Supply Chain Management at Foxconn MIS 6352-05020 Sivapriya Aswathanarayanan Brigett Bentley

1. Supply Chain Management at Foxconn MIS 6352-05020 Sivapriya Aswathanarayanan Brigett Bentley James Fancher Jason Hammons Paul Lanham Nina Thowsen July 20, 2004

2. Introduction • Foxconn is the recognized trade name for Hon Hai Precision • Third largest electronic manufacturing services (EMS) company in the industry • Produce cables, connectors, sockets, and motherboards • Has shown a 30% growth rate a year from 2000 to 2003, $2.9 to over $10 billion respectively

3. Introduction • Supply Chain Management (SCM) • The close linkage and coordination of activities involved in buying, making, and moving a product. • Integrates supplier, manufacturer, distributor, and customer logistics processes to reduce time, redundant effort, and inventory costs. • Network of organizations and business processes for procuring material into finished products, and distributing the finished product.

4. Developmental History • Established in 1974 • Based in Taipei Taiwan • The first overseas facilities, located in Shenzhen, in the Guangdong Province and Kunshan, in the Jiangsu Province, were established in 1993

5. Developmental History • 1996 started the production of PCs enclosures • The company continued their rapid growth which included desktop PCs, video games and other mobile hand-held devices • 1998 Foxconn established additional electronic manufacturing facilities in Scotland and the United Kingdom • 1999 with additional EMS (electronic manufacturing services) facilities in Ireland and the United States

6. Developmental History • Hon Hai’s combination of manufacturing skills, engineering capabilities, merger and acquisitions, and low cost control has caused the other EMS companies to lose market share.

7. How Analytics and SCM Applications Fit Together Analytics Plan Operational Planning StrategicPlanning Tactical phase Analyze Execute Transaction Management information Primary data entry Admin Capture SCM

8. Industry analysis • ERP - enterprise resource planning - is defined as a business management system that integrates all facets of the business, including planning, manufacturing, sales, and marketing.

9. Industry analysis • SAP is said to be the market leader in the ERP business • top competitors are Oracle, PeopleSoft, Siebel, and Lawson Software

10. Industry analysis • Suppliers • power is found to be low • the ERP firms have a lot of vendors to work with • can not be any switching cost because the final product is customized to what the customer wants • dependent however of the capacity of the systems, as systems with higher capacity can give the ERP solution a higher speed when processing data.

11. Industry analysis • Customers • power is found to be medium • they have high power • when it comes to choosing the product • because there are several firms providing complete ERP solutions • there are also several best-of-breed producers that can provide different specialized applications • Some customers can also develop systems themselves.

12. Industry analysis • Customers (cont.) • power is found to be medium • They have low power • Because of high switching cost • Dependent on a system that can give them the competitive edge, by making the processes streamlined and connected

13. Industry analysis • Threat of new entrants • Threat is found to be fairly low • Due to the high switching cost for the customers • Recent trend is to try to extend the life of the existing system

14. Industry analysis • threat of substitutes • are found to be low if an ERP system already are implemented in the customer firm • switching costs are high • trend to search for a vendor that can offer stability • But: • disconnection between ERP buyers’ requirements and vendors’ performance • vendors promote speeds, feeds, and technology prowess, • decision-makers want service, flexibility and practicality

15. Industry analysis • Traditional industry competitors • competition is fierce between the major competitors in the ERP business • SAP is claiming the No. 1 market share spot in all major application categories, including ERP, SCM, SRM, CRM, and PLM, to a 36% share • strong market lead in Europe • ability to focus on business processes unique to specific industries • full commitment to openness

16. Industry analysis • Strategy for the future: • build alliances with other software application providers • focus on building partnerships within their supply chains from suppliers to customers • extend the reach of the enterprise resource planning system to go across the organizations to also include collaboration with the ERP vendors’ customers’ suppliers, partners, and customers using portal technology

17. Industry analysis • switching costs are high • trend to search for a vendor that can offer stability • disconnection between buyers’ requirements and vendors’ performance • product selection is great • can develop systems themselves • high switching cost • dependent on a competitive functional system • high switching costs • Recent trend to extend life of the existing system • lot of vendors • No switching cost • dependent of the capacity of the systems

18. L E G A C Y 2 L E G A C Y 1 M P R II Integration Broker Procurement Infrastructure Of the Future: Assemble The Building Blocks Supplier Portal Asset Proc H-R Proc IT Proc. Suppliers Transaction Delivery Network Future Tech- nology T M S Category Solutions Data Synchronization Sourcing Buyer Portal Logistics Legacy Purchasing Contracts Engineering Outsourcer

19. Analytics: From Technology to Business Critical “Old speak” “New speak” SCM analytics Business intelligence Supplier Performance Management reporting ABC Customer profitability Forecast accuracy Workload analysis Inventory effectiveness Consolidation BI/ERP Promotion analysis Analytics empower enterprises with perspective and insight derived from access to and analysis of quantitative information sources

20. SWOT Analysis for Foxconn • Original Electronic Manufacturer • Largest manufacturer of connectors • Leading producers of sockets • Improved R & D STRENGTH • To gain Design skills • To change the culture • To strengthen the management team THREATS OPPURTUNITIES FOXCONN • Many competitors: Flextronics • Solectron • Sanmina SCI • Celstica etc. • Lack of design skills • Culture is secretive • Lack of acquisition skills • Lack of a deep management team • Lack of proper channels of entry WEAKNESS

21. CRM, SCM, and ERP II Need a Strong PLM Foundation to Realize Product Value Product Data Repository Manage resources and production, financials ERPII SCM Align and manage supply chains CRM Care for customers Manage Product definition and innovation PLM

22. Strengths • Original Electronic Manufacturer. • Largest manufacturers of connectors. • Leading producers of Sockets. • Well spread distribution & logistical network worldwide.

23. Strengths continued… • Acquisitions in 2003 has helped to make cell phones, servers & networking gears. • Improved Research & Development. • Started manufacturing its own brand motherboards in 2004.

24. Weaknesses • Lack of design skills. • Culture at Foxconn is secretive. • Lack of acquisition skills. • Lack of a deep management team. • Lack of proper channels of entry.

25. Opportunities • To improve in their design skills. • Necessary to change the culture in the company. • To strengthen their management team. • Improve the methods of entry in to new products.

26. Threats • Many competitors like Solectron, Flextronics, Sanmina SCI, Celstica, Jabil Circuit etc. • The company shows no sign of changing in terms of culture.

27. Sales and Marketing Logistics Planners Manufacturing Customers Suppliers ROI Measurement in the supply Chain Supply Chain Applications Performance Measurement Visibility and Event Management Business Process Analysis E – Business Marketplace Effectiveness and Continuous Improvement Trading Partner data Third Party History Data Repository Analysis for all Trading partners Supplier Performance Forecast Accuracy Inventory Analysis Cycle Time Delivery Performance SC Response Time

28. Plan Source Make Deliver Deliver Source Make Deliver Source Make Deliver SCOR: a model for SCM Source Return Return Return Return Return Return Return Return Suppliers’ Supplier Supplier Your Company Customer Customer’s Customer Internal or External Internal or External SCOR MODEL Building Block Approach Processes Metrics Best Practice Technology

29. Recommendations • Hon Hai’s combination of manufacturing skills, engineering capabilities, merger and acquisitions, and low cost control has caused the other EMS companies to lose market share. • Research and development (R&D) is one area in which Foxconn has been weak. In the rapidly changing world of electronics manufacturing investing into the R&D

30. Recommendations • Creating a regionalized Help Desk to support customers/Foxconn user’s requests, service level agreements (SLA) these are agreements between two parties that determine how quickly tickets are processed. A priority 1 ticket might indicate that a work order has to be completed in one hour or one day, depending upon the agreement. • creating a hot site for “core” applications using disaster recovery techniques is critical

31. Supply Chain Management at Foxconn MIS 6352-05020 Sivapriya Aswathanarayanan (aka no show) Brigett Bentley James Fancher Jason Hammons Paul Lanham Nina Thowsen July 20, 2004