The following commentary can also be viewed and commented on the Supply Chain Expert Community web site where Bob Ferrari, the author is a featured guest blogger.
Over these past few weeks, Supply Chain Matters and others in social and print media have been providing insights and commentary as to how quickly global supply chain dynamics are changing in value-chain networks involving high tech and consumer electronics. In particular, we point to the PC and smartphone segment. Changing economic forces and sudden events are precipitating change, and these forces may not be to the liking of certain existing players. The implications for the supply chain community is heightened awareness to strategic trends and product sourcing strategies, since high tech and consumer electronics supply networks may well have different landscapes of key players in the months to come. It is now crucially important to keep senior management educated as to the implications of these developments.
Our particular commentary began in June, noting key highlights from Hon Hai’s annual meeting and some of the signposts for a changed contract manufacturing landscape. The eroding margins and competitive dynamics of contract manufacturing point to the strategic need to move further up in the value-chain and into the turf of some existing suppliers. In August, the two bombshell announcements of Steve Jobs resignation at Apple and HP’s intent to spin-off its PSG division and abandon its efforts in tablet computing with the leveraging of the Palm WebOS operating system, created a value-chain network of turmoil and uncertainty, which continues. Supply chain community members residing in these networks can well relate to current conference, hallway and break room speculation as to what may be coming.
Financial media is also honing in on these developments and changing forces and the Financial Times, Bloomberg BusinessWeek and the Wall Street Journal among others have published supply chain impact articles. In late August, announcement came that Japan’s Sony , Toshiba, and Hitachi Ltd. will together merge their money-losing small liquid-crystal display operations to form a single company to be named Japan Display. In mid-September, FT published an article indicating that Samsung needs to hit the reset button and focus more on the core software that is crucial to its increased focus on high-end consumer electronics. The perceived motivation for HP’s prior decision to investigate strategic options was to concentrate more on the valued software and services element.
This week the WSJ published an article, Nokia’s Troubles Hit Suppliers (paid subscription or metered free view may be required) that correlates the market struggles at Nokia Corp. and Research In Motion to the consequent ripple effects among major suppliers. Noted was that as semiconductor chip suppliers try to find additional business beyond Nokia’s dwindling volumes, they are discovering that the two biggest smartphone players, Apple and Samsung have locked them out of the market by virtue of designing and manufacturing their own devices. A market researcher cited that Texas Instruments shipped 85 percent of its application processor output to Nokia last year, and has now TI has had to reset Wall Street earnings guidance. The HP decision to abandon WebOS also impacted TI, to the benefit of Qualcomm in the applications processor supply landscape of suppliers. What technologies and capabilities suppliers adopt and who they select as strategic business partners has major business implications. What the major OEM’s elect as continuing strategy, particularly Apple, Samsung and of course, HP, will also precipitate accelerated change.
All of these developments point to continuing turbulence among and across high tech and consumer electronics value-chains, and now more than ever, firms in these segments need to continually re-visit their strategic sourcing and supply plans for long-term implications. The top tier OEM’s and tier one suppliers want to participate in broader swaths of the value-chain. Suppliers seek more diversity and cushioning to industry developments. Software, operating systems and after-market services are the new high margin areas while hardware seems to be becoming the orphan or the cost of entry to more profitable segments.
In July, we highlighted the dialogue of ‘closed’ vs. ‘open’ supply chains, specifically that closed supply chains are a highly integrated set of networks where product technologies are owned by the company orchestrating the vale-chain. Apple and Samsung are the high visibility examples today. Add the implication of service offerings and the discussions can tend to get quite interesting.
Supply Chain Matters believes that the current accelerating dynamics occurring in high tech value chains make it imperative that senior management is continually educated to developments and that strategic strategy sessions and interchange be more than just a periodic occurrence. Sourcing, product management and procurement need to broaden the lenses of visibility to industry developments, while increasing their two-way communications with the broader supply chain management team as to what is being heard and what can be expected. Supply chain management needs to speak as one voice.
We further recommend that high tech and consumer electronics teams allocate specific time in the executive level S&OP process to an industry development and strategy discussion.
Now is the time for supply chain management to be the eyes and ears to industry movement and long-term implications.
©2011 The Ferrari Consulting and Research Group LLC