Supply Chain Management Conference 2004
SOLECTRON CHINA -A Path to Low-Cost Manufacturing for Integrated Global
Supply Chain Solutions
China at the Crossroad of the Global Supply Chain Forum
Wesley Chen, VP and General Manager
April 15, 2004
Supply Chain Management Conference 2004
Agenda
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Why Manufacture Electronics in China?
Challenges
The Solectron China Experience
Case Examples
Conclusion
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Why Manufacture Electronics in China?
Cost Reduction
- Wage Differences
- Supply Chain Localization Potential
You Can’t Afford Not to Be in China
- Cost Advantages for Global Manufacturers
- Access to Growing, Dynamic, and Large Market
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Cost Reduction
Wage Differences
Worldwide Hourly Wage Rates
• Hourly labor wage is low and
stagnant due to large population
base
$12.15
Germany
$65.63
$11.02
France
$56.21
$10.45
Sweden
Supply Chain Localization
$9.95
Canada
• Unlike other low-cost locations,
China is growing a complete local
supply base, including
semiconductors
• Most global OEMs already have
presence in China to:
- Address huge domestic market
- Leverage competitive manufacturing
cost
$47.75
$9.74
United States
$43.85
$9.32
Japan
Mexico
Brazil
Taiwan
Malaysia
Thailand
China
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$54.89
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$63.39
$2.70
$18.38
$2.63
$23.63
$2.15
$17.22
$1.37
$12.29
Hourly Rate
Burdened Rate
$1.26
$11.34
$0.89
$8.93
Supply Chain Management Conference 2004
China has a total landed cost advantage, even for
complex products.
Manufacturing Sites
Customer
Sites
China
United States
Mexico
Western Europe
Singapore
Shanghai
Shenzen
Oregon
Columbia
Guadalajara
Budapest
Scotland
West
5
2
1
6
8
4
3
7
Central South
5
1
2
8
6
3
4
7
Midwest
5
1
2
8
6
3
4
7
East
5
1
2
8
6
3
4
7
5
2
1
6
8
3
4
7
East
3
1
2
7
8
5
4
6
South
4
2
1
6
8
5
3
7
Japan
4
1
2
7
8
5
3
6
Malaysia
3
2
1
7
8
5
4
6
Hungary
4
1
2
8
7
5
3
6
Netherlands
5
1
2
8
7
4
3
6
Scotland
5
2
1
8
7
4
3
6
United
States
Mexico
China
Notes: Ranking explanation—―1‖ the lowest landed cost site, ―8‖ the highest landed cost site
= Lowest-cost sites
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Manufacturing in China gives you access to a huge
market.
• 482 million people have an
annual income of more than
$1,000.
• GDP $5.9 trillion, with a
growth rate of 8% (2002).
• Post-WTO, China emerged as
the favorite destination for
foreign direct investment
($53 billion in 2002).
• During 2002, on average real
urban disposable incomes
rose by 13.4% and urban
consumption rose by 4.8%.
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Challenges
• Managing Supply Chain Localization
- Majority of Cost is in Material
- Proximity to Supply Base
• Finding World Class Manufacturing Partner
- Ensuring High Quality
- Keeping Cost Low and Efficiency High
• Unique China Regulatory Environment
- Emerging Policies after WTO
- IP Protection
• Potential Constrains in Resources
- Mid-class Management
- Electricity Shortage
- Congested Transportation
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The Solectron China Experience
• History
• Locations
• Capabilities and Practices
• Building Integrated Global Supply Chain Solutions
• Doing It Right
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Solectron has a strong experience base in China.
ISO 9002
certification;
MBNQA
Government
relationship
development
and site
survey
1995
1996
Started
production in
renovated
leased facility
1997
Registered
and
Established
Office in
Suzhou
9
VMI and custom
EDI
1998
Site expansion
to four factories
1999
2000
Grand opening
of Suqian site
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2001
TL 9000 and QS
9000
certifications
2002
E-PTL and ISO
14001
certification
2003
Suhong site
expansion
Supply Chain Management Conference 2004
Local Suppliers Close to Solectron Manufacturing
Locations
Passive, LCD, Keypad,
Plastic, Microphone
(Yageo, Murata, TDK,
Epson, Seiwoo, GPS,
Panasonic)
(20 minutes by truck)
PCB, Keypad, Passive
(WUS, Unicap,
Huiqiao, Teehua)
Beijing
Tianjin
(1 hour by truck)
Kunshan
Chengdu
Shanghai
Suzhou
Solectron
Shenzhen
Discrete, Plastic, Keypad,
Antenna, Battery, Connector
(Everlight, H-iP, Centurion CIK,
Amphenol, Molex, Tyco)
(2 hours by truck)
PCBA/System Ops
Repair Ops
Enclosure/BP Ops
Discrete
(LRC)
(1 day by truck)
PCB, Keypad, Battery, LCD, Motor
(Compaq, Sanyo, Panasonic,
Ichia, Seiko, E&E)
(1 day by truck)
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We have built sophisticated
capabilities in low-cost regions
Optimizing our
low-cost capabilities
68%
Able to manage complexity,
technology, and supply
chains in low-cost regions
>70%
59%
50%
2001
2002
2003
2004
Solectron manufacturing services
capacity in low-cost regions
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Large and Growing Footprint in China
Solectron Suzhou
Solectron Shanghai
Bagan operation in 1997
Established in 2000; joined
Solectron in 2001
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Number of Plants:
2
Total Space:
619,000 sq ft
Production Lines:
43 SMT lines, 22 box lines
Number of Employees:
>6,800
Services: Pre-Manufacturing
Prototype/NPI
Manufacturing
PCB assembly and test,
Supply base management,
System build, CTO/BTO
Post-Manufacturing
Repair/warranty/service
• Certification:
ISO 9001–2000, ISO 14001, QS 9000, TL 9000
• Number of Plants:
• Total Space:
• Production Lines:
• Number of Employees:
• Services:
• Certification:
Solectron Shinei
Solectron Shenzhen
Established in 1996; joined
Solectron in 2001
Began operation in April 1995
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Metal Stamping:
Enclosure Assembly:
Backplane Assembly:
Level 3 Assembly:
Number of Employees:
Services:
12
155,000 sq ft; 18 power presses
33,000 sq ft; 6 short lines
2 lines
89,000 sq ft; 1 main assembly line
1,200
In-house tool-making facility
In-house painting line
Design and engineering
• Total Space:
• Production Lines:
• Number of Employees:
• Services:
• Certification:
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1
105,000 sq ft
7 SMT lines
2 box build lines
>1,000
PCB assembly and test,
Box build assembly and test
ISO 9001–2000, ISO 14001
300,000 sq ft
19 SMT lines
>1.600
4 box build lines
PCB assembly and test, system build/design/NPI
Hand load lines, supply base management
Repair/warranty service
ISO 9001–2000, ISO 14001
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The Right Location for Success: Suzhou
Easy Access
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Suzhou Industrial Park is the ideal environment.
• EDI Linkage/EIEMS (EDI 联网 / 电子手册管理系统)
- Ensure the smooth and fast customs clearance, paperless management, effective
customs supervision,minimize risk
• Weekend OT per Request (周末预约加班)
- Ensure consistency of customs clearance, reduce inventory level and improve
materials turn over
• SLC/EBW/EPZ Operation (苏州物流中心 / 出口监管库 / 出口加工区)
- SLC: SuZhou Logistics Center—One-stop service for customs clearance
- EBW: Export Bonded Warehouse—Provide virtual overseas HUB
- EPZ: Export Process Zone -- Especially set up for 100% export business
• SZV Model (虚拟的苏州机场)
- Virtual Suzhou airport, avoid customs formality in Shanghai, improve customs
clearance cycle time
• Bonded Logistics Park—Coming in near future (保税物流园—近期内成立)
- Enjoy immediate VAT rebate, best place for VMI hub
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Resources, Facilities, and Services: Suzhou
Work Force
Space
(619,000 sq ft)
Services
Engineer
Resources
15
>6,800 employees
Suqian Plant: 333,000 sq ft
Suhong Plant: 286,000 sq ft
PCB Assembly and Test:
43 SMT Lines
Box Build Assembly and Test:
22 Lines
SBM and Localization Buyer: CE, SQE, SBM, MP, CSCM
Quality Assurance:
Total Quality Management
NPI:
Dedicated Team
Post-Sales Repair:
In/Out Warranty
Process Engineers: 105
Testing Engineers:
82
RF Engineers:
21
Testing Technicians: 375
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The Right Capabilities: Systems Integration Capabilities
From PCs to Complex Wireless Infrastructure
2004
2003
Capability
2002
2000-2001
1997–1999
• Sheet metal stamping
• Hard tooling
• System assembly
(small box)
• Enclosure assembly
(small box)
• Printers
• PC motherboards
• PC peripherals
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•
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Base station
Power module
Notebook
Switching products
Workstation
Cellular phone
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Backplane assembly
Soft tooling
CDMA base station
PHS
HUB
Automotive ECM
Routers
• Enclosure assembly
• SBM establishment
• System integration
and test (subsystem/
small system)
• GSM/GPS
• PDA cell phone
• BTO/CTO
• Repair service
• Enclosure and
system NPI
• Complex backplane
fabrication
• System integration
and test (large
systems)
Time
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The Solectron manufacturing system uses Six Sigma
Lean to ensure a high-quality environment in China.
World-Class Best Practice for
Manufacturing Excellence
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SIX SIGMA
LEAN
A statistical and data-driven
approach resulting in
(Toyota Production System)
breakthrough solutions
Value, value chain flow,
pull, Kaizan
…Reduce Variability
…Reduce Waste
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Example of Solectron Manufacturing System:
Lean Manufacturing
Current State — Batch Production
1
Customer Forecast (6 months): Week-to-Week Changes
SLR System Plant
5
<1 Day
Response
Customer
Waste
>1 Day
Response
Assembly/Test
Shipment Based on
Customer Forecast
4
Waste
FG,
E&O
SLR PCBA
Neighbor Plant
FG,
E&O
Changeover…
Reality of Life:
Forecast by nature—
which coupled with
―long‖ supply chain
lead times…
Suppliers
2
18
Changeover…
Batch
Producers…
(Lead-Time Issues)
Long
Lead Times
Material
Information Flow
(Material Supply)
2
PCBA Lines/Test
SLR PCBA
Away Plant
WIP
Waste
Waste
WIP
RM, Expedite,
Load and Chase
PCBA Lines/Test
MRP (6 months): Week-to-Week Changes
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Example of Solectron Manufacturing System:
Lean Manufacturing
Moving to a Pull Production System
Forecast
Less
Requires
waste
used
close
andto
participation
more
―capacitize‖
value throughout
ofSolectron
customers
production
and
and
supply
suppliers
chain
1
Customer Forecast (6 months, last 2 months = weekly/last 2 weeks = daily)
SLR System Plant
2
Customer
Customer’s
Customer
MRP (6 month)
3
Pull on SLR
Based on
Customer Order
FG Supermarket
Assembly/Test
(1 day)
4
(min/max trigger)
(not forecast)
SLR PCBA Neighbor Plant
On Pull
Suppliers
PCBA Lines/Test
With ―Slow‖ Lead Times
SLR PCBA Away Plant
5
Suppliers
PCBA Lines/Test
RM Supermarket
The Future of Our Partnership
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WIP Supermarket
(as required)
Supply Chain Management Conference 2004
Solectron has an advantage in logistics in China.
“Customs Bonded Factory‖—Awarded by China Customs
• Bonded factory license allows importing and keeping material as bonded goods until the real
domestic sales happen.
“AA Class Company‖—Certified by China Customs
• No import duty/VAT required when importing bonded material
• Lowest inspection rate: <1%
“Fast Customs Process Company‖—Certified by China Customs
• Pre-Customs clearance
• Critical shipment release process prior to formal Customs entry
e-PTL (Electronic Process Trade Log)
• e-PTL: Electronic tool to manage materials and clearance through Customs
• First company in China to deploy e-PTL Customs process (July 2000), which reduces Customs
clearance from 7–8 days to 1.5 days
Logistic Hub in Suzhou Industrial Park (Virtual Hong Kong)
• VMI model with full range of services from import/transportation/Customers clearance to distribution
• Specialized third-party logistics provider
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Suzhou inbound supply chain enables the shortest
logistics lead time.
Shanghai
Air/Sea Ports
Air Inbound
Materials
Inbound
Sea Inbound
SLR Suzhou
SIP Customs
Daily Trucking
• Shipments are shipped through
Shanghai air/sea port
• Bonded transfer to SIP Customs
• Customs clearance at SIP Customs
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• All raw material can be imported through
e-PTL as bonded material
• 1.5 working days from shipment-landed
airport
• Shipments delivered to SLRSZ by trucks
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Practices: The Right Logistics Model for China
Overseas
Vendor
Customer
Key Strengths
Customs
Overseas
Supplier
Overseas
Customer
Overseas
Market
• Established
Local
Supplier
Bonded
e-PTL
• Frictionless
Bonded
• Optimized
Local
Customer
Bonded
• Governmentsupported
Local
Market
Local
Supplier
Non-Bonded
Suzhou Site
Local
Customer
Domestic
Sale
China
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We seamlessly integrate solutions across the supply
chain, including Suzhou.
DESIGN
• Collaborative
design
support
• Design for
excellence
(DFX)
LAUNCH
• Supply chain
design and
sourcing
• New product
introduction
engineering
services
MANUFACTURING
SERVICE
• PCBA and
subsystem
manufacturing and
test
• System assembly
and test
• Fulfillment
and logistics
• Repair
• EOL
services
Materials and Supplier Management
Information Flows
Lean Processes/Six Sigma
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Suzhou is an integral part of Solectron’s powerful
Integrated Global Network.
Regional design and NPI centers close to your R&D teams
Manufacturing focused on optimizing value and risk
Service localized for end-users in each market
Key manufacturing sites
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Case Examples
• Large Wireless Base Station Manufacturer
• 3G Cellular Handsets
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Complex Base Station Case
The Challenge
To build complex CDMA and GSM wireless
infrastructure base station for worldwide
market
Business Outcome
Customer-M able to meet global demand
for base station of different technologies
Solectron Solution
Integrated Solectron Global Network with
Customer-M’s Schedule Share and other
parts of global design and distribution
network
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Powerful Integrated Global Network for Wireless
Infrastructure (Base Station)
Design By Customer-M
Manufacturing in China
End-Market System Integration
Sales to Service Providers Worldwide
Customer-M
Customer-M
Tianjin
Technology
Development
System Integration
(GSM and CDMA)
Customer-M UK
System Integration
(GSM )
Customer-M Texas
SLR Suzhou
System Integration
(CDMA)
Base Station
Manufacturing
Shanghai
Operation
Center
Global SCM
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Case Study: Solectron Helps 3G Phones to
Go to Market
Customer-N and Solectron Collaborated in The Challenge
• To bring a complex,
Total Supply Chain Management of
feature-rich 3G cell
3G Mobile Terminals…
e808
e616
e313
phone to market on time
and worldwide
Business Outcome
Customer-N successfully
launched 3G handset and
captured leadership
position in market
Solectron Solution
• Solectron Integrates
Customer-N into Global
Network and
Manufactures in China
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Powerful Integrated Global Network for 3G Handset
Design by Customer-N
Manufacturing in China
End-Market Customization
Sales, Service, and Repair
SLR Suzhou
N. Europe
Sales
SLR
Belgium
Repair Center
SLR
Netherlands
Customization
Center
N. Head Office
(Yokohama)
Mobile Terminal
Operations Unit
Technology
Development,
Sales Promotion,
etc.
Customization
Center
Shanghai
Operation Center
Global SCM
SLR Suzhou
Phone
Manufacturing
N. Mobiling
Hong Kong
Sales and Repair
N. Australia
Development
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Conclusion
• Can’t Afford Not To Be in China Now
- Cost Advantages
- Growing, dynamic and large emerging market
• But, There Are Some Challenges
- Supply chain localization
- Unique China regulatory environment
- Resource constraints
• A Chinese Old Saying: ―Right Timing, at the Right Location, with the
Right Partner!!‖ – 3 Pillars for Success
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Time to Accelerate Your Business Partner with Solectron
Thanks !!