
  • 50. 50 © 2004 Superfactory™. All Rights Reserved. ECOs and Change ManagementECOs and Change Management Putting the ECO in PlacePutting the ECO in Place  The Customer formally authorizes the ECOThe Customer formally authorizes the ECO  CM proposes an implementation plan, includingCM proposes an implementation plan, including – New BOM and AVLNew BOM and AVL – Plan for meeting the current production schedulePlan for meeting the current production schedule  Effective date of the ECOEffective date of the ECO  Materials liabilityMaterials liability  Mitigation of inventory [supplier take back, other customers]Mitigation of inventory [supplier take back, other customers] – Alternative implementation plansAlternative implementation plans  Upon mutually agreed-on terms (slip date, cost liabilities), theUpon mutually agreed-on terms (slip date, cost liabilities), the ECO agreement is put in place and implementedECO agreement is put in place and implemented
  • 51. 51 © 2004 Superfactory™. All Rights Reserved. Quality starts long before manufacturing beginsQuality starts long before manufacturing begins  Both the Customer & CM propose quality standards andBoth the Customer & CM propose quality standards and metrics very early in the relationship—metrics very early in the relationship—beforebefore the MSAthe MSA  We negotiate these metrics & formalize them in the MSAWe negotiate these metrics & formalize them in the MSA (these vary by product, customer)(these vary by product, customer)  Report, chart and analyze quality data dailyReport, chart and analyze quality data daily
  • 52. 52 © 2004 Superfactory™. All Rights Reserved. Customer Satisfaction IndexCustomer Satisfaction Index Customer Satisfaction Index (CSI) 02/12/03 Name: XXXX ed: Operations Team January 31, 2003 mail Address: ax Number: Account Manager: 02/12/03 Location: Malaysia Plant Program Manager: Week Ending: January 31, 2003 Frequency: Weekly Bi-Weekly Monthlyx ScoreScore PercentagePercentage A A– B+ B B– C D: Unacceptable 100 95 85 80 75 0 -100 1. Quality 2. Delivery/Responsiveness CategoryCategory 3. Communication 4. Service/Flexibility 5. Technical Support X X X X X
  • 53. 53 © 2004 Superfactory™. All Rights Reserved. Fluctuations result in “corrective actions”Fluctuations result in “corrective actions” Fluctuations result in “corrective actions” using CM’sFluctuations result in “corrective actions” using CM’s Customer Corrective Action Resolution ProcessCustomer Corrective Action Resolution Process (CCRP)(CCRP) 1.1. Isolate the cause; root cause analysisIsolate the cause; root cause analysis 2.2. Recommend a fix; review with the Customer (e.g., drop aRecommend a fix; review with the Customer (e.g., drop a vendor from the AVL; train or replace an operation creatingvendor from the AVL; train or replace an operation creating errors)errors) 3.3. Issue mutually agreed on CCRP resolutionIssue mutually agreed on CCRP resolution 4.4. ImplementImplement
  • 54. 54 © 2004 Superfactory™. All Rights Reserved. Ongoing Price ReductionsOngoing Price Reductions  Frequently the MSA specifies ongoing price reductions (e.g., 8%Frequently the MSA specifies ongoing price reductions (e.g., 8% Y/Y).Y/Y).  What’s possible depends on:What’s possible depends on: – Who “owns” the BOM: for the most part, we can attack what weWho “owns” the BOM: for the most part, we can attack what we controlcontrol – Manufacturing cost saving/efficienciesManufacturing cost saving/efficiencies – Openness to site transfers (more about this later)Openness to site transfers (more about this later)  Usually “win-win” incentives are put in place to reward costUsually “win-win” incentives are put in place to reward cost reduction.reduction.
  • 55. 55 © 2004 Superfactory™. All Rights Reserved. Ongoing Price ReductionsOngoing Price Reductions  Each quarter, the CM organization seeks materials costEach quarter, the CM organization seeks materials cost reduction opportunities, such as:reduction opportunities, such as: – Alternative components (lower cost, shorter lead times,Alternative components (lower cost, shorter lead times, more flexibility, better payment terms)more flexibility, better payment terms)  Prioritize the top CR opportunities, especially “low hangingPrioritize the top CR opportunities, especially “low hanging fruit”—and recommend changesfruit”—and recommend changes BOM Today Recommended BOM  After negotiation and agreement…After negotiation and agreement… – ECO termsECO terms – Cost liabilitiesCost liabilities – Terms (e.g., inventory disposition, buy-downs)Terms (e.g., inventory disposition, buy-downs)  ……ImplementationImplementation
  • 56. 56 © 2004 Superfactory™. All Rights Reserved. Cost reduction via system redesignCost reduction via system redesign The ChallengeThe Challenge  Create a sample unit that dramatically reduces the cost and revamps theCreate a sample unit that dramatically reduces the cost and revamps the design of a high-end enterprise server…design of a high-end enterprise server… – EnclosureEnclosure – BackplaneBackplane – Fan tray, cables, and power suppliesFan tray, cables, and power supplies  ……despite incomplete CAD files, rapid turnarounddespite incomplete CAD files, rapid turnaround The SolutionThe Solution  Cost reduction via DFM, component eliminationCost reduction via DFM, component elimination  New CAD files generated through reverse engineering and 3D simulationNew CAD files generated through reverse engineering and 3D simulation  New supply chain proposed to cut lead time by manufacturing subassembliesNew supply chain proposed to cut lead time by manufacturing subassemblies in Singapore and Shanghai, with final integration and test in the USin Singapore and Shanghai, with final integration and test in the US Example: Enterprise Server Level 3 System Integration Sample
  • 57. 57 © 2004 Superfactory™. All Rights Reserved. OutcomeOutcome  Sample successfully developed with projected 25% cost reductionSample successfully developed with projected 25% cost reduction  Recreated 30 missing 3D CAD files for the customerRecreated 30 missing 3D CAD files for the customer  Completed and delivered the level 3 system sample and DFM proposal inCompleted and delivered the level 3 system sample and DFM proposal in record timerecord time  Customer commented: “This is the first time an enclosure supplier hasCustomer commented: “This is the first time an enclosure supplier has built a design of this complexity right the first time”built a design of this complexity right the first time” Cost reduction via system redesignCost reduction via system redesign Example: Enterprise Server Level 3 System Integration Sample
  • 58. 58 © 2004 Superfactory™. All Rights Reserved. Supply chain optimization and site selectionSupply chain optimization and site selection
  • 59. 59 © 2004 Superfactory™. All Rights Reserved. Site transfers represent one tool for supply chainSite transfers represent one tool for supply chain optimizationoptimization Deciding On A Site TransferDeciding On A Site Transfer  The CM account management team continuously exploresThe CM account management team continuously explores global supply chain optimization opportunitiesglobal supply chain optimization opportunities – ProactivelyProactively – In response to customer requestIn response to customer request  Site transfers represent one tool of optimizationSite transfers represent one tool of optimization – Cost reduction (both labor & materials)Cost reduction (both labor & materials) – Supply chain improvements, e.g.:Supply chain improvements, e.g.:  Proximity to component supply or end marketsProximity to component supply or end markets  Unique capabilitiesUnique capabilities  Supply changes, such as shift to a BTO/CTO modelSupply changes, such as shift to a BTO/CTO model  Tariffs or tax incentivesTariffs or tax incentives
  • 60. 60 © 2004 Superfactory™. All Rights Reserved. Site transfers represent one tool for supply chainSite transfers represent one tool for supply chain optimizationoptimization ImplementationImplementation  Use a systematic process:Use a systematic process: 1.1. Review the supply chain and ID improvement opportunitiesReview the supply chain and ID improvement opportunities (lowest landed cost model)(lowest landed cost model) 2.2. Propose changes to the customerPropose changes to the customer 3.3. Negotiate and reach formal agreementNegotiate and reach formal agreement – Cost/benefitCost/benefit – Supply chain impactSupply chain impact – All the specifics: materials, labor, freight, cost of money, time-to-delivery, etc.All the specifics: materials, labor, freight, cost of money, time-to-delivery, etc. 4.4. ImplementImplement
  • 61. 61 © 2004 Superfactory™. All Rights Reserved. Repair and post-manufacturing servicesRepair and post-manufacturing services Repair & Refurbishment ServicesRepair & Refurbishment Services  Factory warrantyFactory warranty  OEM warrantyOEM warranty  Out of warrantyOut of warranty Customer Care ServicesCustomer Care Services  Sales (pre-sales, cross-sell, up-sell)Sales (pre-sales, cross-sell, up-sell)  CRM (leads, warranty processing & management, retention/win-back,CRM (leads, warranty processing & management, retention/win-back, surveys)surveys)  Technical supportTechnical support OtherOther  Asset recovery & environmental disposalAsset recovery & environmental disposal  Inventory managementInventory management  Transportation management & warehousingTransportation management & warehousing
  • 62. 62 © 2004 Superfactory™. All Rights Reserved. Effective and integrated repair can be a powerful lever forEffective and integrated repair can be a powerful lever for quality improvement and cost reductionquality improvement and cost reduction The ChallengeThe Challenge Improve quality and cut costs, while improving the end-customer experienceImprove quality and cut costs, while improving the end-customer experience The SolutionThe Solution Repair service information management system and data warehouseRepair service information management system and data warehouse Example: Repair For Global Cellular Handset OEM • Repair process know-how and capabilities • Key people • Facilities worldwide • “Recipe” for handset repair • Risk mitigation via transparency & continuous improvement • “Script” for repair technician • Solectron Active Business Partner™-based architecture • Data warehouse • Business Objects reporting system
  • 63. 63 © 2004 Superfactory™. All Rights Reserved. Effective and integrated repair can be a powerful lever forEffective and integrated repair can be a powerful lever for quality improvement and cost reductionquality improvement and cost reduction • Component improvement • Improved design • Improved manufacturing quality; cost • Refined manufacturing process • Reduced repair cost • Reduced need for repair • Reduced part consumption TECHNOLOGY DESIGN MANUFACTURING REPAIR • Improved user experience • Industry- beating carrier reporting END-USER Customer OutcomeCustomer Outcome Major benefits in both cost and qualityMajor benefits in both cost and quality
  • 64. 64 © 2004 Superfactory™. All Rights Reserved. Managing a successful outsourced manufacturingManaging a successful outsourced manufacturing relationship starts before the contract is signedrelationship starts before the contract is signed  Building the foundationBuilding the foundation  Framing the relationship and start-up planFraming the relationship and start-up plan  Managing for long-term successManaging for long-term success