Solectron: From Contract Manufacturer to
Global Supply Chain Integrator
Solectron Corporation is but another classic case of a company that benefited immensely from the dot.com boom, only to experience the pains of the bust as the dot.com companies went down in the early 2000s. From its humble beginnings in Milpitas, CA as a solar energy products manufacturer, Solectron grew to be a highly successful global supply chain integrator with revenues of $18.6 billion by 2001. From the time it was founded in 1977 through 2000, the company grew in leaps and bounds mainly through lateral acquisitions.
After struggling as a manufacturer of solar energy products, the company moved to making printed circuit boards (PCBs) for other electronics companies. Solectron was so successful that it is credited with changing the PCB job business into an important contract manufacturing industry. The corporation manufactured many different products for its customers, which covered computers (docking stations, mainframes, PCs, servers etc.); telecommunications (access equipment, base stations, IP telephony equipment, mobile phones); networking (hubs, modems, NICs, switches, routers) and Computer peripherals (disk/tape drives, laser and inkjet printers).
Quality and corporate culture are two characteristics that helped Solectron to succeed and stand out from other manufacturers. Right from when the company was started Dr. Chen, the company president, instilled a culture of superior customer service and respect for the individual to all employees. So strong was the focus on quality that the company aligned its practices with the Baldridge National Quality Award standards; an award Solectron eventually won in 1991 and again in 1997. The Solectron culture comprised of regular quality meetings, self-examination of performances; Quality Improvement Process (QIP); rewarding performance; soliciting feedback from customers, and a focus on customer satisfaction. Quality became a competitive advantage for Solectron.
As Original Equipment Manufacturers (OEM) outsourced more and more of their manufacturing and services, Solectron evolved from a contract manufacturer to a global supply chain integrator, with a significant increase in the volume and scope of services it offered. This growth is witnessed by the company’s substantial increase in revenue from $3.7 billion in 1997 to $18 billion by 2001 - a factor of more than four in as many years. As reflected in the case, the company’s stock appreciated by a factor of 280 between 1989 and 2000.
It is interesting to note how the company went on an asset acquisition process with its new 1992 business model that consisted of buying manufacturing sites from companies like IBM, in exchange for long-term contracts. Solectron acquired facilities from more than 20 companies that included HP, Texas Instruments, Sony etc. This made economic sense during the prevailing business environment, but based on economic and business cycles, acquiring such a huge asset base was a recipe for disaster. When demand falls as it eventually did, Solectron was stuck with assets that included excess work-in progress and finished goods, as well as idle plants ' reminiscent of the current economic downturn.
As business continued to grow in the late ‘90s and early 2000s, Solectron came up with innovative ideas of managing acquisitions and improving performance. The company capitalized on OEM industry consolidations whereby consolidated OEMs preferred strategic partnerships with only a few top-tier manufacturers that had no geographic distribution limitations. The company was able to establish such partnerships by expanding its base through acquisitions; thereby creating facilities and supply chains that were close to customers. Solectron also jumped on the bandwagon of lowering costs by moving some of its production to cheaper regions like South America and Asia. Given the size of the company, a heavy...
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