AD3/November 2014
Advanced diploma in procurement and supply
Improving the competitiveness
of supply chains
CASE STUDY
QP04
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INSTRUCTIONS FOR CANDIDATES
The pre-released case study examination is designed to assess your ability to apply the relevant theories, principles and techniques associated with the unit content to a realistic business situation.
The examination is a three hour open-book examination. The examination questions will test each of the learning outcomes from the unit content.
You will be expected to demonstrate your knowledge and understanding of relevant theoretical principles, concepts and techniques; to apply these appropriately to the particular situation described in the case study and; above all, to make sound decisions. You will not gain marks by writing a general essay on the topic. Prepared notes may not be included as part of the answer.
Please note that all work should be your own. Copying or plagiarism will not be tolerated and could result in no marks being awarded. If quotes or short extracts are used they should be attributed or the source of the information identified.
You should acquaint yourself thoroughly with the case study before the examination. You must take your copy of the case study into the examination.
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FLEXTRONICS INTERNATIONAL LTD – THE POWER BEHIND THE BRAND
Introduction
“….our mission is to make our customers more competitive”
Flextronics has grown to be a market leader in the provision of supply chain services for global organisations operating in the electronic and related industries. With facilities in over 30 countries and around 200,000 employees, Flextronics forms an integral part of the value system for some of the world’s leading brands. This case study explores the company’s development, configuration and operations.
Flextronics Inc. was founded by Joe McKenzie in Silicon Valley, USA in 1969. After an initial flotation in the US, and then a later return to private ownership, the company was floated on the stock market again in 1993, but with headquarters now in Singapore and named Flextronics International Ltd. Between 1993 and 2014 Flextronics built manufacturing and logistics capability with acquisitions and partnerships across the globe. Some of these newly acquired or formed ventures were subsequently sold as the business focus changed. (www.bksv.co.uk/doc/bo0491.pdf)
Not content with being a critical supplier, it also invested in supply chain innovation projects, such as a start-up company developing real-time supply chain tracking software. This related diversification reflects a development of the company’s intention to develop itself as the preferred supply chain services partner for global companies and brands. Flextronics serves primarily Asia, North and South America and Europe, as these are the world’s major electronics markets. It generated revenue of $23.6 billion USD in the financial year ending 31 March 2013 and a net income of $277 million USD. (http://investors.flextronics.com/annuals.cfm).
Flextronics’ scale of operations, global presence, low-cost facility location and extensive end-to-end services are the key to its success in dealing with Original Equipment Manufacturers (OEMs), which form the mainstay of its customer base. Customers, therefore, benefit from outsourcing to Flextronics to achieve lowered costs, less capital requirement during expansion, shorter time to market and global reach for a wide range of products and services.
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Customers
Table 1 shows a list of major customers for which Flextronics provided design, manufacturing, service or after-market support to in 2013.
Company
End Product
Alcatel-Lucent
Business telecommunications systems and core routers and switches
Cisco
Core routers and switches, wireless and enterprise telecommunications infrastructure
Ericsson
Radio base stations for Long Term Evolution and GSM infrastructure
Ford Motor Company
Lighting Products, Solenoids and Motion Control Electronics
Hewlett-Packard
Notebook and netbook computers, inkjet printers and storage devices
Huawei Technologies
Wireless and enterprise telecommunications infrastructure and smartphones
Lenovo
All-in-one desktop, desktop and notebook computers
Intel
[Computer] Processors
Microsoft
Computer peripherals and consumer electronics products
Apple
Mobile communication devices, notebooks and desktop computing, tablets and consumer entertainment devices
Table 1 Flextronics’ major customers:
(Derived from the Annual Report, http://investors.flextronics.com/annuals.cfm)
47% of Flextronics’ revenue comes from such leading companies, but no single customer generates more than 10% of revenue. It is a testament to its service and positioning that Flextronics has retained a number of these customers long-term, within a very competitive market. Aside from the customers noted previously, Flextronics can also boast the custom of Sony and Samsung. Flextronics captures the essence of its extensive operations in the following statement:
“We are a globally-recognized leading provider of end-to-end, global supply chain solutions through which we design, build, ship and service a complete packaged electronic product to original equipment manufacturers (OEMs).” (http://investors.flextronics.com/annuals.cfm)
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Market Sectors – Global Supply Solutions
It is important to recognise how Flextronics has gained particular expertise within market sectors. This helps it to benefit from synergy in knowledge, operations and materials. Due to the highly specialist nature of some of the products, sometimes product groups are not aligned to geographic regions. This can cause challenges in managing supply chain complexity. Flextronics describes its market groupings as follows (developed from http://fgss.flextronics.com/32/market_sectors.html):
Aerospace & Defence: This area deals with “design, manufacture, distribution and service of radar systems, flight management systems, in-flight communication & entertainment devices, flight controllers, engine controls, hand held scanners and ‘ruggedized’ (designed to be hard-wearing) computing”. The company has ‘centres of excellence’ in the Americas, Europe and Asia to serve these regions.
Computing: The company cites its provision as an ‘end-to-end supply chain services’ which deals with the market challenges of “continuous product innovation, shortened product life cycles, lower profit margins and the increased consumer demand for higher levels of customer service”.
Consumer Electronics: This sector has been seen increasing global market demand, but is very price pressured. Additionally, demand fluctuation is high, and consumer pressure is driving short product lifecycles and increasing competition.
Industrial Electronics: Industrial Electronics deals with very complex and capital intensive products. Flextronics see its strength as buying power and supply chain efficiency here.
Medical Devices: A highly regulated environment with leading brands being challenged by ‘generic’ suppliers is serviced by certified facilities, dealing with operations including refurbishment, recycling and asset recovery.
Telecommunications & Networking: Flextronics provides market access leading to new revenue streams and manages reduced supply chain costs. Its activities include repair, refurbishment and asset recovery.
These market sectors therefore represent product groups. However, the organisation has competencies that span product groups. These generic capabilities are represented with the ‘Business Groups’ arrangements, across which it attempts to maximise the synergy of the operations across the product group arrangements.
Business Groups Overview
Flextronics operates a ‘business group’ arrangement, which deals with related (through process) product portfolios, in areas such as manufacturing, procurement, logistics and IT (Information Technology). It offers specific capabilities through design, engineering and manufacturing services. This configuration allows Flextronics to make responsive and flexible decisions in response to changing market conditions. It is interesting to note how these business groups can cut right across the market sectors and deal with a broad range of products. Economies of scale for central services can be gained by this approach.
Flextronics categorises its business group products as follows (http://www.flextronics.com/business_groups/default.aspx):
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High Reliability Solutions: High Reliability Solutions covers avionics, flight and engine controls, ruggedized communications, wire harnesses for ground and air vehicles, night vision systems, security systems and surveillance. In the energy area, we support the entire market infrastructure from generation, to transmission and distribution to smart use. Within this group, we also produce automotive smart electronics, lighting and clean tech solutions. For medical applications we provide drug delivery devices, diagnostic equipment, telemedicine and disposable devices.
High Velocity Solutions: High Velocity Solutions covers consumer electronics products such as mobile phones, smartphones, portable audio devices, wearable electronics, wireless modules, home entertainment equipment, game consoles, printers, PCs, notebook computers and tablets, as well as home and business connectivity products such as set top boxes, gateways, femtocells, home automation devices and VoIP terminals. High Velocity Solutions customers range from global multinational corporations to cutting edge technology start-ups.
Integrated Network Solutions: Integrated Network Solutions covers end-to-end solutions in telecommunications, including optical networking; networking, such as enterprise infrastructure; and servers and storage space, including cloud-computing hardware. Vast portions of today’s internet run on switches, routers, optical transport gear, mobile backhaul and data centers built by Integrated Network Solutions factories around the globe. Seventeen manufacturing sites offer OEMS in the industry flexible footprint while seven design centers provide complex design capabilities such as low power cloud servers. Integrated Network Solutions’ customers span from fast growth companies to established Fortune 500 companies.
Industrial and Emerging Industries: Industrial and Emerging Industries covers appliances, capital equipment and self-service solutions, safety and security, meters and controls and printers, navigation and positioning technologies, and Flextronics Special Business Solutions (SBS). SBS is a leading manufacturing service provider that combines local business with global resources. As a gateway to leveraging vertical integration capabilities and a worldwide footprint, SBS works with OEMs within its local language, culture and time zones to increase its competitive position through a simplified supply chain. SBS specializes in manufacturing lower volume, highly diversified products for all industries. Solutions vary from complex printed circuit board assembly to simple product integration, with production capabilities of one to several thousand units – meeting configure-to-order and build-to-order requirements throughout the entire production lifecycle.
Such is the comprehensive nature of Flextronics’ operations that this allows it to design, manufacture, distribute and provide complete aftersales service, including end of life disposal. It applies this process expertise across a number of markets and products.
Company Strategy
The strategy of the company is quite complex, as it deals with multiple sectors, the utilisation of many assets and capabilities, and operates across so many regions. It also has a very large product and service portfolio. Flextronics describes its overall approach as follows:
“Our company’s goal is to empower talented employees to develop global supply chain solutions that transform industries and companies. At our core, we are a world-class global design, manufacturing and services company. Our strategy is to maintain our leadership in these core capabilities and to build on these through extended offerings in high-growth sectors.” (http://investors.flextronics.com/annuals.cfm)
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The company goes on to articulate that the approach is built around some key elements:
• Talent: hiring and retaining the world’s best talent.
• Customer-Focus: a relentless focus on delivering distinctive products and services in a cost-effective manner with fast time-to-market.
• Market-Focus: a rigorous approach to managing the portfolio of opportunities by focusing on companies and industries that value its superior capabilities in design, manufacturing and service and that are leaders in its industry. Concentration on high-growth markets. Examples include investments in clean-tech, healthcare, infrastructure, automotive, services and investments in a number of enabling components technologies.
• Global Operations Capabilities: world-class manufacturing and services capabilities, state of the art in manufacturing technology, process development and operations management, an industrial park concept, with co-location of its manufacturing, design, and service resources in low cost regions, minimising logistics, manufacturing costs and cycle times while increasing flexibility and responsiveness.
• Extended Value Propositions: investment in new capabilities and services including manufacturing process technologies that reduce cost and improve product performance.
At the root of its success, Flextronics notes a number of features that bring it competitive advantage. These include:
• Economies of scale: customers’ solutions require cost structures and capabilities that can only be achieved through size and global reach. As a leader in global procurement, Flextronics purchased approximately $21.5 billion of materials during fiscal year ended March 31, 2013. As a result it is able to use its worldwide supplier relationships to achieve advantageous pricing and supply chain flexibility.
• An extensive, integrated network of design, manufacturing and logistics facilities in the world’s major electronics markets: This network serves the outsourcing needs of both multinational and regional OEMs. This gives Flextronics the ability to increase its customers’ competitiveness by simplifying their global product development processes and delivering improved product quality and reduced time to market.
• End-to-End Solutions: Through a comprehensive range of worldwide supply chain services which allows OEMs to cost effectively design, build, distribute and service a complete packaged product.
• Extensive Design and Engineering Capabilities: From design layout, through product industrialization and product development, including the manufacture of components and complete products (such as smart phones), which are then sold by OEM customers under the OEMs’ brand names.
• Geographic, Customer and End Market Diversification. Flextronics operates in all the major industrial centres of the world. Flextronics’ customers are from a wide range of sectors and are represented in both consumer and industrial markets.
• Industrial Parks; Low-Cost Manufacturing Services: ‘’Self-contained campuses that co-locate our manufacturing and logistics operations with our suppliers at a single, low-cost location’’. This reduces logistics costs, improves communications, flexibility and reduces turnaround times. As of March 31, 2013, approximately 76% of manufacturing capacity was located in low-cost locations, such as Brazil, China, Hungary, India, Indonesia, Malaysia, Mexico, Romania, Singapore, and Ukraine.
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Supply Chain Operations
Supply chain excellence is at the heart of everything that Flextronics does and it cites some clear areas of excellence for the global supply chains that it supports. These include (http://fgss.flextronics.com/30/services.html):
• Forward logistics: Delivering the right product in the right quantity in the right condition with the right documentation in the right place at the right time and at the right price.
• Reverse logistics: Reverse logistics is one of the most overlooked elements of the complete operations cycle. We turn a liability into a competitive advantage by balancing cost and quality customer service to efficiently handle the flow of goods back from the customer.
• Logistics & VMI (Vendor Managed Inventory): Delivering products to customers quicker and with fewer touches. The detail of its operations here includes: Distribution network optimization, Warehouse management systems, inbound freight management, VMI.
• Product Fulfilment: Warehousing and distribution, product postponement, build and configure to order, flexible ERP solutions.
• Repair & Asset Recovery: Same unit repair, like unit repair, exchange fulfilment, defective parts screening, recycling and e-waste.
• Service Parts Management: Service Parts Logistics manage all of the supply chain logistics and restocking processes for reverse logistics, repair and refurbishment services. These combine with product fulfilment/distribution capabilities for fast turnaround and include materials planning, procurement and spare parts distribution.
The technical competencies displayed by the teams in Flextronics include a large range of inter-related activities, which can be configured to the needs of varying customers throughout the world. Overall Flextronics, by drawing upon a range of related competencies and synergies from its extensive operations, can deal with a vast range of contract challenges. These include low volume, but also highly complex projects, and high volume production. Within the delivery of these it incorporates:
• Lean approaches to manufacturing and supply chain management
• A philosophy of continuous improvement
• Six Sigma methodologies
• Just-in-time
• FlexQ, its own ‘quality programme’ complementary to the above and in addition to any customer driven initiatives which may be adopted.
FlexQ is a software driven system (http://www.informationweek.com/it-leadership/flextronics-app-gives-customers-peace-of-mind/d/d-id/1106152) that collects and uses data to provide process performance feedback, real-time information and product monitoring through an overall quality management system. Within the deployment of this system the principles of Lean and Six-Sigma, JIT and related continuous improvement philosophies are applied. This type of approach works with the technology driven approach of the company such as:
• Automated manufacturing resource planning systems and enhanced electronic data interchange capabilities
• Real-time visibility of material availability
• Electronic data interchange with customers and suppliers.
Whilst these general elements are selectively applied across the supply chain, one example of the depth of specialist services provided to customers is in the area of prototyping. Within the printed circuit board (PCB) business it can produce prototypes within 48 hours and develop these to production state at express rates, hence reducing time to market.
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Flextronics Global Services
Flextronics’ statement on its global services captures an overall perspective on the operation of its businesses as follows (http://fgss.flextronics.com/29/about_us.html):
Flextronics Global Services is a provider of after-market supply chain logistics services. Our comprehensive suite of services serve customers operating in the computing, consumer digital, infrastructure, industrial, mobile and medical markets. Our expansive global infrastructure consists of 25 sites and more than
12,000 employees strategically located throughout the Americas, Europe and Asia.
By linking the flow of information from the supply chains, we create supply chain efficiencies delivering value to our customers. We provide multiple logistics solutions including supplier managed inventory, inbound freight management, product postponement, build/configure to order, order fulfilment and distribution, and supply chain network design.
Reverse Logistics and Repair Services. We offer a suite of integrated reverse logistics and repair solutions that are operated on globally consistent processes, which help our customers protect its brand loyalty in the marketplace by improving turnaround times and end-customer satisfaction levels. Our objective is to maintain maximum asset value retention of our customers’ products throughout its product life cycle while simultaneously minimizing non-value repair inventory levels and handling in the supply chain. With our suite of end-to-end solutions, we can effectively manage our customers’ reverse logistics requirements while also providing critical feedback of data to its supply chain constituents and delivering continuous improvement and efficiencies for both existing and next generation products.
Our reverse logistics and repair solutions include returns management, exchange programs, complex repair, asset recovery, recycling and e-waste management. We provide repair expertise to multiple product lines such as consumer and midrange products, printers, PDAs, mobile phones, consumer medical devices, notebooks, PCs, set-top boxes, game consoles and highly complex infrastructure products. With our service parts logistics business, we manage all of the logistics and restocking processes essential to the efficient operation of repair and refurbishment services.
Flextronics has proven to be successful in dealing with global brands because it is able to configure
its activities to match the specific contractual requirements of its customers. As an example, Table 2
(on page 10) indicates how the Service Parts Logistics element could meet the varied demand of customers by varying the provision of the range of services available.
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Company A
PCs, Laptops
Company B
Consumer Electronics
Company C
Mainframes
Plan and Purchase
X
Inventory Ownership
X
X
Forward Logistics
X
Reverse Logistics
X
X
Freight Management
X
Parts Repair
X
X
Business Process Outsourcing
X
X
Errors and Omissions Handling
X
X
Business Portal Management
X
X
Compliance Testing
X
Third Party Collection and Payment
X
Table 2: Illustration of possible service configuration for differing customer groups.
Company A, for example, which may own its own global facilities network, still requires support in outsourcing some of its operations and in dealing with information flow from customers.
Company B, a consumer electronics provider, could use Flextronics to deal with after-market care and warranty work through returns and rectification.
Company C, a mainframe computer firm which primarily deals with product design and testing, and therefore has limited supply chain facilities of its own, would use Flextronics to manufacture, distribute and service the product.
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Relationships with suppliers
Any global supply chain organisation is going to put a huge reliance upon the performance of its suppliers. Flextronics leads within the supply chain and aims to drive improvement through structured projects aligned with its overall strategy and positioning. The following letter (2013) from the Chief Procurement & Supply Chain Officer indicates the intentions of the organisation and how it is challenging suppliers to develop with Flextronics. (http://www.flextronics.com/supplier/E-Commerce/default.aspx)
Letter from Flextronics’ Chief Procurement & Supply Chain Officer
Flextronics is committed to increasing our customers’ competitiveness by building faster and more cost-efficient supply chains. In this vein, we have launched a global initiative aimed at increasing supply chain visibility and collaboration with all of our partners.
Our goal is to fully automate and integrate procure-to-pay transactions: forecast, purchase orders, acknowledgements, shipment notifications and invoices. This will create a more competitive environment for our customers in areas of cost, risk and speed. Flextronics and our supplier partners will also benefit from greater responsiveness, fewer errors and greater visibility through the sharing of real-time supply chain information. To date, more than 1,500 key suppliers are fully automated.
We do understand that each of our partners have different capabilities, therefore, Flextronics offers several e-Commerce solutions, ranging from direct B2B to SaaS B2B with certified third-party service providers. To learn more about our e-Commerce solutions, please read through this section of our Web site.
We look forward to your company’s support in becoming compliant with our global e-Commerce initiative, and to the continued strengthening of our partnership as we move forward with this, and other initiatives.
Regards,
Tom Linton
Chief Procurement & Supply Chain Officer
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Geographic dispersion is significant in Flextronics’ ability to service markets and take advantage of low cost manufacture, selected expertise, reduced transportation and managed risk and flexibility for the world’s major electronics markets. Table 3 indicates the locations of its key facilities:
Americas
Europe
Asia
Brazil
Canada
Mexico
United States
Austria
Czech Republic
Germany
Hungary
Ireland
Israel
Italy
Netherlands
Poland
Romania
Russia
Sweden
Turkey
Ukraine
United Kingdom
China
India
Indonesia
Japan
Malaysia
Singapore
South Korea
Taiwan
Philippines
Table 3 Locations of Flextronics’ key facilities.
Because of the global nature of the business, employees are often multilingual and inter-culturally aware, to enable them to deal effectively with both suppliers and customers.
A key advantage area for Flextronics is the ‘industrial park’ concept, where a number of suppliers are clustered and aligned to work together with Flextronics for a complete production and service provision. Products are produced within the park and shipped sometimes directly to end consumers. These are fed by networks of regional suppliers working with lean principles.
As a supply chain leader, Flextronics sets the pace for suppliers and recognises those suppliers which perform well against its key performance indicators. The following press release is an indication of the importance that Flextronics places upon its suppliers and the scale of its network. (http://news.flextronics.com/phoenix.zhtml?c=235792&p=irol-newsArticle&ID=1946154&highlight)
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Flextronics Recognises Outstanding Contributions By Strategic Suppliers
SAN JOSE, Calif., July 9, 2014 /PRNewswire/ – Flextronics (NASDAQ: FLEX) announced the recipients of its 2014 Strategic Supplier Awards that were honoured last month. The Awards recognize outstanding performance, strategic value-add, excellent service and innovation by suppliers that exemplify what it means to be a strategic supplier at Flextronics.
Suppliers selected for the awards were nominated by employees of Flextronics in various business groups as well as Flextronics procurement professionals. Awards were given to strategic suppliers during the Flextronics Strategic Supplier Summit which was held last month at the Flextronics Customer Innovation Centre located in the heart of the Silicon Valley.
“Only 68 out of 14,000 active suppliers were selected and I am very pleased to recognize Flextronics’ strategic suppliers with this meaningful award,” said Tom Linton, chief procurement officer at Flextronics. “On behalf of Flextronics, I would like to congratulate and thank these strategic suppliers for their outstanding performance, collaboration and contributions to our success – they are well-deserving of this recognition.”
Challenges for the Company
Despite providing a unique blend of services there have been challenges for Flextronics, including:
• The reduction in outsourcing spend by customers due to the most recent global financial crisis, which has still not returned to previous levels
• Protecting Intellectual Property Rights
• Seasonality associated with consumer products because of holiday period demand
• World shortages in some electronic components
• The varied fortunes of key customers
• The continued competitiveness of the electronics industry worldwide
• Civil unrest in some parts of the world impacting on Flextronics’ facilities
• Challenging compliance standards to meet in certain areas of the business, including medical devices
• Financing the growth and development of its design services provision
• Risks and complexities from operating a global supply chain, including currency fluctuations, key customer losses, civil unrest, cultural and language barriers, changing export policies, local health conditions, shifting employment laws, economic downturns, industrial relations and changing taxation levies.
Flextronics describes itself as a ‘supply chain powerhouse’, with a global presence, state-of-the art processes and an enviable product and market portfolio.
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References:
http://fgss.flextronics.com/29/about_us.html, accessed 25.4.14.
http://fgss.flextronics.com/30/services.html, accessed 25.8.14.
http://fgss.flextronics.com/32/market_sectors.html, accessed 25.8.14.
http://investors.flextronics.com/annuals.cfm, accessed 25.8.2014 Flextronics International Ltd Annual Company Report (year ending 2013) provides a wealth of information on the configuration and strategy of the organisation, in addition to the statutory reporting requirements and financial information.
http://news.flextronics.com/phoenix.zhtml?c=235792&p=irol-newsArticle&ID=1946154&highlight=, accessed 25.8.14.
www.bksv.co.uk/doc/bo0491.pdf, accessed 25.8.2014 – Flextronics International – San Jose Mobile Phone Testing, is a mini-case which provides some useful historical context for the company.
www.flextronics.com is an extensive resource for company information, including the business groups, products, customers, geographical set-up and policies of the organisation.
www.flextronics.com/business_groups/default.aspx, accessed 2.4.14, provides an overview of the ‘business groups’ configuration of the company.
www.flextronics.com/supplier/E-Commerce/default.aspx, accessed 25.8.14.
www.informationweek.com/it-leadership/flextronics-app-gives-customers-peace-of-mind/d/d-id/1106152?, accessed 25.8.14.
END OF CASE STUDY
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