Solectron Case Study and Marketing Analysis

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In 1977, Solectron was founded in the wake of the solar energy boom, and primarily focused on making solar energy products. They soon began assembling printed circuit boards for other electronic firms. Solectron was located close to Silicon Valley and its electronic industry, so a number of clients were readily available for its manufacturing services.

In the early 1980s, Solectron turned their efforts towards contract manufacturing, which turned the job shop business into an important industry.

Solectron began to purchase the manufacturing facilities of its customers, which enabled them to sign long-term supply contracts with them as well as increasing supply to multiple other customers. By the end of the 90s, Solectron had three strategic business units- Technology Solutions, Global Manufacturing, and Global Services. Solectron focused their business on superior customer service and respect for the individual.

It was through constant assessment and continuous improvement that Solectron was able to earn the Malcolm Baldrige National Quality Award two consecutive times, which was a new record.

Solectron continued to lead innovation in technological developments, which continued to increase their advantage over their competitors. In 2000, a softening economy led to falling demand for Solectron services, and at one point, Solectron’s inventory rose to an excess of $1 billion. After restructuring for the slower economy, Solectron was optimistic about its future in developing markets.

Questions:

What value did Solectron provide to its customers, and how did it evolve over time?

Value Solectron provided to its customers:

Supply Chain Integrator

Cost – President Dr.

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Winston Chen insisted that lowest cost could only be achieved with highest quality. This element challenged the practice of their competitors.

Quality – Solectron’s high focus on high quality electronics manufacturing services was reflected in their receiving the Malcolm Baldrige National Quality Award twice. The management at Solectron used the award’s evaluation application process as a benchmark for continuous improvement. All of the recommendations were used in many aspects of the company’s operations for improvement.

Flexibility – Solectron offered a wide range of products in a number of areas to its customers, including Networking, Telecommunications, and Computers. The strategic acquisitions in the early 1990’s allowed the company to have a broad variety of manufacturing facilities and expand the services offered.

Service – The company used the basic principles of superior customer service and respect for the individual to run the company. These principles were evident in their interaction with its customers. For example, they relied heavily on the customer’s input and feedback for continuous improvement and used various measures of customer satisfaction to work towards becoming best manufacturing company in the world.

Value evolved over time:

• Cost – Solectron used their strategy of becoming the premier source of outsourcing for businesses as a strategic advantage. Their volume increased greatly due to their growing number of customers and business. This allowed them to offer reduced prices due to the greater volume purchasing and economies of scale production.
• Quality – As production quality can be limited to certain physical features and customer specifications, Solectron has shifted towards a more service quality oriented partner while maintaining product superiority. Although the focus on product quality is imperative to maintaining relations with customers, service quality is a significant source of differentiation in an industry that already expects great production capabilities.
• Flexibility – With increasing production demands from customers along with an extensive range of desirable markets, flexibility must be a key consideration when competing in the EMS industry. Evolving alongside market conditions, Solectron has acquired many facilities in order to accommodate both consumer and locational demands of their customers. By becoming in essence a global supply chain integrator, Solectron is able to utilize each production facility to an optimal level, source from regions where most value is captured, as well as capitalize on market lead-times from close proximity to target markets.
• Service – Building upon a great foundation of customer service, Solectron has developed to encompass an essential array of services to offer their customers. This cornucopia of services was broken down into three distinct business units, with one supplying each. As stated by Diana Farrell in Beyond Offshoring, the IT/business process outsourcing in a global standpoint has only a 1% annual value of global trade to annual value of industry sales ratio, indicating significant potential for improvement and capitalization of future revenues. By offering these services especially in the EMS industry that is mostly production centered, Solectron is able to differentiate themselves from its competition by offering excellent service competence. Considering this service factor coupled with great product quality, Solectron is very hard to beat in this industry.

The technology solutions unit provided modular and embedded systems design and manufacturing systems that customers could utilize to enhance their operational efficiency. The global manufacturing unit allowed Solectron to handle the demands of product manufacturing of their customers. Although contract manufacturing was their main source of revenue, they also offered new product introduction services and pre-manufacturing capabilities to further offer their expertise on production efficiencies and excellent sourcing.

The global services unit was essentially Solectron’s formal customer service business unit. This unit offered product repair, upgrades, and maintenance services through both production facilities and service centers. In addition to the product oriented services, this unit also offered service concerning warehousing, logistics, returns management, engineering change management, and end-of-life management. The global materials services supplemented each of the three business units with operational proficiencies such as interactions with suppliers, procurement, optimizing inventories, preparing market forecasts, and providing worldwide logistics support.

How has the company been able to successfully integrate its acquisitions?

The company successfully integrated its acquisitions by focusing on two important aspects, employees and culture. The success of Solectron was dependent upon Solectron’s ability to leverage the new employees’ intelligence and experience. There was an integration team with members representing the functional areas to plan a business integration process before the acquisitions were even finalized. An even more detailed plan was created upon finalization, which helped the training of new employees to act as a Solectron resource.

Analyze the strategic factors behind Solectron’s move from a contract manufacturing supplier to a supply chain integrator. How did globalization help Solectron in this endeavor?

Strategic factors behind Solectron’s move:

• New Business Model – OEMs decided to concentrate their efforts and resources to their core competencies of product definition, engineering, and marketing in order for Solectron to focus on their core competencies of procurement and production. By realigning the focus of their customer’s primary activities, Solectron was able to transition towards their position as a long-term partner rather than a contract manufacturer. From a strategic standpoint, this stance of the global marketplace leverages Solectron with a sustainable competitive advantage; however, it requires extensive global utilization of resources and relationships to be able to supply the customer’s demands.
• Consolidation and Relocation – The EMS industry had consolidated most of the top tier firms to create fewer, but larger controlling firms. With this consolidation, Solectron’s new global network was developed to be strategically close to customers in emerging markets which allowed them to introduce new products in the areas with the end user with great product-to-market lead-times. This allows Solectron to fulfill its role as the global supply chain integrator for customers with much flexibility and responsive capabilities. o Information Systems – Solectron used technology to its advantage by improving its operation and allowing the customer to optimize their supply chain in different ways. This allowed multiple parties to have access to the same data and information and ultimately reduce the bull whip effect, which fluctuates demand forecasts significantly.
• Global Supply Chain Integration Services – As a player in the EMS industry, Solectron had to shift their focus to being a strategic option, rather than a tactical option from their customers’ standpoint. To supplement their excellent service from a purely manufacturing view, another point of differentiation that Solectron utilized was their position and culture in customer service. They expect only the highest quality out of their products, services, and employees. To further build upon this idea of customer service, Solectron has organized the firm into three distinct business units including technology solutions, global manufacturing, and global services, which are all supplied by global materials services, covered in detail earlier in the report.