SOLTRONICZ EMS, INC.: Confronting Inefficiencies in Supply Chain Management What is SEI?

? SEI US-based Company engaged in the contract manufacturing of electronic products. Contract Manufacturing: is the process of producing goods needed by other firms for production of their product lines.

SEIs product lines are defined by their customers. Their competitive edge comes from its capacity to deliver quality goods at lower prices offering 50% in savings to its American customers. Main components of the business: top management sales and marketing project management support services Manufacturing

*these components are based in different parts of the world *frontline functions are performed in U.S., backend operations are conducted in the Philippines. Dispersion of Personnel and Managerial Components Top management: President, CEO, COO, marketing teams and project managers operate from the headquarters, Silicon Valley, California. Support services, accounting and finance operate from the Oakland, California office. Purchasing, inventory management, and logistics are done in the Philippines and Hong Kong.

Product Parts Purchasing Resistors, capacitors, transformers, integrated circuits are purchased in U.S. and Asia. Silicon Valley office- deals with U.S. vendors. Philippine office- also handles U.S. vendors and English-speaking suppliers of Asia. Hong Kong Office- handles Chinese-speaking vendors in Hong Kong, Taiwan, and China.

Prepared by: Fritz John T. Mingao ABPP-2 ; John Michael A. Suelo ABPP-2

Manufacturing is accomplished by manufacturers in Laguna, Philippines and Dongguan, China. High-end products are done in the Philippines. U.S. headquarters serve as hub of operations.

Personnel Project managers-serve as link between U.S customers and Hong Kong and Philippine offices. Account managers- responsible for operations that include receiving and processing customer orders, purchasing parts from U.S. vendors and coordinating production and delivery with Asian offices. The company has 52 employees. 14 in California (top management, sales and marketing, accounting, project management) 20 in Philippines (production engineers, quality control inspectors , warehouse personnel, production planning, control staff, inventory analysts.) 18 Hong Kong and China (similar functions with that of the Philippine offices.)

SEI Business Process Overview Marketing and sales is done in California. Customer orders are received and process by project managers in California. Project managers input orders into the Materials Requirements Planning (MRP)software, which factors in production requirements and lead times. MRP generates a schedule of parts to purchase, indicating quantities, and when and where purchases need to be made in order to meet particular orders. Project managers in California and a support group of buyers in Hong Kong and Philippines make purchase decisions. Project managers have ultimate responsibility for purchase decisions, and they can veto decisions made in Asian offices.

Although electronic components are being brought from practically anywhere in the world, 60%-70% are sourced from China, Taiwan, and Hong Kong. U.S. vendors deliver parts to the U.S. offices which they convey them to production sites in China and Philippines. Vendors outside the U.S. send parts directly to manufacturing sites in Asia.

Prepared by: Fritz John T. Mingao ABPP-2 ; John Michael A. Suelo ABPP-2

Manufacturing is outsourced to contract assemblers. Hong Kong and Philippines offices oversee the assembly in Dongguan, China and Laguna, Philippines respectively. Barring major problems, standard lead time is 8 weeks. Once production orders are completed in China and Philippines, finished goods are delivered to the U.S. offices. The U.S. offices deliver the finished goods to the cutomers.

Chronological Arrangement of Events 1982- started as Printed Circuit Board (PCB) design company. 1986- expanded its product line to include Printed Circuit Board Assembly (PCBA) and box builds. 1997- Materials Requirements Planning Software was installed. 1998-2000-tremendous growth in the information technology brought by Y2K scare and the release of Windows 98. 1999- grossed sales of $15M 2000-grossed sales of $21M 2001-continued to expand product line s based on clients needs and specifications. 2001-dropped in revenues to only $14M 2001- backlogs of orders rose to 30% 2002-dropped in SEIs revenue to only $11M 2003-backlogs dropped to 13% 2003-end-of-the-month report showed a lot of non-moving inventory.

Statement of the Problem How to arrest inefficiencies in the supply chain management in order to meet existing customer demands and lessen company losses.

Alternative Courses of Action 1. Advancement of 1 product line. A shift from customer-driven strategy to a fixed line of product.

Strengths:

Prepared by: Fritz John T. Mingao ABPP-2 ; John Michael A. Suelo ABPP-2

1. The company can focus more on the production of such product thus enhancing quality and efficiency. 2. The theory of comparative advantage could be applied in this case. (comparative advantage is the ability to produce particular product at a cheaper opportunity cost) 3. It will be easy to promote 1 product line and they will not find it hard to source the parts for assembly since they will only focus on one product thus they will be able to beat deadlines an satisfy their customers with their quality product line.

Weaknesses: 1. They will lose their edge against other companies of the same nature to them because producing products as specified by the customers is one of the advantage of SEI. 2. They will lose some of their customers and they will not afford losing a portion of their revenues. 3. it will take time for them promoting a single line of product and it will also mean that they will start again, which means that for some time they will experience a decline in revenue.

2. Limit the acceptance of orders with lower quantities than the specified minimum allowable order. Strengths: 1. They will be able to avoid supply surplus thus minimizing losses from products which are sold for lower prices because of low demand. 2. Instead of purchasing parts to be assembled for the production of low volume orders, the company can use the capital in the production of bulk orders for bigger companies thus producing quality products and maintaining customer satisfaction from bigger companies. 3. They will not spend a lot of effort, time and capital producing low volume orders .

Weaknesses:

1. They will lose their customers ordering low volume orders. 2. They will lose a portion of their revenues coming from small companies purchasing small orders. 3. They will be changing their customer-driven strategy which may trigger the decline in the satisfaction of the companies being served.

Prepared by: Fritz John T. Mingao ABPP-2 ; John Michael A. Suelo ABPP-2

3. Devise new logistics. (is the management of the flow of goods between the point of origin and the point of use in order to meet the requirements of customers or corporations. Logistics involves the integration of information, transportation, inventory, warehousing, material handling, and packaging, and often security.) Strengths: 1. This will yield long term effects. 2. This will enhance the performance of the company and everyone affiliated to it. 3. This will bring new ways of doing things thus altering the previous system which was seen to be less effective.

Weaknesses: 1. This will take time to accomplish. 2. It takes a lot of effort at the same time money to have an overhaul of the entire system. 3. For the mean time they will still sacrifice the stability of their company. 4. They might not survived the present situation and overhauling the entire system for a long period of time might not prove effective as it may be too late for them to do so.

4. Stop or at the least minimize Forward-buying. (It is purchasing retail inventory in quantities exceeding current demand, usually when manufacturers, or other suppliers, offer temporary discounts.) Strengths: 1. They will be able to minimize surplus of supply. 2. They will be able to cut down losses from unsold products as a result of excess in production. 3. This will help them save some capital which might be used in the production of other goods.

Weaknesses: 1. They will not be able to benefit from discounts offered by vendors of pre-assembled parts. 2. They will have to find another way of accumulating parts for assembly since forwardbuying was their accepted mode of purchase.

Prepared by: Fritz John T. Mingao ABPP-2 ; John Michael A. Suelo ABPP-2

5.Simplify the Materials Requirement Planning System, compel strict compliance in its use, and train project managers in the use of the system and in the interpretation of data it feeds them thus ensuring quality maintenance in the production of goods and minimizing excess orders in the inventory.. Ensure materials are available for production and products are available for delivery to customers. Maintain the lowest possible material and product levels in store Plan manufacturing activities, delivery schedules and purchasing activities.

Strengths: 1. Their problems in inefficiencies resulted primarily in the use of a complicated MRP system which is redundant, time-consuming, error-prone, and contributes to frequent backlogs. 2. Project managers felt that updating data is tedious and a waste of time. 3. Project managers do not see the encoding of detailed information into the complicated MRP system as a part of their job. They would prefer doing it manually. 4. This is also to compel compliance and ensuring better circulation of information. 5. Bypassing the system was a waste of considerable investments and resulted into double entries-electronic and manual. 6. It will be easier for the project managers to interpret data with simplified MRP. 7. Training them means enhancing their capacity and improving the quality of service. 8. Minimizing the accumulation of non-moving parts will also minimize the companys losses.

Weaknesses: 1. It takes time, money and effort to simplify the MRP software since installing a new one will cost the company some amount. 2. Sending the project managers into training also costs money. 3. There is no assurance that there will be 100% compliance in the use of the new MRP system.

Prepared by: Fritz John T. Mingao ABPP-2 ; John Michael A. Suelo ABPP-2

4. There is no assurance that the new MRP system will work well or better than the previous.

Conclusion Upon analysis and discussion we have come into a consensus and therefore conclude that SEI should adopt Alternative Course of Action number 5. They should Simplify the Materials Requirement Planning System, compel strict compliance in its use, and train project managers in the use of the system and in the interpretation of data it feeds them thus ensuring quality maintenance in the production of goods and minimizing excess orders in the inventory. This decision of adopting ACA#5 is based upon the following rationale: 1. They can arrest their problems by simplifying a complicated MRP system which is redundant, time-consuming, error-prone, and contributes to frequent backlogs. 2. Project managers will be able to understand and make use of a simpler MRP thus enhancing their productivity and quality of service. 3. Project managers will now use the simplified MRP system which will help them fasten their work, and lessen the chances of double entries. 4. Compelling strict compliance in the use of MRP means ensuring better circulation of information and improve fast pace of progress. 5. Waste of considerable investments due to bypassing of the MRP system will be lessened. 6. It will be easier for the project managers to interpret data with simplified MRP. 7. Training them means enhancing their capacity and improving the quality of service. 8. Minimizing the accumulation of non-moving parts will also minimize the companys losses. 9. With the use of new MRP system the company is rest assured that they will meet their deadlines, thus satisfying customer demands and producing quality products. 10. With this step, the company is already cutting down losses and subsequently solving other problems.

Prepared by: Fritz John T. Mingao ABPP-2 ; John Michael A. Suelo ABPP-2