Solectron Corp.'s CEO and president, Mike Cannon, talked to IndustryWeek about best practices in global supply-chain management. Solectron, based in Milpitas, Calif., is a $3 billion company that provides electronics manufacturing and integrated supply-chain services. Its Columbia, S.C., plant, which focuses on contract manufacturing for the electronics industry, is one of IndustryWeek's 2005 Best Plants.
IW: We've heard from manufacturers that components and materials sourced overseas are sometimes below their standards, but they don't find out about it until there's a failure in the field. How can manufacturers ensure quality within global supply chains without adding steps such as stepped-up inspections, which increase costs?
Cannon: The longer it takes to find out about problems and issues in the supply chain, the more expensive it is. The sooner the problem is identified within the supply chain, the better it is.
There are several ways to detect quality issues early in the process. [One is] working with suppliers that conform to standards such as ISO certification or specific certifications such as TL 9000 or ISO 13485.
[Additionally,] reevaluate the supply chain and continue to reduce it by shrinking lead-times. This disciplined approach will escalate results of poor performance to plant management's attention for more immediate resolution.
At Solectron, we have implemented a system that enables us to stop the process at the first sign of an abnormality. This is a practice we have closely modeled on the Toyota Production System. Only when partners throughout the supply chain join hands to drive SPC and provide continuous improvement to shrink lead-times, can the goal of a zero-defect supply chain be achieved.
IW: You've talked about the "geographical implications behind product strategy" and how that should determine manufacturing location. What do manufacturers need to keep in mind here?
Cannon: The process for identifying and qualifying new sources is critical. A stratified approach to this process often helps: Qualify the supplier, qualify the process and qualify the part.
By qualifying the supplier, you can assess if its systems and processes are designed to meet acceptable international standards for its products -- ISO certification or TL 9000 for example. You also can assess if the organization is focused on quality and if it is continuously looking for ways to improve.
By qualifying the process used to make the component, you can see if the capabilities and attributes of the process will yield the quality product required.
Finally, by qualifying the component, you can verify that the performance characteristics of the component have been appropriately captured.
Another key consideration is the impact geography makes to the "total landed cost" of the product. Factors that influence total landed cost include labor rates, material costs, localization of supply and logistics costs based on location of suppliers and customer ship-to addresses, tax rates, tariffs and duties. Some other costs often underestimated are the amount of inventory in transit, the carrying cost of this inventory, the cost of change orders with this inventory and the time it takes to phase-in material cost reductions due to this inventory. Additionally, there is a cost with missing the opportunity of capturing sales in the event there is a demand shift with a long lead-time supply chain. As these factors change, so does the appropriate solution. Utilization of a supply-chain-simulation modeling tool can help evaluate multiple alternatives and determine the sensitivity of one factor over another. Additional attention should be given to social considerations such as political stability of the country, availability of skilled resources, competition for skilled resources, and pending political and tax policy changes.
By taking all of this into account, the customer can select and develop suppliers that will meet their quality standards arbitrary of the suppliers' geographical location.
IW: What processes does Solectron use to ensure compliance of country-by-country regulations (i.e., environmental) within the supply chains it builds and manages?
Cannon: Environmental compliance is a major initiative for Solectron as we recognize the threat non-compliance can pose to OEM customers.
Solectron partners with its OEM customers and has developed a three-step conversion process to meet the specific requirements of the different regulations, ensuring an OEM's business is not disrupted and keeping reliability and quality products the focus. The three-step conversion process:
- Product preparation -- Process of evaluating components contained in customers' manufactured products.
- Production re-entry -- Involves redesigning the product using alternate components.
- Process integration -- Environmental compliant product is reintegrated back into the supply chain as a next-generation product.
Solectron has robust systems to ensure compliance with global environmental regulations including an internal Environmental, Health and Safety (EHS) Department at the corporate level; site-by-site EHS compliance professionals and a global government affairs program that monitors developments worldwide for Solectron and its customers.