Geography of Production Linkages in the Irish and Scottish Microcomputer

Hardware Industry: The Role of Logistics.

Dr. Chris van Egeraat

Dublin City University Business School

CISC Seminar, July 2003

Structure of Presentation

New High Volume Production Approaches NHVP in the microcomputer industry NHVP argument for proximity - logistics Findings

Geography of production linkages Logistical arrangements (hubbing) key-logistics data

Conclusions and policy recommendations

NHVP Approaches

Lean Production/Supply (Womack et al./ Lamming) Mass Customisation (Pine) Time-based Competition (Stalk and Hout)

Answer changing market needs - fast response, greater variety and customised products. All achieved with little cost penalty

Customer relations and distribution system - fast response and reduction of inventories

Assembly plant - JIT production and build-to-order Supply chain - JIT supply

NHVP in the Microcomp. Hardware Industry Great variety, customised, short order lead times Minimise inventories of finished systems BTO production strategies JIT manufacturing

Market for microcomputers characterised by strongly fluctuating and unpredictable demand. - The inventories in the supply chains could not be minimised without the risk of inefficient use of machinery and labour at the suppliers.

Agglomeration Factors

Agglomeration factors NHVPargument

Factorsrelated tothe labourmarket

A local pool of workers maximising job-matchingopportunities

Factorsrelated toproduct flow

Efficient product flow/logistics

Efficient formal information exchange in the contextof inter-firm functional integration

Efficient formal information exchange in the contextof vertical disintegration

Factorsrelated toinformationflow

Socio-cultural and institutional factors enhancingformal and non-formal information flow betweenactors that are part of the local milieu.

NHVP Argument for Buyer-Supplier Proximity

NHVP approaches involve a greater appreciation of the costs of holding inventory.

TLC = ordering/set-up costs cost + inventory holding costs + cost of transporting the goods

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CLMPs - JIT

Outcomes of the CLMPs

Elimination of buffer inventories; kan-ban deliveries on a daily basis; near synchronous production; co-location - ‘True JIT’, ‘Full JIT’

At the other end of the spectrum the pipelines of components might involve less frequent shipments, substantially higher buffer inventory levels and suppliers located at great distances

Labour cost differences among regions

Value, bulkiness and weight of components

Minimum efficient scale of component production

Variety of options per component category

Material input Main geographical sources of parts and componentsEnclosures andracks

For high-volume models and portables: mainly local andto a lesser extent Far East; For less current models andracks: USA and local

Motherboards,backpanels and risercards

For most focal companies: Mainly Far East and, to alesser extent, USA; For two focal companies: mainlyScotland and England

Microprocessors Mainly South-East Asia, small amounts from Ireland;For proprietary technology: USA

Memory Mainly Korea and Japan and small amounts from USAand Europe

Hard disk drives Far East, notably SingaporeFloppy drives Far EastCD-ROM drives; CD-RW drives and DVDdrives

Far East

High capacity discand tape drives

For lower-end technology: mainly Far East;For higher-end technology: USA, Far East, and Europe

Sources of Material Inputs

Power supply Low-end: mainly China, Malaysia and Thailand;High-end: USA and, to a lesser extend, Far East, Europeand England

Heatsinks Mainly Far East, notably Taiwan; to a lesser extent USAand England

Cooling fans Mainly Far East; to a lesser extent USA; some Englandand Germany

Batteries and AC-adapter (forportables)

Far East

Modems and networkcomponents

Mainly Far East and USA, although four suppliers weremanufacturing in Ireland

Graphics, video andsound cards

Mainly Far East, notably South-East Asia; Individualsources in USA, Canada, Mexico and Germany

Cables andinterconnect

Mainly the Far East and, to a lesser extent, Ireland andScotland.

Screws, fastenersand other c-classitems

USA and, to a lesser extent, local

Sources (Continued)

Displays Mainly Far East; Wales and England for few selectedmodels.

Keyboards, miceand joysticks

Manufacturing in Far East, notably China and South-EastAsia;Printing of non-English language key-board models local

Printers Mainly Far East; to a lesser extent USA, Canada, Europeand England

Scanners No precise data, but not in Ireland or the UKDigital cameras Far EastSpeakers andmicrophones

Mainly Far East, notably China

Docking stations Far East and on-siteMedia Printed manuals: mainly Ireland, and to a lesser extent

Scotland;CD replication: Ireland, Scotland, Wales, Germany andUSA;Wrapping of digital and printed media: local

Accessory kits LocalPackaging material Local

Sources (Continued)

compl. system assembly (subcontracting)

keyboard local isat ion (key-cap printing)

packaging (board, foam, plast ic)

Key

Source: company interviews

monitors

microcomputer assembly plant

metal and plast ic parts, typically involvingsome sub-assemblymedia (print ing and disc reproduction)mainly ki tting of media and other languagespecific components

sub-assembly or rework service

PCBA, incl. sub-assembly in some cases

other

cables, connectors, terminators, etc.

Suppliers of the Scottish P lants

compl. system assembly (subcontracting)

keyboard local isat ion (key-cap printing)

packaging (board, foam, plast ic)

Key

Source: company interviews

monitors

microcomputer assembly plant

metal and plast ic parts, typically involvingsome sub-assemb lymedia (print ing and disc reproduction)mainly ki tting of media and other languagespecific components

sub-assembly or rewo rk service

PCBA, incl. sub-assembly in some cases

other

Suppliers of the Irish P lants

cables, connectors, terminators, etc.

Inbound Pipeline Structure

Hubbing Turnkey supply-chain-managers Local manufacturers holding buffers

Most pipelines involved locally stored buffers of finished components on the books of the suppliers

Interpreted as a pseudo or apparent JIT system that holds little benefit for the supply chain as a whole. However, the use of hubs, in itself, does not necessarily mean that the supply system is sub-optimal.

Main Third-party Logistics Hubs - 1998

IE

WW

IE

IE

WW

IE

IE

IENE

FW

FM

Key

Source: company interviews

Microcomputer Assembly Plant

Mayor Third Party Logistics Hub

IE Irish Express

WW Walsh WesternNE

FW

FM Frans Maas

Nippon Express

Fyfe Warehousing

Control over Pipelines

I give [the suppliers] my MRP every week for that product and I expect them to manage the chain between them and the hub, I expect them to turn it up, down, slow it fasten it and manage it so that I always have 10 days [worth of inventory] in the hub. … We run queries here every day by part number which sends out an exception report which shows me what suppliers have less than 10 days. And the buyers call them. And it also shows us what we have too much of. And we than proactively take actions twice a week. … All the vendors are on-line to Irish Express Cargo [the 3pl hub]. All the vendors have the same kind of contact. That is a criterion that Gateway gives (Interview Flynn, Gateway, 1999)

Average targetbuffer levels

Average numberof days betweenshipments

Typicalpreferred modeof transport

Material inputs Far Eastand AmericasMicroprocessors 4 2 planeFlat panel monitors 5 5 limited dataMemory 8 3 planeLCD displays 8 4 no typical modePartly integrated portables 10 4 planeTape back-up/ autoloaders 9 5 planeAC adapter 9 5 planeHard disk drives 9 5 planeCRT monitors 9 5 shipSmall plastic metal parts 10 5 no typical modeFloppy drive 9 5 no typical modeCD ROM drive 9 5 planeCD RW drive 10 5 no typical modeCombo drive 10 5 limited dataZip drive 10 5 planeDocking stations 10 5 no typical modeJoysticks 10 5 shipScanner 10 5 shipServer racks 8 7 no typical modeSound/video/graphics cards 9 6 planePower supplies 9 6 shipDVD drive 10 6 planeModem/network cards 9 7 planeEnclosures 9 7 shipMotherboards/backpanels 9 7 planeHigh volume keyboards 10 6 shipPrinters 10 6 shipEnclosures for portables 10 7 shipHeat sinks 9 7 shipMicrophone 10 8 shipCooling fans FE 10 9 shipBattery for portable 13 6 no typical modeRiser cards 10 9 planeSpeakers 13 7 shipMice 13 9 planePower cables 14 10 shipOther cables 15 11 no typical mode

Key Logistics Data

Key Logistics Data (Cont.)

Average targetbuffer levels

Average numberof days betweenshipments

Typicalpreferred modeof transport

Screws and fasteners 35 40 plane

Material inputs EuropePower supplies 5 2 truckCRT monitors 8 2 truckTape back-up/ autoloaders 8 3 truckm' boards/ backpanels 10 1 truckMemory 8 3 truckEnclosures for portables 10 2 truckCooling fans 10 2 truckHard disk drives 8 4 truckOther cables 10 2 truckPrinters 10 5 truckSound/video/graphics cards 10 5 truck

Material Inputs Ireland andUKPackaging 2 truckLow volume keyboards 2 truckCountry kits 2 truckCD ROMs (wrapped) 4 truckPrinted media (wrapped) 4 truckHeat sinks 5 truckEnclosures 5 truckHard disk drives 6 truckServer racks 6 truckSmall plastic metal parts 9 truckModem/network cards 9 truckm' boards/ backpanels 9 truckPower supplies 10 truckCRT monitors 10 truckPrinters 10 truckFlexcircuit 10 truckPrinted labels 13 truckPower cables 13 truckOther cables 13 truckCooling fans came

integratedtruck

Conclusions

Vast majority of components from the Far East and pipelines involved inventories in hubs

However, logistics systems are not sub-optimal

Policy implications

One should not expect a drive in the direction of ‘true-JIT’ and an increase in local sourcing.

The strategy of building integrated vertical production clusters around subsidiaries of MNEs is unlikely to meet with success. - ‘Local sourcing route to cluster development’

Alternative is ‘technological innovation route’ (Young et al. 1994).

Main microcomputer assemmblers - 1998

Source: Company interviews, 1998contract assembler

200-500 employees

computer company

Note: Only firms that carry out system assembly are included here.

4000-4200

1500-2100

1000-1500

500-1000

Main microcomputer assemmblers - 2003

Source: Newspaper articlescontract assembler

200-500 employees

computer company

Note: Only firms that carry out system assembly are included here.

4000-4200

1500-2100

1000-1500

500-1000

Job losses & Plant Closures Ireland

Western Digital 1992 Closure of automated circuit board facilityLogitech 1995 End of mice production activitiesKeytronics 1996 End of actual keyboard production activitiesSeagate 1997 Closure hard disk drives assembly facilityMitsumi 1998 Closure keyboard production facilityAlps 1998 End of actual keyboard production activitiesAcco 1998 Closure plastic component facilityApple 1998 Closure motherboard assembly facilityIntel 1998 Closure motherboards and system assembly facilityIntel 1999 Closed Pentium cartridge assembly facilityCTM-Southborough 1999 Job cuts at enclosure production and subassembly facilityQuantum 1999 Job cuts at tape/ hard disc configuration facilityFullarton 2000 Closure of enclosure production and subassembly facilityMKIR 2000 Closure of hard disk production facilityCTM-Southborough 2001 Job cuts at enclosure production and subassembly facilityVolex 2001 Job cuts at cable production facilityAPW Galway 2001 Job cuts at enclosure production and subassembly facilitySCI 2001 Job cuts at printed circuit board facilityModus Media 2001 Job cuts at media/kitting facilityIndustrial print 2001 Job cuts at logo manufacturing facilityFoxteq 2001 Closure enclosure production and subassembly facilityVolex 2002 Job cuts at cable production facilityFlextronics (Tullamore) 2002 Closure enclosure production and subassembly facilityFlextronics (Limerick) 2002 Closure of network component production facilityCTM-Southborough 2002 Closure enclosure production and subassembly facilityTrend Technologies 2003 Closure enclosure production and subassembly facilityMSL (Athlone) 2003 Closure printed circuit board facilityVolex 2003 Closure cable production facilityKeytech?

Job losses & Plant Closures Scotland

Ecco <1995 Closure keyboard production facilityIBM <1995 Outsourcing monitor and keyboard productionRodime 1991 Closure hard disk drive production facilityConner Peripherals 1993 Closure hard disk drive production facilityDigital Equipment 1995 Sale Alpha processor fabrication plant in Livingston

Closure processor packaging line in AyrSun Microsystems 1998 Outsourcing circuit board assembly to CEMs in Scotland and

EnglandClairemont Electronics(formerly Lithgow Electr.)

1998 Closure of monitor assembly line

Lite-On 1998 Closure monitor assembly facilityCompaq 1998 Shift of motherboard assembly line to SingaporeApricot 1999 Outsourcing motherboard assembly to MSL in IrelandIBM 1999 Outsourcing server board assembly to Solectron ScotlandAMP 1999 Closure of cable assembly facilitySeagate Irvine 2000 Closure disk drive configuration facilityAmphenol 2001 Closure cable assembly facilitySolectron 2001 Closure of motherboard assembly facilityTechdyne 2001 Closure of cable assembly facilitySanmina-SCI (Irvine) 2002 Closure of circuit board assembly facility[c1]Foxteq 2002 Closure enclosure production and subassembly facilityChunghwa 2002 Closure picture tube production facility

Compaq

IBM

SUN

Apricot-Mitsubishi

Gateway

AST-Samsung

Apple

Intel

Dell

Source: company interviews

Key

Packard Bell-NEC

Configuration centre

Figure 4.1. Location of microcomputer assembly plants of focal companies world-wide - 1998

Digital