Electronic manufacturing sevice( EMS) industry and market

Xu Liu

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Electronic manufacturing sevice( EMS) industry and market

By

Xu Liu

A thesis

Prepared for the Degree of

Bachelor of international business and mangement studies

Hogeshool Zeeland

Jan. 2008

Copyright © by Xu Liu

All rights reseved. No part of this publication may be reproduced,

stored in a retrieval system, or transmitted, in any form or by any

means, electronic, mechanical, photocopying, recording, or

othewise, without the written permission of Hogeschool Zeeland

and the author.

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“Electronic Manufacturing Service(EMS) Industry and Market” is

the thiesis prepared by Xu Liu, submitted to the faculty of

International Business and management Studies of Hogeschool

Zeeland, in partial fulfilment of the requirements for the degree of

Bachelor of Business Administration. This thiesis has been

approved and accepted by:

College Tutor:

Mr.Ad Rozemond Date

Department of Business Administration

Hogeschool Zeeland

Company Mentor:

Mr. KA LEE Date

Jabil Circuit (GUANGZHOU) Limited

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Acknowledgements My deepest gratitude goes foremost to my college tutor Mr. Ad

Rozemond from the department of business Administration of

Hogeschool Zeeland, and in-company mentor KA LEE from JABIL

CIRCUIT(GUANG ZHOU) LIMITED, for their constant

encouragement and guidance. They have walked me through all

the stages of the writing of this thesis. Without their consistent and

illuminating instruction, this thesis could not have reached its

present form.

I am also extremely grateful to all the participants of my survey, the

practical part of this thesis could not be finished without their

responses, thanks for their

help and support.

At last but not least, I wish to extend my thanks to my colleagues,

who never failed to give me great encouragement and suggestions.

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1. Introduction············································································································6

1.1 Company background ····································································································· 6

1.2 The survey background··································································································· 6

1.3 Problem definition············································································································ 6

2. Research of the whole EMS market and EMS industry situation ············8

2.1 Electronic manufacturing services················································································· 8

2.2 The current EMS market situation.··············································································· 9

2.3 Customers ························································································································11

2.4 Profit ································································································································ 12

2.5 Summary ························································································································· 12

3 Anatomy of the Reason of EMS Industrial Range of Low Profitability ·13

3.1 Market structure ············································································································ 13 3.1.1 Perfect competition········································································································· 13 3.1.2 Monopolistic competition ······························································································· 17

3.2 Summary ························································································································· 19

4. Solution of consolidating and sustaining profitability for the development of the company. ·············································································20

4.1 The analyse of the intrnal situation of the company( Jabil ) ···································· 20 4.1.1 Cellular structure ············································································································ 20 4.1.2 ADTRAN workcell··········································································································· 20

4.2 Non-price competition ··································································································· 23 4.2.1 SWOT analysis ··············································································································· 23

4.3 product development ····································································································· 25

4.4 product promotion ········································································································· 26

4.5 Vertical solution ············································································································· 27 4.5.1 Backward intergration ···································································································· 27 4.5.2 Forward intergration ······································································································· 28

4.6 Summary ························································································································· 30

5.Conclusion and Recommendation ·································································31

5.1 Conclusion······················································································································· 31

5.2 Recommendation············································································································ 31 5.2.1 Creativity input ················································································································ 31 5.2.2 Merger the medium or small size EMS company. ······················································ 32

Bibliography ·············································································································33

Appendix ···················································································································34

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1. Introduction

1.1 Company background

Jabil was founded in 1966 by William E. Morean and James Golden in Detroit, Michigan. The company is a global leader in collaborative design manufacturing, providing customized, end-to-end electronics and electromechanical design, comprehensive product management and robust post-manufacturing services to customers in diverse industry segments. Our company currently employs more than 70,000 employees. Jabil operates facilities in 21 countries in every major region in the world. Jabil’s facilities are located in U.S, Brazil, china, U.K, Ukraine, India, Italy, Japan, Malaysia, Mexico, Hungary, Poland, Vietnam and Singapore. Jabil Circuit ranks among "Fortune 500" and achieved around US$10.3 Billion (a 36% growth rate over the US$7.5 Billion in 2005) revenue for fiscal 2006. Q1, fiscal 2007 (Sep – Nov, 06) has marked our fifth consecutive quarter of 30 percent revenue growth. Jabil common stock is traded on the New York Stock Exchange under the symbol "JBL."

1.2 The survey background

Whereas, the company has been confronting a pressing issue for many years. That is, the profitatbility decrease continuously in the past years. The most of EMS manufactories have this problem in the whold world. The company ceaselessly focused on producte development and the competitor was not much, while paid little attention at the beginning when the profitability was falling. The issue has become very serious then before. This is a crisis. It is not only for one company, but also the whole industry are verging of the problem. In order to cease the downwards trend of company’s profitability and support the company development, I have right to find out the accurate reasons drive this industrial trend. This is the motivation of being one of intern in the company and conducting my investigation of the industry problem as the fulfillment for the graduation project.

1.3 Problem definition

Main problem describe “ Why does the Electronic manufacturing services(EMS) industry verge the ceaseless descrease of the profitability and where is the future of the industry?” Belong the Main problem as the clue throughout the whole research, some specific sub-question should be answered

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What is electronic manufacturing services? What is current market situation? What is the current industry situation? Geographical Demographical The profit The cost The competitor What is the logical economic theory explanation of the industrial downwards trend of the profitability link to the companies? What we can do to deter the fall of the price by using the theory from industry economics? What we can do to help the company break away from the downwards tend of profitability by using the marketing functions? Though these question, we will find out the optimal solution for the industry and company.

All the theories using in the thesis and the ideation are following the coursework of Economice and industry Economics in books of Economics( john Sloman) and Economics of industrial organizaion( John Lipczynski & John Wilson)

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2. Research of the whole EMS market and EMS industry situation

2.1 Electronic manufacturing services

Electronics Manufacturing Services (EMS) is a type of contract manufacturing business that started in the U.S. electronics industry. EMS firms focus on the provision of production-related services for other firms. EMS firms are thus similar to Japanese subcontractors but EMS firms generally retain more independence than Japanese subcontractors do. They have transactions with various customers and produce various types of products, but are typically good at high-volume assembly of standardized goods. They also purchase necessary parts and materials by themselves, establish global footholds, and have promoted the recent trend toward outsourcing among information technology (IT) and electronics companies in the United States. (Sturgeon 2002). Many of major EMS firms are based in North America1 The EMS industry is expert in large economies of scale in manufacturing, raw materials procurement and pooling together resources, industrial design expertises as well as create added value services such as warranty and repairs. This frees up the customer who does not need to manufacture and keep huge inventories of products. Therefore they can respond to sudden spikes in demand more quickly and efficiently. EMS manufactured goods are always labeled with the customer's brand and corporate identity. EMS industry have also started to provide design services used in conceptual product development advice and mechanical, electrical and software design assistance. Testing services perform in-circuit, functional, environmental, agency compliance, and analytical laboratory testing. Electronic manufacturing services are located across the United States and throughout the world. They vary in terms of production capabilities and comply with various quality standards and regulatory requirements.

1 Of course, there are many non-North American EMS firms, for example, Elcoteq Network (Finland), Venture

(Singapore), Finmek (Italy), Zollner Group (Germany), Nam Tai Electronics (Hong Kong), VOGT Electronic (Germany),

Elite Industrial Group (Hong Kong), SIIX (Japan), VIDEOTON Holding (Hungary), WKK Technology (Hong Kong),

Beyonics Technology (Singapore),

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Notable EMS players include: Celestica Flextronics Foxconn Elcoteq Integrated Microelectronics, Inc. Jabil Circuit Plexus Quanta Computers Sanmina-SCI SMTC Corporation Solectron Swisstronics

2.2 The current EMS market situation.

Despite economic uncertainties, but the growth of medical, computer and telecommunications has brought good news of the electronic out sourcing industry. At the “five-year forecst,”(issue by techforecasters company) the EMS providers and ODM compund annual growth rate(CAGR) will achieve 11.9% and 11.4%, of which the computer, communications and medical part of the most robust growth2 The EMS industry has a history of 37 years and It has suffered a major shift since 2000. During

2 http://info.pcbtn.com/Html/fxyc/102614864.html

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technology’s late-1990s heyday, EMS players generally acquired manufacturing assets in high-cost locations. EMS players paid more attention on printed circuit board fabrication, leving system assembly to the OEMs. And EMS companies largely disdained industries outside the world of information processing(computers) and communications. In recent years, EMS players have shifted production to low-cost geographies; embraced non-tradittional industries including consumer electronics, industrial, medical and instrumentation. China’s low wages and huger market have attracted the many EMS industries, especially the Foxconn(Hon Hai) achieved great success in china. All famous international EMS company want build their subsidiary manufacturing in china. “enter chinese market” is now the primary mission for the EMS company.

Table 1: Top-10 EMS Provider Ranking in 2006 (Ranking by Revenue in

Millions of U.S. Dollars)

2006 Revenue Rank

2005 Revenue Rank

Company 2006 ($ Millions)

2005 ($ Millions)

Annual Chang($ Millions)

2006 Annual Change(%)

2005 Annual Change(%)

1 1 Foxconn $39,253 $27,315 $11,938 44% 62% 2 2 Flextronics $17,773 $15,582 $2,191 14% -3% 3 4 Solectron $11,103 $10,226 $877 9% -12% 4 6 Jabil Circuit $11,087 $8,095 $2,992 37% 23% 5 3 Sanmina-S

CI $10,872 $11,343 $-471 -4% -9%

6 5 Celestica $8,811 $8,471 $340 4% -4% 7 7 Elcoteq $5,139 $5,002 $137 3% 33% 8 8 Benchmark $2,907 $2,257 $650 29% 13% 9 9 Venture $1,971 $2,007 $-36 -2% 3% 10 10 Universal

Scientific $1,676 $1,622 $54 3% -3%

Top 10 EMS Total

$110,592 $91,920 $18,672 20% 12%

Global first six large EMS companies Solectron, SCI, Flextronics, Sanmina, Jabil and Celestica have been stationed in China, and business in China in the growth rate higher than the rest of the world JABIL There are eight Jabil’s subsidiary manufacturing in china. Thay are in Beijing, Guangzhou(Huang pu), Nanjing, Shanghai, Suzhou, Tianjin, Wuxi. In these Sub-company, Guangzhou and Shanghai branch is the largest.

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Jabil Circuit(Shang hai) Ltd was founded in 2002. In less than four years of development, the total number of company members from the initial total of more than 400 rapid expansion to the current 2000.the product lines from the original two increase to the current 16. The customers from the initial one to a dozen, and it is still growing. At present, the Asia-Pacific headquarters from Singapore to move to Shanghai. Jabil Circuit(Guang Zhou) Ltd was founded in 2003. Now the total number of company memebers are 10000(in 2003 only 1000). There are 25 product line. The main customers are HP, Philips,Emerson, Yamaha, Xerox. Foxconn Foxconn (富士康) is the trade name of the Taiwanese firm Hon Hai Precision Industry Co. (Ltd.). Foxconn is one of the largest manufacturers of electronics and computer components worldwide, and mainly manufactures on contract to other companies. The company was founded in 1974 as a manufacturer of plastic products (notably connectors) by Terry Gou, who remains its CEO. It has been listed on the Taiwanese stock exchange since 1991. It is Taiwan's largest private company, with a revenue of US$13 billion in 2004 and US$40.6 billion in 2006. Foxconn mainly manufactures in China; in 2007 it employed 450,000 people there and was China's largest exporter. The company opened its first manufacturing plant in China in 1988, a factory in Shenzhen that is now the company's largest, with 270,000 employees. Beginning in 1994, Foxconn purchased development centres in the United States and Japan. The years 1998 and 1999 saw the establishment of additional manufacturing plants in Great Britain and the USA. As of 2007, the company and its subsidiaries owned plants in the Czech Republic, Hungary, Mexico, Brazil, India and Vietnam. Flextronics Flextronics International Ltd. (Flextronics) is a contract electronics maker which provides electronics manufacturing facilities to original equipment manufacturers (OEM). It also provides supporting supply chain services, including packaging and transportation throughout the world, as well as design and after-sales. The company operates within several fields including computing, consumer and industrial fields, automotive and medicine. Flextronics have manufacturing operations in over 30 countries, totalling approximately 15.8 million square feet (as of March 2006). On 4th June 2007, Flextronics offered to purchase Solectron for US3.6b and thus making Solectron a subsidiary of Flextronics.

2.3 Customers

Most of the customers of EMS firms are the large international electronic company,

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ODM(original design manufacturers) and also have some local company. They come from every where in the world. Many European, Estern and North American merchants partly reprocess their producte in EMS company. Then these partly producte will combine together in the factory by themselves. EMS firms incresed their share of the total value added by taking on new tasks for their partners. EMS contractors helped their partners with (1) product design. (2) Manufacturing protocols (3) Supply chain management-buying the parts and ensuring that components and

machinery were in place when the customer needed a quick ramp up. (4) Making of the actual circuit boards (5) Fabricating the plastic or metal boxes to hold the electronic device (6) Shipping directly to customers. Some EMS contract manufacturers have even assumed responsibility for repairs and techincal support. The customer of EMS industry include: HP, Sony-Ericsson, Alcatel, Casio, Dell, Motorola, Nokia, Siemens, Telia, Xerox, NEC, Adtrn……

2.4 Profit

It was a decade ago that big international manufacturing was the major arena for EMS , but nowadays it is not the same case any more. Internet brings even chance to the medium and small size manufacturing. Thoes manufacturings have been offered a much lower price to reprocess through the internet. With the low cost, these company finally lead the market price and the outcome turns out to be a vicious competition that minmizes the profit. The profitability of EMS industry are not high. The big factories have to follow the trend of the low price. And the final result is that all EMS providers, be it small or big, are offering buyers the lowest price, even if it is a small order.

2.5 Summary

In one hand, the EMS industry have big space for development. That mean this market still active. But the current real situation is the that all EMS providers are suffering low profitability. What is real reason behind this unfavorable situation, and at the same time we also have to find out the problem with Jabil Circuit,

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3 Anatomy of the Reason of EMS Industrial Range of Low Profitability

3.1 Market structure

In order to find out the behind factors driving the low profitability, I try to identify which the category of market strucure in economics the Electronic manufacturing service suits in, The industries are divided into four categories according to the degree for competition that exists between the firms within the industry, the four groups underlying are categories of market structures divided by john sloman in the book of Economics3

Perfect competition Monopolistic competition Oligopoly Monopoly

The EMS industry and market are undering the perfect competition and monopolistic competition structures. I will explain for those two structures in the latter part, while the reasons of industry range low profitability can also be found here.

3.1.1 Perfect competition

Under the perfect competition, a large number of firms produce an identical product for a large number of buyers. In this situation, all the firms share the same product and market knoledge, they enjoy free entry/exit to and from the industry. They are price-takers and sell as much of the product as prossible at the market price. A perfectly competition industry has this four main criteria. Within the underlying analysis, let we take a look that how the EMS industry matches the characteristics of the perfect competition model. 1 Assumption4 1) there are many suppliers in the market, but they have alomost no influence on the market. According the above part of the thesis, it mentioned that there has great numbers of providers in the industry. such as medium, small size EMS company. They have almost zero influence to the market. These firms are price takers, and market set the price that they choose. If a firm raise price, the customers will switch to other supplier.

3 John Sloman, Market Sutcliffe, Economics the fourth edition, Pearson Education Ltd. Page 149 4 John Lipczynski, John Wilson, economics of industrial organization, financial times/prentice Hall. Page3

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In this situation the sellers are faced with the market-set price, but they can sell as much as they wants at this price. That is the seller faces a horizontal individual demand schedule as the graph shows.

Horizontal demand curve under perfect competition

s the picture show the firm is facing with demand can sell all their output at market price P,

) Buyers and sellers have perfect information that they make right choices for the goods and

For consumers enient to seek EMS providers for customers. Formerly,the end stream

For producers are locate together with each other, that is easily for customers to ask

t tried their best to decrease the cost, they always

Abut they cannot reache the price to a higher level. The buyer would immediately move to other supplier, substitutes at the going price P. 2services

The internet bring convmerchants purchased the good from the big manufacturing, who placed the order and then purchased goods from the pint-size EMS provider. Nowadays, the end stream merchants can use the internet directly to contact these pint-size EMS provider and skip of the middle men. They can also easily choose the providers, make their quotation and make purchases. Because lot of information will locate in same website, it is much easier for the customers to achieve the market information. The situation centraliziing provides to get lowest price but best quality product for the EMS customers.

Providers information price one by one for seeking lowest price. For the suppliers, in order to keep customers, they will setting same price as other suppliers. If they want enlarge the tiny profit, they mus

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search for lower price raw-material. Furthermore, they often switch those raw material supplier to make sure what they bought is cheapest. 3) the products are identical

are to assemblies for original equipment manufacturing(OEMs)

he capitals of the pint-size EMS providers are comparative small, and limit the scale of firm.

) The firms are free to enter or exit the market onsumers and producers, the following factor

Investment entering the EMS market is not high. For small supplier firm, which need

Government regulations rt for the EMS industry. The chinese government offers some

patents ders only produce part of the final goods. This prart will combine with other

Customer loyalty ave existing customers loyal to estabilished products. But the EMS

The products of all EMS firmsand offer the design, test, manufacture, provider repair sevices for electronic component. So the products is homogeneous product, and there are’t branding of advertising for the pint-size EMS company. If the big EMS provider think some orders too smallness, these order will be transferred to the pint-size EMS provider. Then the large EMS provider buy these product back and attach the own brand on the products. The situation occurs commonly in this industry. TNormally, they just have one product line in factory, they take the remanent order from the customers or the big EMS providers. Therefor, they say nothing of advertising and branding. Under this circumstance, we can say that they are just offering the same products. Some people considered that they are offering the identical product. 4Entry and exit from the market is free for both care the barriers for entering into markets for firms.

The investment to one product line or only some worker. Therefore, the investment is not a barriers for people enter into the market.

The factor may be not diffcult paspecial regulations to the EMS manufacturing. Because the main custmoers are international company, the most of the product selles to the foreign country. Chinese government regulates the EMS providers take 13% tax for the product, when they only selles the product to foreign country. If they want sell the the product in china. They need to take 100% tax for the product.

The EMS proviparts together in customer’s factory. There is not patent limit for the situation. The pantent limit should be take into account on the customers side. However, this is not a improtant factor thwarting people enter the EMS market.

The existing firms may hproviders depend on the customers very much. Because the EMS firm’s products are partly from the final goods, and the research and design are done by customer, if the customer found the supplier offering the lower price. They will switch to the low pric supplier.

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For example, the Alcatel was one of the main customer of Jabil in year 2005. Jabil has offered

Equilibrium of the suppliers a competitive equilibrium exists in which all firms earn a normal

hort run and long run n earn supernormal profits, defined as the excess of normal profit in

Short run Equilibrium5 In the short-run, it is possible for a abnormal profit. This situation is

In the long run , new firms attracted by l profits enter the market and compete

one big workcell and 2 large product line for Alcatel. But Alcatel got the cheaper offer from Foxconn in year 2006. Then they cancel the business with jabil, switch it to the Foxconn. According the example, there are nearly no customers loyalty to the existing supplier. 2If the four criteria are satisfied,profit exists. Wherease, in short run the supernormal profit exists. This is the reason why the forerunners earned easily in the beginning time when the market just emerged. SIn the short run, firm careturn, it is a minimum amount of profit to induce the company to remain in the market it occupies.

n individual firm to makeshown in this diagram, as the price or average revenue, denoted by P is above the average cost

denoted by C . the supernorma

these profit away(C=P in the long-run equilibrium figure), so eventually all firms earn normal profits, where average revenues(AR) equal average cost(AC). The firm is unable to earn supernormal profits then in the long run.(as the graph shown in underside.)

5 www.answers.com/topic/perfect-competition

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However, in the long run, abnormal d. The arrival of new firms in the

able to change

another market structure. I will describe this market structure in next

3.1.2 Monopolistic competition

The theory was developed almost simultaneously by Edward Hastings Chamberlin in his

hich there are many independent buyers and many independent sellers

Long run Equilibrium6 profit cannot be sustaine

market causes the (horizontal) demand curve of each individual firm to shift downward, bringing down at the same time the price, the average revenue and marginal revenue curve. The final outcome is that, in the long run, the firm will make only normal profit (zero economic profit). Its horizontal demand curve will touch its average total cost curve at its lowest point Nevertheless, these are not simple prefect competition. The suppliers may be their prices point, and increase quality or design new product with customers together to keep the loyalty of customer. In this market must havepart.

theory of monopolistic competition(1933) and Joan V. Robison in her economics of imperfect competition(1933).7 Market situation in wbut competition is imperfect, and each firm does nevertheless have some degree of market power, that is, each firm has some discretion to what proce to charge for its products.

6 www.answers.com/topic/perfect-competition 7 http://en.wikipedia.org/wiki/Monopolistic_competition

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1 Assumption s of monopolistic competition are almost similar to the perfect competition,

products.

means none are price takers.

few different to the perfect competition. Unlike perfect

Equilibrium of firms in short run and long run tive firm can exploit the heterogeneity of its

Short-run equilibrium of the firm under monopolistic competition8 The larger EMS roviders have

the long-run, however, whatever distinguishing characteristic that enables one firm to reap

The assumptionThere are also four criteria for monopolistic competition. 1. All firms produce similar yet not perfectly substitutable2. There are few barriers to entry and exit 3. All firms have some market power, which4. All firms are profit maximizers. Monopolistic competition have a compettion, firms have different adding value within the product. and the products of the firms are not perfect substitutes. So they can keep the supernormal profit by raise its proce without losing all its customers. 2In the shout-run, the monopolistically competiproduct so as to reap positive economic profit, as I show in the underside graph

providers are different to the small providers. The larger EMS pspecial R&D department to do the research and design new product with customers together, The larger international EMS providers may so such as build the manufactory around the main customers to offer the assisant service. Certainly, the EMS products are not homogeneous goods. The good service can be different between the EMS providers. And this is the key character of product differentiation in order to be profit maximizing under imperfect competition. Inmonopoly profits will be duplicated by competing firms. That is, once the new product or new mode service has been launch and it has good market feedback, the other firms will try to copy the product or service. This competition will let the proce of the product down and, in the long

8http://en.wikipedia.org/wiki/Monopolistic_competition

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run, the monopolistically competitive firm will make zero economic profit, as the graph underlying graph.

.2 Summa

Untill here, we can clarify, the inddustry and market is under the structure level between onopolistic competition. From the previous interpretations to the two

upernomal profit must be offset by the new companies coming into the market in the long run. Therefore, the reason of driving the current low industry profitatbility

long-run equilibrium of the firm under monopolistic competition9

3 ry

perfect competition and mmarket straucture, the s

could be obvious according to the above explanation as the basis.

9 http://en.wikipedia.org/wiki/Monopolistic_competition

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4. Solution of consolidating and sustaining

profitability for the development of the company.

4.1 The analyse of the internal situation of the

company( Jabil )

Before we analysies the intrnal situation of Jabil, we need to understand the corporate structure for JABIL.

4.1.1 Cellular structure

Central to Jabil's confederation of independent business units are its "workcells"-cross-functional teams created to focus on a single customer account and possessing the skills and structure best suited to that particular customer's needs. And these cells are empowered to make many of the decisions affecting the design and manufacture of a product and getting it to market quickly. "There's not a whole lot of bureaucracy involved. You're not relying on mulitlayer approvals for every little thing you do," said Gerald Creadon, operations manager for Jabil in Chihuahua, Mexico. "We have the autonomy to make changes, to change the processes so that, again, we go back to customer service, to fulfilling the customers' needs. We can change processes on the floor and make [changes] on the fly." But side-by-side with the autonomy accountability - all workcells, particularly commercial unit director, responsible for overseeing the day-to-day operation of the cell. "Our directors can't hide behind any delineation they develop of other employees' responsibilities, said:" The main. "Fully responsible for the board of directors - not so much in our corporate headquarters, but to the customers."

4.1.2 ADTRAN workcell

In order to good unaderstand the jabil’s workcell. I will give a example from jabil (GUANGZHOU), I was in this workcell to do my intership. This workcell is supplier for ADTRAN(a leading global provider of networking and communications equipment). It is a medium-size wrokcell in Jabil(GUANGZHOU). This workcell divided to three parts: Planning, Purchases( buyer), product line. I will introduction the work process for the ADTRAN workcell in next paragraph.

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Before the introduction, there are some definition should be explained: MPS--- Master production schedule CWA—Contact work Authorization PGI---- Post Good Issue WO---- Work Order(issue by Adtran) 1. Forecast receive in Adtran

Weekly send by E-mail, use receive on Tue or Wen, send by the Adtran’s linkman. 2. Forecast Analysis

Frozen Data Forecast synchronization 3. Detail Forecast Anlaysis

Compared with the last forecast, to identify date and qty change of the demand. Demand change

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0

20

40

60

80

100

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Quarter1 Quarter2 Quarter3 Quarter4

According the above picture, we can know the demand change from Adtran Q1( Jan,Feb,Mar) – Low Demand Months From Jan to Mar( Adtran Q1), demand is low and easily be cutted ( happened in 2006-2007); Thus, planner should keep very close eyes for the demand change. Q2( Apr,May&June)—Middle size Demand Month Adtran Q2( Apr,May&June), demand is middle size, which can have small pull in. Q3( July, Aug&Sep)—Strong Demand Months July, Aug and Sep, demand is strong, MPs can be aggressive pulled in. Q4( Oct, Nov &Dec)---Conservative Demand Months AdtranQ4( Oct, Nov &Dec) demand is conservative. Dec is Adtran yearly end and they need to strickly control inventory, so they would hold shipment until next year’s Jan.(Dec in 2006-2007, nearly $1 mil shipment were held until Jan next year 4. Calculate rawmaterial pull in Quantity

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This pull in Qty should be agreed by purchasing team. 5. plan to build

5.1 Rescheduling of Build schedule Build schedule Forecasted Orders. Adtran may reschedule delivery of products by sending Jabil a written Forecast update and revised purchase order. Adtran shall assume full burdened inventory responsibility for Jabil’s purchases of components within the Build schedule.

6. Start to build.

Received customer

Forecast synchronization

Detail forecast Anlaysisi

Compared with Old forecast vs. new forecast to see where demand change

CWA&Propos Do CWA and propose reneveue, change Revenue outlook according CWA

Use Mass upload to System. Enter System

Calculate each WO: Ori Qty- PGI done Qty=MPS Qty

Every Tue or Wen send by customer(by e-mail)

Cancellations

In that event that Adtran wished to cancel some quantity of product units ordered pursuant to this Agreement, Adtran’s liability for cancellation shall be as follows: A. Payment for all products delivered to Adtran and in transit, plus finished products in

inventory built againse defined B. Payment for all “work-in-process” based upon actual verifiable costs by jabil including

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products that were in process prior to receipt of notice of cancellation and that could not be completed by the cancellation date.

C. Payment for the cost plus burden in accordance with agreed material prices of inventory and materials on order that cannot be canceled.

D. Payment for any restocking charges.

4.2 Non-price competition

Non-price competition is a marketing strategy "in which one firm tries to distinguish its product or service from competing products on the basis of attributes like design and workmanship" (McConnell-Brue, 2002, p. 437-438). Firms will engage in non-price competition, in spite of the additional costs involved, because it is usually more profitable than selling for a lower price, and avoids the risk of a price war. In the Mr. Sloman’s Economics work, which defines the non-price competition involves two major elements: product development and product promotion. However, before planning the non-price competition strategy, we need to instrument formulation and selection by providing information that is helpful in matching the firm’s resources and capabilities to the competitive environment in which it operates. That is a SWOT analysis.

4.2.1 SWOT analysis

Strength Global company

Jabil is a big international company. It have good relationship with the international raw-material supply company, and Jabil also have integrity Global distribution channel.

High quality product . Quality is always the important things in Jabil. Every product must be under the ISO9000 standard.

High technology Jabil is wild about to improve the technology for the product line.

Government support in some area Because of jabil is a big international company. The government will give some beneift to attract their investment.

Weakness

Depend on the custmoer According the work process, that we knew the jabil is too depend on its customer.

They do everything to reference the customer’s demand forecast, But the customer’s demand forecast will change in every week. Sometimes the customer will cut hug of

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demand, just like I have described above: In Q1 demand is low and easily be cutted and in Q4 demand is conservative, the customer will hold the shipment. Because of this situation, that jabil have to change the build plan, reduce the rawmaterial pull in and hold the finish goods. That will cause the high inventory and labor cost for jabil.

Employees have Low loyalty to the company This situation oft happen in chinese branch. The labor in china is cheaper, the wage of worker are low in jabil’s chinese factory. The averge wage are 1000 RMB(as much as 90-100 euro) pro month. So if the employess find some better better job. They will easily change.

Low profitability EMS manufacturing is a outsouring industry. The most profit of the product are gained by the original design manufacturing. EMS industry can only get low profit for the product.

R&D ability is bad The productes of the company are researched and desiged by other company. the company don’t have R&D ability by itself.

Opportunities

Enter chinese market China is a big market. There are many customers in this market

Cheaper labor and low cost China’s labor is cheaper, and the cost is low, when build factory in china.

Opportunities in the Medical Device Industry In year 2007 jabil pay more attention to the original equipment manufacturers (OEMs) of medical devices in North America as they look for ways to cut capital costs and reduce the time-to-market for new products. Medical OEMs are looking at handing over the complete manufacturing process of medical devices to EMS providers so that they can focus on core business functions such as new product development and marketing.

Opportunities in North American Auto Industry Electronic manufacturing service (EMS) opportunities in the North American automotive industry found revenues likely to grow from $1,047.4M in 2005 to $31,08.8M in 2012. The trend toward outsourcing certain key operations to benefit from technical expertise and cost-effectiveness is gaining ground in the automotive industry and creating opportunities for EMS providers.

Threat

Fierce price competition The prospect of EMS industry is good. More and more companies want join this industry. This will cause more and more intense competition.

The merger of large international company. On 1 October 2007, Singapore-based Flextronics completed its acquisition of Solectron for $3.6 billion in cash and stock. The combined company will have more than US$30 billion in annual sales.

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The revenue rank 2&3 are Flectronics and Solectron in year 2006. According the following picture, we can see the market share of the new combined company. Foxconn id the biggest EMS company now in terms of revenue. Flextronics & Solectron are ranking 2 in the industry. The ranking 3 is jabil.

4.3 product development

“be different” is company’s existent ability in a dog-eat-dog market. Due to the product are similar in the EMS industry. the best way is to design new product or revising the old product. The problem is that only small numbers of firms applying the product development strategy. The current customers mostly are the ODM(original design manufactory) and the electronic company. They create the product and give the sample to the EMS providers. The EMS provider are only doing the copying job. The supernomal profit here are earned by the ODM and electronic company. I will give some suggestion in underside to develop the product. 1. Develop the R&D ability

Develope the R&D ability may see as a good solution for the company’s problem. All producte of the EMS providers are researched and designed by customer. Jabil have the R&D department by themselve. But this department are focused on developing and refining design and manufacturing technologies to meet specific needs of specific customers. In my opinion some EMS providers like us have their own R&D department. They can complete design and research the new product.

The customers bid the requirement of the new product mode, and then our designers should create the sample mode first and send back to the customer. Once the customers accept the ‘creation’, they will place the order. In this situation, the suppliers can gain more from the creation than the old product. We share part of the supernomal profit gain by the ODM or electronic company.

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A separate and independent R&D department are nessary for the modern companies nowadays. We should put more resource into research the trend of end customers and use the R&D ability to designing and lauching the popular product to the market need. We don’t need to pay all attention to the ODM and electronic company. They are not end customer.

2. reduce the inventory

Keep the invetory is keep the product value in the EMS industry. Sometimes the customer think it’s sales forecast will be not optimistic in this month , then they will cut the demand of the product to keep the low inventory, The inventory will imput to jabil in this time. Because if the customer don’t accpet the order, jabil can’t transport the finish goods to customer. The finish goods will hold in jabil’s warehouse. There are two way to reduce the inventroy:

Use the new and better system to control the inventroy Jabil decide to choice SmartOps inventory optimization system to reduce inventory occupancy rate funds. Jabil Circuit has already signed licensing with SmartOps to use Multistage Inventory Planning & Optimization inventory optimization tools. Through this system, lower inventory but don’t decrease the desired service levels of customer. Training the planner Planner is a important role in this case. A salted planner knows the right material pull in time and amout. The company should set up the special training for the planner.

3. Decrease the cost At beginning EMS players acquired manufacturing assets in high-cost locations. The EMS players can but build their manufacturing in high-cost location. But there are exception Foxconnn(Hon Hai). Foxconn enter chinese market very early. The company opened its first manufacturing plant in China in 1988. Because the labor si cheaper and operate and material cost are low in china. Chinese government give many benefit to the foreign investment company. Foxconn is low cost producter at the beginning. Now chinese market is opened. Jabil have already builded the manufactory in china. china will become the manufactory center for jabil.

4. Increase the loyalty of chinese employees. In the above text I have already described the wage from chinese employees are much lower than american or european. The chinese employees are easily job-hopping to other company, jabil can not only rise the wage for employees, but also offer some special things to employees. For exsample jabil can offer the better work condition for the employees.

4.4 product promotion

Another key element of non-price competition is promotion. Promotion ‘can be achieved not

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only be informing the consumer of the product’s existence and availability, but also by deliberately trying to persuade consumers to purchase the goods.’ Promotion is a form of corporate communication that uses various methods to reach a targeted audience with a certain message in order to disseminate about a product, brand , or company. Jabil is a large and famous international EMS provider. We have good reputation in EMS industry. This is advantage for our company. The product of EMS industry are similar. We can use good service to keep out customer’s loyalty. The middlemen would be as the canyon between final consumer market and us. We have to skip of them in order to enlarge the profitability. To get closer to the consumer market and make real contact to the market. The most effective and approachable way is through the product exhibition, especially international exhibition for the product.

4.5 Vertical solution

Vertical expansion is the growth of a business enterprise through the extent of control on its inputs and the distribution of its products and services. The degree to which a firm owns its upstream suppliers and its downstream buyeers determines how vertically integrated it is. There are three varieties of the integration. 1. Expansion of downstream is referred to as forward integration. 2. Expansion of upstream is refrred to as backward integration. 3. if company extends the business into both stream that supply them with input and

distribute their outputs is referred to as balanced vertical intergration. Due to increase the profitability of the company. we need to decrease the cost, and also secure the market need of our product. Therefore, the backward and forward integration would be good chosen for our company.

4.5.1 Backward integration

This method means of increased control over inputs, and achieve the economies of scale then reduce our cost. We may achieve our aim backward to our suppler’s by setting up subsidiary or directly acquisition of existing suppliers, we will get steady supply of our input like the cheaper resisitance, mainboard, electrical wire…. During this we can reduce cost of the input materials and increase revenue, while the profit gained by suppliers is no longer exist.

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General marketing channels Backward integration

ODM and Electronic company

EMS providers

Raw material

ODM and Electronic company

EMS providers

Raw material

wholesaler wholesaler

Retailer Retailer

End customers End customers

4.5.2 Forward integration

This method may consider takeing forward expansion to the downstream distributors business. The ODM and electronic company have much bigger market power than us. The optimal way would be through the R&D contract with the ODM and electronic company. We can do the new product R&D together. We share the cost of the new product’s R&D. Our company can also get more profit from the new product. The ODM and electronic company can pay more attention to sale for the new product like some

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electronic company have own wholesalers. This method is not only get over the low profitability for our company, but also benefit for the ODM through the assured quality and supply. It will be a double win solution.

General marketing channels Forward integration

wholesaler

ODM and Electronic company

EMS providers

Raw material

End customers

Retailer

wholesaler

ODM and Electronic company

EMS providers

Raw material

Retailer

End customers

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4.6 Summary

In last chapter, we have knew the reason why the profitability of the whole industry are low. In this chapter, we have suggeseted to establish an independent R&D department, promote our product, and realize the vertical expansion in supply chain, gave solution to improve the company’s profitability. This all processes are need to sustain the healthy development for our company under the unfavorable business environment.

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5.Conclusion and Recommendation

5.1 Conclusion

A EMS company is supply chain management company, the most important missions are to increase Supply Chain Profitability and Performance. The fundation for success of Supply Chain Profitability and Performance are operation management. Operations management is an area of business that is concerned with the production of goods and services, and involves the responsibility of ensuring that business operations are efficient and effective. It is also the management of resources, the distribution of goods and services to customers, and the analysis of queue systems. There are 4 important factor for Supply Chain Profitability and Performance: A) Basic of success: profitability, value and strategy B) Components of values: Cost, quality and timeliness. C) Managing resources to create values: supply chain management, demand forecasting,

inventory, logistics, lean system, workforce, The values creation should have good relation with the customer, that can be maximal the profitability for the company. The factor of the values can offer the cognitive approach for the customer for producte value. At the same time, producte value must high than producte cost. The basic of profitability is value. Value is the price, which was paided by the cunstomer. So, value creation are very important in operating flow. The company must during the continual values creation to satisfy the customer. In the 21st century, the manager have to fund a new management structure to adapt the new business environment.

5.2 Recommendation

5.2.1 Creativity input

If a company want have advantage in competition. Its producte have to be different to other competitor. Creativity is basice factor for the producte different. Creativity can bring the growth of the company, improve the company’s profitability. The key point of creativity is forecast for the company and whole industry. Nowaday jabil is a total solution provider for the customer, and Jabil have already entered the chinese market, this is a chance to be a low cost producer. When combine this two roles together, it will help the company develop quickly.

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5.2.2 Merger the medium or small size EMS company.

Enter a new market is difficult thing. Direct investment is a easy approach to enter a new market, but it will bring huge cost. So jabil can puchase some medium or smell size EMS company, which have operated in this market. The benefits are these company may already have customer and the intergrate raw-material supply chain.

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Bibliography

Books John Sloman, Mark Sutcliffe, Economics the fifth edition, Pearson Education Ltd John Lipczynski, John Wilson, Economics of Industrial Organization, Financial Times/ Prentice Hall Alfred Marshall, ELEMENTS OF ECONOMICS OF INDUSTRY: Being the First Volume of Elements of Economics, Cosimo Inc. John Bates Clark, Essentials of Economic Theory as Applied to Modern Problems of Industry and Public Policy, Adamant Media Corporation. Barney, J. (2002), Gaining and Sustaining Competitive Advantage, second edition, Prentice Hall.

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Appendix

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