Running Head: PHUNPHONES
1
PhunPhones Supply Chain
Alan Campbell
Bellevue University
PHUNPHONES
2
Abstract
This is an overview of a Supply Chain Strategy for PhunPhones- a fictional mobile phone
company.
Keywords: Supply chain umbrella, PhunPhones
PHUNPHONES
3
PhunPhones Supply Chain
The mobile phone industry is very dynamic. It seems that new technologies are brought
to the market almost every other day. In order to keep up with the latest trends in technology, and
consumer deman- PhunPhones Supply Chain should be diversified, somewhat local, flexible, and
resilient.
The Supply Chain Umbrella
The following material is a general description of PhunPhone's Supply Chain. A process
map of the supply chain can be found in the appendix, after the reference section. Due to the
large geographic area of PhunPhone's suppliers and consumers, it has been determined that two
production facilities would be of benefit. Therefore, we will place one production facility in the
United States, and one in China.
Supplier's Supplier
For the US production facility, the supplier to our supplier will be Ravaging Mine
Company of Canada, and Mexican Mine Works- of Mexico. These mine companies were chosen
because of their ability to consistently, and cheaply, produce silver and nickel- two important raw
materials in mobile phone production. The Secret Life of Things (2014) writes:
the majority of the world's silver comes from acanthite mined in Mexico, Bolivia and
Honduras, and stephanite, which is mined in Canada. Coal and oil contain considerable
amounts of nickel as organic matter absorbs the metal. It is mined in Russia, Australia,
New Caledonia, Cuba, Canada and South Africa. It is estimated that this metal can be
extracted for roughly 150 more years before resources are exhausted (p. 1)
These mines were chosen for their relative proximity to the US supplier- Magic Materials.
Mexican Mine works is located in Northwestern Mexico, while Ravaging Mine Company is
PHUNPHONES
4
located in the province of British Columbia. Magic Materials, our US supplier is located in
Bismarck, ND. Materials will be transported via train in most instances. In cases where we need
materials immediately, and the train schedule will not accommodate us, we will ship by semithough the costs will be greater.
Plans are currently in the works to supplement our raw materials suppliers, with suppliers
in the United States. We are also looking to add additional supplier's suppliers in Canada and
Mexico, in case our current partners are unable to meet demand.
The suppliers to our Chineese supplier, Kung Fu Fibers, come from 4 countries: France,
Australia, Germany, and China. In actuality, over 80% of our raw materials will come from
China. We maintain a relationship with the other suppliers for certain specialty materials- and for
a backup plan. The fact remains though, that China is the place to go for mobile phone materials.
Kate Rockwood (2010) writes:
The world's No. 1 metals consumer holds more than half of the known global reserves of
9 of the 14 most critical raw materials. Thank it for your buzzing cell phone: China is the
top producer of tungsten, which makes cell phones vibrate. Despite soaring international
demand, it maintains strict export restraints; this past summer, it imposed new limits on
output of minerals. The U.S. and EU cried foul, calling on the WTO to rule on the
legality of such export restraints. Chinese Ministry of Commerce director general He
Ning defends the restrictions necessary "to protect our environment and preserve the
minerals for future generations. (p. 1)
The aforementioned export restraints are the primary reason we will maintain a primary supplier,
and manufacturer within Chinese borders.
PHUNPHONES
5
Supplier
We have chosen Magic Materials, located in Bismarck, SD, because they were the best fit
in terms of consistency, proximity, and price. We found cheaper suppliers in Mexico, but none
were as reliable, or as quick as Magic Materials.
Due to the fact that our industry requires rapid response- in order to keep up with
emerging technologies, and shifting demands- we needed a supplier that was located close to our
supplier's suppliers, as well as our US manufacturer- who is located in Fargo, ND.
More importantly though, we needed a supplier who had a reputation for reliability.
Magic Materials edged out other, cheaper suppliers- because they were a company we could
count on. It is highly recommended that we acquire at least one alternative/contingency supplier,
to account for unforeseen events and supply chain disruptions.
For example, in 2000, a fire broke out at a major supplier for the companies Nokia, and
Ericcson- respectively. The fire damaged millions of microchips, and delayed shipments to
Nokia and Ericcson by several weeks. Nokia was prepared; Ericcson was not. Jimmy Alyea
(2012) writes:
Ericsson bore the brunt of the disruption because it did not have alternative suppliers, and
it did not proactively manage supply chain risk. Ericsson subsequently signed on
secondary suppliers for key parts and now has a completely different supply chain risk
management system in place. Nokia demonstrated a classic textbook solution to the
supply chain disruption, not only surviving but also emerging in a much stronger market
position than before the fire. (p. 1)
We should strive to emulate Nokia's preparedness and success in the face of adversity.
This means that we will have to search for alternative suppliers in China as well. Our
PHUNPHONES
6
current supplier- Kung Fu Fibers- has proven to be competitively priced, quick, and reliable. But,
we never know what the future may hold. Kung Fu Fibers is five times the size of Magic
Materials, and makes the product 25% cheaper. For this reason, Kung Fu Fibers is viable
alternative as a back-up source for our US manufacturer- in case of emergencies. The major
downside to this alternative is shipping wait times, shipping charges, export taxes, and export
restrictions.
Kung Fu Fibers delivers their product to PhunPhones China via semi trucks. The trip is
240 miles, and can be completed in less than 5 hours. PhunPhones China sells twice as many
mobile devices than PhunPhones US, but the profit margin is 10% lower- because the phones sell
for less in the international marketplace- due to unfulfilled brand equity potential, and stiffer
competition.
Manufacturer
Phunphones US is located in Fargo, ND. We felt that a domestic manufacturer was the
best fit for our North American customers. This would give us adequate lead time to adjust to
novel trends. Suzanne de Treville (2010) writes of the importance of flexible timing- in regards
to the Swiss compnay FlexCell:
Flexcell’s CEO, Alexandre Closset, made a successful case for the Swiss location by
claiming two key advantages of domestic manufacturing: flexibility in timing production
commitments and the ability to directly manage problems. To do so, he had to look
beyond the traditional DCF model.
Closset decided to treat flexible timing as a postponement option: If the plant were
in Switzerland, he could delay production commitments and investments for several
months, during which he could gather critical information about demand. This decision
PHUNPHONES
7
allowed him to use the real options valuation framework, which in turn let him put a
dollar figure on flexibility. The real options framework also let him put a dollar figure on
the ability to manage production problems directly rather than from afar. (p. 1)
Similarly, our domestic production facility will allow us to assess demand, before we finalize
production commitments. The dollar value of an accurate forecast offsets, and sometimes
exceeds, any potential savings gained by international production (with cheaper overhead). For
example, if we had a production facility in Taiwan, that sold to our North American customersthey would be less responsive to change- and less resilient to market disruptions. Having a
production facility on our home turf allows us to manage change more efficiently, and reduces
transit time by several weeks. In the cellphone market, several weeks can mean several millions
of dollars.
PhunPhones US distributes to retailers in North American, and also ships directly to
customers in North America. Customers that order our phones through websites like
Walmart.com and Bestbuy.com will receive their shipment directly from our manufacturer- and
the online retailers will receive a commission on sales. All North American returns and repairs
will be shipped directly to our Fargo manufacturing plant.
PhunPhones China will ship product via roadway, railway, ship, and airplane to only a
select few retailers- in order to elevate brand awareness. The majority of our sales will be online,
and ship directly from the production facility. This will help us save on retailer mark-ups, and
sell our product cheaper than our competitors. A well known Asian startup, Xiaomi, is using a
similar srategy to outsell Apple in China. Steven Millward (2014) writes:
Xiaomi plans to sell 60 million smartphones this year. What’s Xiaomi’s secret? Its
smartphones sell for about half the price of Samsung’s and HTC’s flagship phones, yet
PHUNPHONES
8
the strength and versatility of its Android skin (called MIUI) makes them feel like topquality products. Xiaomi keeps costs low by selling 70 percent of its phones online, and
the rest via telco partners. It has no retail business to drain money. It also sells to Hong
Kong, Taiwan, and Singapore. It aims to roll out in more countries in Southeast Asia – the
next stop will be Malaysia. And then it’ll tackle big markets like India. Xiaomi’s next
continent will likely be South America. (p. 2)
Obviously, we view Xiaomi as a competitive threat, and will need to develop a strategy to
differentiate ourselves from them.
Customer
To a large extent, our supply chain will be demand driven. We will vary our production
and pricing strategies in relation to current trends. Our responsive and flexible supply chain
allows us to reduce our dependency on forecasts, and focus on proven trends. Michael Lipton
(2013) writes:
Demand-side initiatives focus on better ways to capture the demand signal closer to the
source, analyze the demand to sense the latest and most accurate demand signal, and
shape the demand by executing and tracking promotional and pricing strategies to steer
demand in line with business objectives.
Conclusion
In summary, PhunPhones aims to create a multi-national supply chain, with the
following characteristics: speed, flexibility, reliability, and diversification. The United States
location will be more responsive in terms of speed an flexibility, based on geographic proximity
to the end-user. The Chineese location will be able to respond quickly to domestic demand, but
not as quickly to the European customers. For this reason, we should consider a European
production facility in the future.
PHUNPHONES
9
We need to improve reliability and diversification, by sourcing additional suppliers. We
should also consider an additional production facility in China. This facility would reduce lead
time (by accelerating production in critical periods), and would provide an excellent back-up
plan in case of unforeseen events. Our strategy is to grow our brand by responding quickly to
consumer demands, and selling cheaper phones than our competitors. Not coincidentally, our
quick response time will facilitate our low prices- by reducing out-dated stock, and cutting costs.
PHUNPHONES
10
References
Alyea, Jimmy. (2012). A Supply Chain Case Study on Thriving in a Networked World. Retrieved
from: http://jimmyalyea.blogspot.com/2012/01/supply-chain-case-study-on-thrivingin.html
De Treville, Susan. (2010). It May Be Cheaper to Manufacture at Home. Harvard Business
Review. Retrieved from: http://hbr.org/2010/10/it-may-be-cheaper-to-manufacture-athome/ar/1
Lipton, Michael. (2013). Deman Driven Supply Chains are in Demand. Industry Week. Retrieved
from: http://www.industryweek.com/supplier-relationships/demand-driven-supplychains-are-demand
Millward, Steven. (2014). 15 new Asian smartphone makers hoping to crush Samsung and Apple
TechInAsia. Retrieved from: http://www.techinasia.com/2013-list-new-asianhomegrown-smartphone-brands/
Retrieved from: http://hbr.org/2010/10/it-may-be-cheaper-to-manufacture-at-home/ar/1
Rockwood, Kate. (2010). How a Handful of Countries Control the Earth's Most Precious
Materials. Fast Company. Retrieved from: http://www.fastcompany.com/1694164/howhandful-countries-control-earths-most-precious-materials
The Secret Life of Things. (2014). Phone Fact Sheet. Retrieved from:
http://www.thesecretlifeofthings.com/#!phone-facts/c611
PHUNPHONES
11
Appendix