What is in this article?:
- 2014 IW 1000: Jabil Circuit -- The Manufacturer's Manufacturer
- Moving at Lightning Speed
This IW 1000 contract manufacturer aims to build its global business through diversifying the industries its serves and offering complete manufacturing solutions for customers.
Jabil CEO Mark Mondello: "We rarely if ever get upset with people making mistakes. If we're not making mistakes, we're not pushing hard enough for innovative solutions for customers."
"Manufacturing is what we do. We build stuff. We take a lot of pride in that and we're pretty good at it."
What Jabil Circuit (IW 1000/254) CEO Mark Mondello doesn't say, but perhaps should, is that you have to be good to survive in the manufacturing territory his company occupies.
Jabil Circuit (the name comes from founders Bill Morean and James Golden) began as an electronics assembly repair shop in Detroit in 1966. Today, the contract manufacturer has annual revenues of more than $18 billion, operates in 22 countries and works for some of the most prominent and demanding companies in the world. The client roster includes Apple, GE, Johnson & Johnson, Cisco, Siemens and HP.
Twenty years ago, contract manufacturing largely involved taking blueprints and instructions from a customer and making the requested product. While some of that still goes on, says Mondello, 50, most of Jabil Circuit's relationships with customers "are quite deep, quite strategic, long-term relationships."
Those strategic relationships involve a good deal more than purely assembly work, he says.
"When I think about manufacturing, it is not only the process of putting the products together but engineering, design work, the solutioning and designing of the supply chain, the logistics, the lowest landed costs as far as distribution, the sophisticated IT systems that are behind a lot of what we do, and then procurement and innovation," says Mondello. "Manufacturing, the actual putting together of the parts, is only a portion of what we do."
Working with product titans such as Apple requires the scale necessary to take on such demanding projects as manufacturing millions of iPhone cases. Jabil, headquartered in St. Petersburg, Fla., operates at 90 sites around the world with 40 million square feet of manufacturing space. The company ships $50 million to $60 million worth of products every day. More than 175,000 people work for Jabil.
As its name implies, Jabil Circuit got its start as a manufacturer of printed circuit boards. The company is divided into three operating segments:
Diversified Manufacturing -- The largest portion of the business (43%), diversified manufacturing provides contract manufacturing for a wide variety of companies, including Apple, Emerson and Procter & Gamble.
Enterprise & Infrastructure -- This group (35%) manufactures networking and storage products for IBM, HP, Cisco and other major players.
High Velocity -- Customers for this segment (22%) are in areas such as automotive, consumer electronics, point-of-sale, printing and digital home products.
In its June 30 10Q statement, Jabil noted that its five largest customers accounted for approximately 45% of its net revenue and that 67 customers accounted for 90% of the firm's net revenue. The company pointed out that its customers can face economic turbulence associated with "rapid technological change, shortening of product life cycles, consolidation, and pricing and margin pressures."
While electronics manufacturing remains an important component of the company's business, it has been on a course to diversify the markets it serves and the types of products it manufactures.
"The more diverse the company is, the more sustainable it is over the long term," says Mondello.
The drive for diversification was certainly reinforced by Jabil's experience with Blackberry. In the three months ended May 31, Jabil reported a 9.8% decrease in net revenue, due to the company's decision to stop producing handsets for the ailing Canadian smartphone firm. Jabil initiated a restructuring plan that it said would likely result in charges of $42 million to $70 million for employee severance, benefits and asset write-offs.
A major thrust in Jabil's effort to diversify came last year when it acquired Nypro, a manufacturer of plastic injection parts with a strong presence in the healthcare market and sales of more than $1.2 billion annually. While Nypro had a strong business, it was running into trouble financing growth because of the cash needed to fund its employee stock ownership program.
"Nypro was a fantastic acquisition for Jabil," said Mondello. He said M&A is a difficult process, but without cultural alignment it becomes nearly impossible. Nypro's culture, he says, was a good fit with Jabil -- "a can-do attitude, very customer focused, very competent in the areas in which they serve." Moreover, he notes, Nypro came with "some outstanding innovative and technical competencies that we are leveraging not only within Nypro but across the greater Jabil."
Jabil merged its healthcare business with that of Nypro and headquartered the unified business in Nypro's home base of Clinton, Mass. Mondello says Jabil is making capital investments in Nypro and looks for growth from its healthcare, pharmaceuticals and packaging divisions.
Jabil also is looking for growth opportunities emanating from many of the major challenges facing global society. "Macro areas that we think have good growth potential over the next 6 to 8 years include energy, water, the aging population, biometrics and wearables," he says.
Mondello also sees plenty of opportunity in the burgeoning Internet of Things. "There is a massive, massive collection of things that are going to be connected to the Internet. We're in the third inning of a nine-inning game. There are lots of good opportunities for us both within electronics and outside of electronics."
Jabil has developed primarily through organic growth for the past 10 to 15 years, but Mondello says the company is looking for additional acquisitions. "Over the next 3 to 5 years, I do see acquisitions becoming a more significant part of our strategy," he said. However, he cautioned against picturing Jabil as "an actively acquisitive company."