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YOUR PROJECTED RETURN ON
INVESTMENT:
$116 MILLION REVENUE INCREASE
OVER 4 YEARS
Outline
• Project Overview & Background– Key Background Information– Project Charter
• Data Analysis• Operational Considerations• Conclusion and
Recommendations
Key Background Information• Flextronics International, Ltd., a Singapore-based corporation,
world’s second-largest provider of EMS• Growth in 1990s driven by OEMs increased propensity to outsource
– By 2005, 67.6% of cellular handset will be outsourced
• Margins declined in the CM business during the mid-1990s– In 2001 and 2002, Flextronics began to face a loss in net income– Lost Palm’s business to an ODM
• Venturing into ODM business with the design of Phone 4 , recognizable value, Flextronics can:– offer full exclusivity– offer exclusivity on an “all-or-nothing” basis by requiring the customer to
purchase a predetermined quantity– offer exclusivity only within a geographic region – deny the request
Project CharterBusiness Case Help Flextronics determine the financial
impact and risks related to committing to the ODM market. (Potential growth vs. risk)
Help Flextronics estimate the financial impact and risks related to exclusivity of Phone 4. (protect ROI on major project)
Project Scope We focus exclusively on the operational issues
related to incorporating more product design into Flextronics’ mix and those related to the Phone 4 exclusivity decision.
Goal Statement We determine whether Flextronics should
move into the ODM market. And if so we will present a plan for
Flextronics that includes a well-considered strategy for the ODM segment and the Phone 4 project .
Opportunity Statement Flextronics faces significant risks by entering the
ODM market strongly. Flextronics faces significant risks avoiding the
ODM market. The large investments of time and capital in
Phone 4 could be wasted if the exclusivity decision is mishandled.
Flextronics may have a better opportunity to reduce costs by moving to the ODM market.
Profit Margin ODM market vs Flextronics
1998 1999 2000 2001 20020.0%
10.0%
20.0%
30.0%
ODM Benchmark ComparisonGross Margin %
ODM Benchmark
Flextronics
Gros
s Mar
gin
Perc
enta
ge
Customer Value Proposition2001E 2002E 2003E 2004E 2005E
Cellular Handsets (million) 33 37 39 40 41Cellular Handset ASP 95$ 75$ 55$ 52$ 50$
Flextronics ODM Solution 78$ 64$ 48$ 47$ 46$ Customer Gross Margin/Handset 17$ 11$ 7$ 5$ 5$ Customer % Gross Profit Margin 18% 15% 12% 10% 9%
• Demonstrate impact of Flextronics ODM solution to on OEMs bottom-line
• Market is highly competitive and customer’s profit margin will decline
Revenue and Gross Profit Growth
2001E2002E
2003E2004E
2005E $-
$10
$20
$30
$40
$50
$60
$70
Flextronics Projected Financial Impact for Cellular ODM products
Cellular Phone Revenue$
Cellular Gross Profit Margin$
Reve
nue
& G
ross
Pro
fit M
argi
n, $
in m
illio
ns
Cost Control
• Critical to focus on supply chain and lean six sigma to achieve operational excellence
2001ECM CDM ODM 2002E 2003E 2004E 2005E
Revenue Per Unit 80$ 80$ 78$ 64$ 48$ 47$ 46$
Cost Per UnitComponents 66$ 62$ 59$ 48.51$ 37.25$ 36.42$ 35.79$ Materials Financing 1$ 1$ 1$ 0.82$ 0.63$ 0.62$ 0.61$ Design -$ 1$ 2$ 1.64$ 1.26$ 1.23$ 1.21$ Manufacturing 8$ 8$ 7$ 5.76$ 4.42$ 4.32$ 4.25$
Total Cost Per Unit 75$ 72$ 69$ 56.74$ 43.56$ 42.59$ 41.86$
Gross Profit per Unit 5$ 8$ 9$ 7.01$ 4.84$ 4.21$ 3.64$ Gross Profit Margin % 6% 10% 12% 11% 10% 9% 8%
Operational Considerations
• Efficient Production Lines• Market Knowledge and Technical Capabilities• Reverse Logistics and Support
Conclusion and Recommendations
• Invest $25 million in developing ODM capabilities over 4 years
• Create a compelling value proposition for OEMs• Improve Flextronics financial performance• Phone 4 Exclusivity
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