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When it comes to managing the transportation program at Solectron Corp., the overriding theme is control.
The Milpitas, Calif.-based contract manufacturer of high-tech goods isn't stopping at the fulfillment of its own transportation needs. It wants to do the same for customers as well.
The strategy is part of an effort by Solectron to battle its way back to profitability. In recent years, electronics manufacturing services (EMS) vendors have seen profit margins narrow or vanish outright. Cost-conscious original equipment manufacturers (OEMs) have put the squeeze on their EMS providers. Meanwhile, the high-tech downturn has cooled customer demand for products such as personal computers and networking equipment.
Solectron in particular has struggled. As recently as 2000, the company was showing a profit of $190.6m. Three years later, it lost $3.02bn. Fiscal 2004 saw dramatic improvement; sales rose to $11.64bn from $9.83bn and the net loss was whittled down to $252m. But the company still has a ways to go before returning to health.
Innovations in transportation management have been a major contributor to the recovery. Jim Molzon, vice president of customer fulfillment and logistics, has embarked on a program of streamlining and redefining the program. Crucial to his strategy is the extension of services beyond mere manufacturing into logistics management on behalf of OEM customers.
But first, Solectron has had to address internal shortcomings. Several years ago, the company was running multiple information systems at its various locations. Complicating matters was Solectron's global reach; the manufacturer has operations in two dozen countries, including remote areas of Romania, Brazil, Mexico, China and Indonesia. It does business with more than 5,000 suppliers, although 300 account for 80 percent of its spend. Transportation policy varies from supplier to supplier-even, in some cases, with the same supplier.
Despite the difficulties, Molzon set out to increase Solectron's control of inbound transportation from suppliers. By calling the shots on routing and carrier selection, he could achieve visibility of parts in the pipeline, a crucial step toward controlling inventory and meeting customer requirements.
The Rush to Offshore
The move was triggered in part by an increase in offshore production among U.S. manufacturers, who have flocked to low-cost locations such as China. Their EMS partners have done the same. And while the strategy has slashed manufacturing costs, it has given rise to a whole new set of challenges, in the form of longer transit times, potential delays, U.S. Customs concerns and security issues.
Molzon says Solectron now directly controls up to 95 percent of its inbound. Still, his approach isn't automatic. Some suppliers, and even a few OEMs, can get a better price on inbound transportation than Solectron. "The question is, what's the best deal at the end of the day?" he says. What really matters, in addition to inventory visibility, is the total landed cost of shipping an item, with all surcharges, duties and other fees factored in.
Molzon has recently turned his attention to the outbound side, booking carriers and paying the freight for shipments to OEMs. In the last five years, Solectron has increased its control over outbound from less than 10 percent to 25 percent, and the number continues to climb. As part of a move toward selling "value-added" options, the company is offering complete fulfillment services to customers. It effectively functions as a third-party logistics partner for select OEMs.
None of this would have been possible without a major investment in information systems to manage Solectron's complex transportation program. In 2001, Molzon was looking for a software package that could handle carrier selection, trade compliance and inventory visibility. It signed on with Arzoon Inc., a vendor that was barely two years old, but which proceeded to craft a product specifically to Solectron's needs.
Solectron ended up using Arzoon for numerous processes related to transportation, including planning, execution, international trade logistics and supply-chain event management. In 2004, Arzoon was acquired by SSA Global Technologies Inc., which had previously picked up EXE Technologies, a warehouse management system (WMS) vendor, and CAPS Logistics, maker of supply-chain network design software.
Arzoon already had an international trade logistics (ITL) package, complete with landed-cost calculator, as a result of the acquisition of From2 Inc. in March 2001. The combination helped Molzon to achieve his multi-pronged strategy of overhauling Solectron's transportation function, complying with a mass of regulations, and gaining visibility of inbound shipments.
Arzoon shared Molzon's vision of mapping a complete workflow on the transportation side and fostering the notion of a trading community, says Bob Bernardini, senior solutions consultant with Chicago-based SSA Global. The vendor started at the purchase-order level, integrating with Solectron's systems in order to obtain a copy of the P.O. management file. That created an "expectations" file, which was then fulfilled against supplier transactions.
Solectron became electronically linked to its suppliers, achieving visibility at the parts level with the help of advance shipment notices (ASNs). The company could track by P.O. or part number, accessing carrier data "at a level of detail that was unparalleled before," says Bernardini.
Smaller suppliers could also hook up to the system via Arzoon's user interface. When ready to ship, they could access a P.O., type in the quantity, then see the data moved automatically into a bill of lading.
Benefits to Solectron included the ability to choose "the right carrier for the right lane for a given shipment," Molzon says.
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