solectron china -- a path to low-cost manufacturing · pdf filesupply chain management...

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


Solectron Confidential2

Agenda

• Why Manufacture Electronics in China?

• Challenges

• The Solectron China Experience

• Case Examples

• Conclusion



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



Worldwide Hourly Wage Rates

China

Thailand

Malaysia

Taiwan

Brazil

Mexico

Japan

United States

Canada

Sweden

France

Germany

Cost Reduction

Wage Differences

• Hourly labor wage is low and stagnant due to large population base

Supply Chain Localization

• 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

$12.15

$65.63

$11.02

$56.21

$10.45

$54.89

$9.95

$47.75

$9.74$43.85

$9.32

$63.39

$2.70

$18.38

$2.63

$23.63

$2.15

$17.22

$1.37

$12.29

$1.26$11.34

$0.89$8.93

Hourly Rate

Burdened Rate



China has a total landed cost advantage, even for complex products.

Western Europe

ScotlandBudapest

Mexico

Guadalajara

United States

ColumbiaOregon

China

ShenzenShanghai

5 2 1 6 8 4 3 7

UnitedStates

West

Manufacturing Sites

Singapore

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 7Mexico

Customer

Sites

3 1 2 7 8 5 4 6China

East

South 4 2 1 6 8 5 3 7

4 1 2 7 8 5 3 6Japan

3 2 1 7 8 5 4 6Malaysia

4 1 2 8 7 5 3 6Hungary

5 1 2 8 7 4 3 6Netherlands

5 2 1 8 7 4 3 6Scotland

Notes: Ranking explanation—―1‖ the lowest landed cost site, ―8‖ the highest landed cost site

= Lowest-cost sites

3



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%.



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



The Solectron China Experience

• History

• Locations

• Capabilities and Practices

• Building Integrated Global Supply Chain Solutions

• Doing It Right



1995

Government relationship development and site survey

1996 1997 1998 1999 2000 2001 2002 2003

Registered and Established Office in Suzhou

Started production in renovated leased facility

ISO 9002 certification; MBNQA

Grand opening of Suqian site

Site expansion to four factories

VMI and custom EDI

E-PTL and ISO 14001 certification

TL 9000 and QS 9000 certifications

Suhong site expansion

Solectron has a strong experience base in China.



Local Suppliers Close to Solectron Manufacturing Locations

PCBA/System Ops

Enclosure/BP Ops

Repair Ops

Shanghai

Beijing

Shenzhen

Chengdu Suzhou

Kunshan

Solectron

Shenzhen

Tianjin

Shanghai

Passive, LCD, Keypad, Plastic, Microphone(Yageo, Murata, TDK, Epson, Seiwoo, GPS,

Panasonic)

(20 minutes by truck)

Discrete, Plastic, Keypad, Antenna, Battery, Connector

(Everlight, H-iP, Centurion CIK, Amphenol, Molex, Tyco)

(2 hours by truck)

PCB, Keypad, Battery, LCD, Motor (Compaq, Sanyo, Panasonic,

Ichia, Seiko, E&E)

(1 day by truck)

Discrete(LRC)

(1 day by truck)

PCB, Keypad, Passive(WUS, Unicap,

Huiqiao, Teehua)

(1 hour by truck)



We have built sophisticated capabilities in low-cost regions

Able to manage complexity,

technology, and supply

chains in low-cost regions

Optimizing our low-cost capabilities

Solectron manufacturing services

capacity in low-cost regions

2001 2002 2003

50%59%

68%

2004

>70%



Large and Growing Footprint in China

Solectron Suzhou

Bagan operation in 1997

• 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

Solectron Shanghai

Established in 2000; joined Solectron in 2001

• Number of Plants: 1


• Production Lines: 7 SMT lines2 box build lines

• Number of Employees: >1,000

• Services: PCB assembly and test,Box build assembly and test

• Certification: ISO 9001–2000, ISO 14001

Solectron Shinei

Established in 1996; joined Solectron in 2001

• Metal Stamping: 155,000 sq ft; 18 power presses

• Enclosure Assembly: 33,000 sq ft; 6 short lines

• Backplane Assembly: 2 lines

• Level 3 Assembly: 89,000 sq ft; 1 main assembly line

• Number of Employees: 1,200

• Services: In-house tool-making facilityIn-house painting line

Design and engineering

Solectron Shenzhen

Began operation in April 1995


• Production Lines: 19 SMT lines

• Number of Employees: >1.6004 box build lines

• Services: PCB assembly and test, system build/design/NPIHand load lines, supply base management

Repair/warranty service

• Certification: ISO 9001–2000, ISO 14001



Easy Access

The Right Location for Success: Suzhou



• 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

Suzhou Industrial Park is the ideal environment.



Resources, Facilities, and Services: Suzhou

Work Force >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

Space(619,000 sq ft)

Services

Process Engineers: 105

Testing Engineers: 82

RF Engineers: 21

Testing Technicians: 375

EngineerResources



The Right Capabilities: Systems Integration Capabilities From PCs to Complex Wireless Infrastructure

1997–1999

• Sheet metal stamping

• Hard tooling

• System assembly (small box)

• Enclosure assembly (small box)

• Printers

• PC motherboards

• PC peripherals

Time

Ca

pa

bil

ity

2000-2001

• Base station

• Power module

• Notebook

• Switching products

• Workstation

• Cellular phone

2002

• Backplane assembly

• Soft tooling

• CDMA base station

• PHS

• HUB

• Automotive ECM

• Routers

2003

• Enclosure assembly

• SBM establishment

• System integration and test (subsystem/ small system)

• GSM/GPS

• PDA cell phone

2004

• BTO/CTO

• Repair service

• Enclosure and system NPI

• Complex backplane fabrication

• System integration and test (large systems)



The Solectron manufacturing system uses Six Sigma Lean to ensure a high-quality environment in China.

World-Class Best Practice forManufacturing Excellence

LEANSIX SIGMA

…Reduce Variability …Reduce Waste

(Toyota Production System)

Value, value chain flow,pull, Kaizan

A statistical and data-driven approach resulting in

breakthrough solutions



Waste

FG,E&O

Waste

FG,E&O

SLR System Plant

Customer

Suppliers

>1 DayResponse

Waste

RM, Expedite,Load and Chase

Example of Solectron Manufacturing System:Lean Manufacturing

Current State — Batch Production

Customer Forecast (6 months): Week-to-Week Changes1

<1 DayResponse Shipment Based on

Customer Forecast4

Assembly/Test5

WIP

Reality of Life:

Forecast by nature—which coupled with―long‖ supply chain

lead times…

Material

Information Flow

2

MRP (6 months): Week-to-Week Changes

Waste

WIP

PCBA Lines/Test

SLR PCBANeighbor Plant

PCBA Lines/Test

SLR PCBAAway Plant

2

LongLead Times

Changeover… Batch

Producers…

(Lead-Time Issues)

Changeover…

(Material Supply)



Forecast used to ―capacitize‖ Solectron and supply chainLess waste and more value throughout productionRequires close participation of customers and suppliers

The Future of Our Partnership

Customer’sCustomer

MRP (6 month)

Example of Solectron Manufacturing System:Lean Manufacturing

Moving to a Pull Production System

FG Supermarket(min/max trigger)

Pull on SLRBased on

Customer Order(not forecast)

2

Customer Forecast (6 months, last 2 months = weekly/last 2 weeks = daily)1

On Pull

Suppliers

With ―Slow‖ Lead Times

Suppliers

Customer

Assembly/Test(1 day)

SLR System Plant

3

WIP Supermarket(as required)PCBA Lines/Test

SLR PCBA Away Plant

PCBA Lines/Test

SLR PCBA Neighbor Plant

4

RM Supermarket

5



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



Suzhou inbound supply chain enables the shortest logistics lead time.

• Shipments are shipped through Shanghai air/sea port

• Bonded transfer to SIP Customs

• Customs clearance at 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

ShanghaiAir/Sea Ports

SIP CustomsSLR Suzhou

Air Inbound

Sea Inbound

Materials

Inbound

Daily Trucking



Practices: The Right Logistics Model for China

Vendor

LocalSupplierBonded

LocalSupplier

Non-Bonded

Overseas

Customs

Suzhou Site

e-P

TL

China

Customer

OverseasCustomer

LocalCustomerBonded

LocalCustomerDomestic

Sale

Bonded

LocalMarket

OverseasMarket

OverseasSupplier

Key Strengths

• Established

• Frictionless

• Optimized

• Government-supported



• Collaborative design support

• Design for excellence (DFX)

• Supply chain design and sourcing

• New product introduction engineering services

• PCBA and subsystem manufacturing and test

• System assembly and test

• Fulfillment and logistics

• Repair

• EOL services

DESIGN LAUNCH MANUFACTURING SERVICE

We seamlessly integrate solutions across the supply chain, including Suzhou.

Materials and Supplier Management

Information Flows

Lean Processes/Six Sigma



Suzhou is an integral part of Solectron’s powerful Integrated Global Network.

Key manufacturing sites

Manufacturing focused on optimizing value and risk

Service localized for end-users in each market

Regional design and NPI centers close to your R&D teams



Case Examples

• Large Wireless Base Station Manufacturer

• 3G Cellular Handsets



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

Complex Base Station Case



Powerful Integrated Global Network for Wireless Infrastructure (Base Station)

Customer-MTechnology

Development

Design By Customer-M

Sales to Service Providers Worldwide

SLR SuzhouBase Station

Manufacturing

Shanghai Operation

CenterGlobal SCM

Manufacturing in China

End-Market System Integration

Customer-M Tianjin

System Integration(GSM and CDMA)

Customer-M UKSystem Integration

(GSM )

Customer-M TexasSystem Integration

(CDMA)



Case Study: Solectron Helps 3G Phones to Go to Market

Customer-N and Solectron Collaborated inTotal Supply Chain Management of

3G Mobile Terminals…

e808 e616 e313

The Challenge

• To bring a complex, feature-rich 3G cell phone to market on time and worldwide

Business OutcomeCustomer-N successfully

launched 3G handset and

captured leadership

position in market

Solectron Solution

• Solectron Integrates Customer-N into Global Network and Manufactures in China



Powerful Integrated Global Network for 3G Handset

N. AustraliaDevelopment

N. Head Office(Yokohama)

Mobile Terminal Operations Unit

Technology Development,

Sales Promotion, etc.

Design by Customer-N

SLR Belgium

Repair Center

N. EuropeSales

Sales, Service, and Repair

N. MobilingHong Kong

Sales and Repair

SLR SuzhouPhone

Manufacturing

Shanghai Operation Center

Global SCM

Manufacturing in China

End-Market Customization

SLR NetherlandsCustomization

Center

SLR SuzhouCustomization

Center



• 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

Conclusion


Time to Accelerate Your Business Partner with Solectron

Thanks !!

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