China at the Crossroads of the Global Supply
Chain
A Path from Low-Cost Manufacturing to an Integrated Global
Supply Chain Solution
Henry Low
SVP and Managing Director China
North Asia Operations
Nov 03, 2005
Topics of Discussion
• Why China?
• Challenges
• A Case Study
• Conclusions/Thoughts
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Why China?
Costs:
– Design Engineering
– Localized Supply-base
– Operations
– Services
Market:
– Semiconductor capital equipment
– Medical
– Automotive, etc.
Question?
– Own, brick & mortar
– Outsource / Partner
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Costs – Labor, Supply-base, Services
Labor
Worldwide Hourly Wage Rates
• Design engineering – scarce but ~1/5 cost
of HCCs
$65.63
$11.02
France
• Operations – market is tightening but still
fluid enough to supply requirements at
traditional savings
Localized Supply-base
$12.15
Germany
$56.21
$10.45
Sw eden
$54.89
$9.95
Canada
$47.75
$9.74
United States
• Excellent component capabilities –
significant cost advantages
$43.85
$9.32
Japan
• Improving capabilities in precision
machining and electro-mechanical at good
cost advantages
Services
Mexico
Brazil
Taiw an
Malaysia
• Technical-base for refurb and repairs
available
Thailand
China
• Tax issues
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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
4
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China’s Booming Economy
GDP
Trade Volume
In billions
In billions
$1.6 trillion
$1.2 trillion
$266 billion
$38 billion
'80
'85
'90
'95
'00
'80
'04
'85
'90
'95
'00
'04
Foreign Investment
Foreign Currency Reserves
Energy Use
In billions
In billions
Total coal consumption, in
millions of tons
$61
$38
$610
$41
$2
$4
'80
'85
'90
'95
$1,312
$1,303
'95
'00
$987
$603
$166
$0
$1,678
'00
'04
-$1
$3
$11
'80
'85
'90
$767
$74
'95
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'04
'80
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'90
'04
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Market: Auto, Semi, Medical devices….
• 482 million people have an
annual income of more than
$1,000.
• GDP $5.9 trillion, with a growth
rate of 9% .
• Post-WTO, China emerged as
the favorite destination for foreign
direct investment
(>$60 billion in 2004).
• On average annual real urban
disposable incomes rose by
>10% and urban consumption
rose by about 5% in last 3 years.
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Challenges
• Supply Base Localization
– Majority of Cost is in Materials…time factor
– Proximity to Supply Base
• Skills
– Attracting and retaining high-quality workers in fluid environment
– Own or outsource/partner on bricks and mortar
• China Regulatory Environment
– Policies since WTO
– IP Protection
• Potential Constraints in Resources
–
–
–
–
Mid-class Management
Electricity Shortages
Congested Transportation
Water
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Case Study: Solectron Handset Customer
• Synopsis
• Capabilities and Practices
• Building Integrated Global Supply Chain Solutions
• Doing It Right
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Case Study – An OEM was looking for an end-to-end
supply-chain solution
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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Engineering, Manufacturing, Services
Unlocking Value Through Integrated Supply Chains
Product Design and
Launch Support
Lean Manufacturing
and Fulfillment
Post-Manufacturing
Services
• Collaborative design
• PCBA and subsystem
manufacturing
• Repair
• Product launch/NPI
• Systems assembly and test
• End-of-life support
• Product life extension
• Responsive supplier
network
• Process loops for design
and manufacturing
improvement
• DfX/Design for 6 σ
• Sustaining engineering
• Product fulfillment &
logistics
• Product logistics
• Global network for lowest
landed cost
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Case Study: Solectron Helps 3G Phones to
Go to Market
Customer-X and Solectron Collaborated in The Challenge
• To bring a complex, featureTotal Supply Chain Management of
rich 3G cell phone to market
3G Mobile Terminals…
on time and worldwide
The Solution
• Solectron Integrates
Customer-X into Global
Network and Manufactures in
China
The Results
• Customer-X successfully
launched 3G handset and
captured leadership position
in market
Total Units Shipment
over 2.3M
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Case Study: Design and Manufacture in China
Design by SLR
Manufacturing
End-Market Customization
Sales, Service, and Repair
SLR
Hungary/Romania
Phone Manufacturing
SLR Suzhou
Customization
Center
SLR
Shanghai
Design
Center
SLR
Netherlands
SLR USA
Customization
Centers
SLR
Belgium
SLR USA
Repair
Repair Center
SLR Mexico
Customization
Center
SLR Suzhou
Phone
Manufacturing
Phone Manufacturing
SLR Asia
Repair
SLR Brazil
Phone Manufacturing
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Case Study – Site Location strategy vv Supply-base
Solectron Suzhou
Solectron Shanghai
Bagan operation in 1997
Established in 2000; joined
Solectron in 2001
•
•
•
•
•
Number of Plants:
2
Total Space:
619,000 sq ft
Production Lines:
48 SMT lines, 22 box lines
Number of Employees:
>5,000
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
Established in 1996; joined
Solectron in 2001
Metal Stamping:
Enclosure Assembly:
Backplane Assembly:
Level 3 Assembly:
Number of Employees:
Services:
• Number of Employees:
• Services:
• Certification:
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
Solectron Shenzhen
Solectron Glob Enclosures
•
•
•
•
•
•
• Number of Plants:
• Total Space:
• Production Lines:
Began operation in April 1995
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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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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Case Study – Building the supply-base near Solectron facilities
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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Case Study: Solectron logistics in China adds a
significant advantage
“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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Case Study: using Suzhou inbound supply chain
enabled the shortest logistics lead time
Ma
t
Inb erials
ou
nd
Shanghai
Air/Sea Ports
Air Inbound
Materials
Inbound
Sea Inbound
SLR Suzhou
Daily Trucking
• Shipments are shipped through
Shanghai air/sea port
• Bonded transfer to SIP Customs
• Customs clearance at SIP Customs
SIP Customs
• 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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Case Study: customer reduced total-landed-cost in
the supply-chain using SLR logistics placement
Overseas
Vendor
Customer
Key Strengths
Customs
Overseas
Supplier
Overseas
Customer
Overseas
Market
• Established
e-PTL
• Frictionless
Local
Supplier
Bonded
Local
Supplier
Non-Bonded
Local
Customer
Bonded
Bonded
VA
T
T
VA
Suzhou Site
• Optimized
• Governmentsupported
VA
T
Local
Market
Local
Customer
Domestic
Sale
China
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Conclusion
• China has intrinsic advantages:
– Costs:
• Labor and Supply-base
– Markets:
• Auto, Semiconductor, Medical Devices…
• But, There Are Some Challenges
– Localizing supply-base
– China regulatory environment
– Resource constraints
– Mobility of Human Capital…..
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Thank you
henrylow@sz.slr.com
Case Study - History
ISO 9002
certification;
MBNQA
Government
relationship
development
and site
survey
1995
1996
VMI and custom
EDI
Started
production in
renovated
leased facility
1997
Registered
and
Established
Office in
Suzhou
1998
Site expansion
to four factories
1999
2000
Grand opening
of Suqian site
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2001
TL 9000 and QS
9000
TS 16949
certifications
certification
2002
E-PTL and ISO
14001
certification
2003
2004
Suhong site
expansion
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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
SIX SIGMA
LEAN
A statistical and data-driven
approach resulting in
breakthrough solutions
(Toyota Production System)
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
Waste
FG,
E&O
SLR PCBA
Neighbor Plant
4
FG,
E&O
Changeover…
Reality
Reality of
of Life:
Life:
Forecast
Forecast by
by nature—
nature—
which
which coupled
coupled with
with
“long”
supply
chain
“long” supply chain
lead
lead times…
times…
Material
Information Flow
Suppliers
(Material Supply)
2
Changeover…
Batch
Producers…
(Lead-Time Issues)
Long
Lead Times
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
used
toparticipation
“capacitize”
andproduction
supply
chain
Less waste
Requires
close
and
more
value Solectron
throughout
of customers
and suppliers
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
WIP Supermarket
(as required)
The Future of Our Partnership
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