Supply Chain Vector [Electronic resources] : Methods for Linking the Execution of Global Business Models With Financial Performance نسخه متنی

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Supply Chain Vector [Electronic resources] : Methods for Linking the Execution of Global Business Models With Financial Performance - نسخه متنی

Daniel L. Gardner

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Case Study: The Electronics Manufacturing Services Industry

The best way to validate the points made thus far in the discussion is by means of a case study. However, if one is to substantiate these ideas while recognizing the difficulties of operating internationally, care must be taken in choosing the industry and business model that best portray reality. In seeking an industry with a scope of operations that spans product concept to final delivery, the electronics manufacturing services (EMS) industry offers the best illustrative characteristics.

EMS companies, or contract manufacturers, assume the manufacturing processes of their customers, taking on such traditional functions as sourcing, purchasing, materials requirements planning and production. Because contract manufacturers operate a production model with sites in multiple countries, they are constantly working to integrate the importation of raw materials with the export of finished goods in a timely and profitable manner. Given that the entire model is founded on the outsourcing philosophy, supplier management also plays an integral role in the success of a company.

This model creates supply chain matrices that are influenced by variables such as labor costs, currency fluctuation and multi-lateral trade agreements. These elements of the business, coupled with the fact that most contract manufacturers operate in the highly volatile technology and telecommunications arena, make EMS the best candidate to use in a supply chain analysis case. To bring the story to life, analysis will center on a fictitious, U.S.-based contract manufacturer, NikoTech, Inc.

NikoTech was founded in 1984 by two high-level executives from the electronics manufacturing sector. With headquarters in San Diego, California and a maquiladora operation just over the border in Tijuana, Mexico, the company started out as an assembly operation catering to the high-tech industry. As outsourcing became more popular and NikoTech evolved into a full-blown manufacturer, the company expanded operations to Hungary, China and Brazil. From its origins in Mexico, NikoTech continues to adhere to a build-to-order production model. The company currently works with 350 raw materials suppliers around the world (65% in Asia) and has six global customers that represent 70% of total sales.

NikoTech rode the wave of growth in the tech sector through the late 1980s and early 1990s, setting up production just in time for the onslaught of demand in telephony and computers. The combination of expanding product families and insatiable demand brought on explosive growth at NikoTech in its early years, with sales reaching the $1 billion plateau well before the turn of the century. To date, NikoTech offers 150 SKUs in four product families: cellular phones, laptops, desktops and routers. Still a small player by industry standards, NikoTech has been able to achieve respectable year-to-year sales growth throughout its history.

When the tide went out on the tech boom, NikoTech saw many of its long-hidden operational challenges exposed. Explosive growth sometimes causes companies to bury problems under a mountain of cash, and NikoTech was not an exception to this phenomenon. By the dawn of the new millennium, management found itself in a position where revenues continued to grow, but profitability was shrinking every quarter. The sales orders were there, but cost of goods sold was outpacing sales growth, and inventories were completely out of control. If current trends continue, the NikoTech founders estimate that the company will be losing money within 18 months.

Recognizing the serious nature of their predicament, management formed a multi-functional team to analyze all facets of the business, beginning with the financial results for the two most recent years (Y1 and Y2). The balance of this book details what was found.

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