Business Finance - Accounting Week Three Assignment 1 Instructions

www.flextronics.com

Silicon Valley Product Innovation Center

Where Passion and Technology Unite

Executive Summary

Title: End-to-End Supply Chain Innovation and Technology

Transformation

Organization: Flextronics International, Inc., Milpitas

Authors: Tim Griffin (Senior Director, Supply Chain and Materials),

Alex Tong (Lean Manager) and Rahul Newasekar (Lean Manager)

Speaker/Presenter: Tim Griffin

Summary of Initiative

Products, such as wearable electronics with highly advanced body sensors,

are being developed in Silicon Valley and are driving a transformation in global

supply chain requirements. These new products are so disruptive, they are

changing the way people live, and are creating brand new industries. The rapid

pace of development and shortened time-to-market expectations require a

completely advanced level of synchronization across the end-to-end supply

chain – product design linked to fast material acquisition, prototype

manufacturing, volume production ramp and end customer fulfillment.

Flextronics, a leading end-to-end supply chain solutions company with over

100 locations worldwide, recognized the rapidly increasing investment and

product innovation in Silicon Valley, and created a vision in 2012 to transform

its Milpitas manufacturing location into a state-of-the-art Center of Excellence

supporting these supply chain needs. Within 18 months, the Milpitas, CA

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campus transformed every element of its supply chain offering, and created one integrated end-to-end supply

chain solution for its customers – the Silicon Valley Product Innovation Center. Flextronics focused on the total

product life cycle – engineering technology labs to support early design and proof of concept validation, an

upgraded manufacturing center dedicated to quick-turn prototype production with advanced 3D plastic and

metal printing capability and customer-confidential manufacturing work spaces that include increased security

and restricted access to protect customers’ Intellectual Property (IP). The aggressive transformation was

managed with an established foundation of strong LEAN principles and mindset, which drove a strong culture

of passion and improvement through the organization. The result: dramatic reduction in customer cycle times

to launch new products, an increase in new customers at Flextronics Milpitas, significant growth in revenue,

improvement in employee and customer satisfaction, and recognition by Industry Week Magazine as one of the

Best Plants in America for 2013!

Innovation Statement

Flextronics created a vision of a premier innovation center and turned the tide on a decade of manufacturing

industry development primarily focused in overseas manufacturing, to create a “one-stop shop” in Silicon Valley.

The Product Innovation Center supports its customers’ complete end-to-end supply chain requirements. New

start-up companies can bring ideas written on a napkin, and the Product Innovation Center can turn their ideas

into reality.

Impact Statement

To date the Product Innovation Center in Milpitas has resulted in an addition of 47 new customers, nearly

double the number supported in 2012. Quarterly revenue has increased 30 percent (a 9.1 percent average

over the last four quarters), with multiple additional new customers in the future business pipeline. In 2013

the Product Innovation Center completed 1,261 new product launches (five per day!) while managing over

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11,000 engineering changes – a worldwide benchmark of 45 per day. Employee satisfaction has increased

by 15 percent from 2012 through the present, and customer satisfaction has increased by five percent in the

same timeframe.

Applicability

The successful development of the Product Innovation Center highlights the opportunity and impact of

synchronizing the end-to-end supply chain performance across multiple functions, and demonstrates the benefit

of co-locating these services as a one-stop supply chain solutions center. The process used to drive the

transformation includes a strong LEAN culture that expands beyond manufacturing production operations into

all functions and supply chain partners. Flextronics has taken the Product Innovation Center concept and

approach developed in Milpitas and deployed it to multiple global sites.

1. Who We Are

Flextronics delivers design, engineering, manufacturing and logistics services to a range of industries and end-

markets, including data networking, telecom, enterprise computing and storage, industrial, capital equipment,

appliances, automation, medical, automotive, aerospace and defense, energy, mobile, computing and other

electronic product categories. Flextronics is an industry leader with more than $24 billion in annualized sales,

generated from helping its customers design, build, ship, and service their products through an unparalleled

network of facilities in more than 30 countries and across four continents. Flextronics’ service offerings and

vertically integrated component technologies optimize customer supply chains by lowering costs, increasing

flexibility, and reducing time-to-market.

Established in 1990, the Milpitas site is a 600,000 square foot campus with 12 buildings and is located in the

heart of the Silicon Valley—host to 20 percent of the fastest growing companies in North America. Capabilities

include the assembly of printed circuit board (PCB), full box build and system integration, supply chain

management and direct order fulfillment services.

www.flextronics.com

Figure1: An Aerial View of Flextronics Milpitas site

The facility serves customers including high potential start-ups as well as blue chip companies from various

industry sectors including solar and green technology, internet high end servers, high speed switches and

routers, data security, data storage, aerospace, medical, electromechanical assemblies and consumer

electronics. Lean and Six Sigma DNA are embedded throughout the plant workforce, which enables continuous

improvements on customer time-to-market, cost, productivity, flexibility and quality.

2. End-to-End Value Stream Business Model

Traditionally, Flextronics’ Milpitas site capabilities have focused on low-volume high-mix PCB assembly and

system integration services for Original Equipment Manufacturing (OEM) customers. Based on product

development phases, Flextronics Milpitas’ site provides services from prototype builds to repair and

refurbishment for our end customers. As highlighted below, we plan, procure and assemble parts based on our

customers’ product bill of materials, make finished products, and ship them globally from onsite warehouses

utilizing advance business process tools. Flextronics is our customers’ supply chain, and is a vital element

in their success.

www.flextronics.com

Figure 2: End-to-End Value Stream of Supply Chain

The Flextronics Milpitas site procures 58,000 components from 780 suppliers worldwide serving 100 customers.

The raw components are obtained through various mechanisms such as Supplier Managed Inventory and

Continuous Replenishment Programs for reduced lead time acquisition and procurement.

Material flows from the warehouse to line side supermarkets for easy and defect free replenishment to the

manufacturing line. Within this complexity, the Flextronics Team takes pride in providing high flexibility to our

end customers.

Figure 3: An Integrated and Closed Loop System Provides Ability to Timely Respond to Quality, Cost and

Delivery Data

Milpitas Flextronics site serves Build-to-Order (BTO), Configure-to-Order (CTO), Make-to-Stock (MTO) and

Direct Order Fulfillment (DOF) business models for end customers. All above business models are supported

by robust global application architecture, which includes Agile®, a product database management system to

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track product engineering changes for our end customers and Flex Flow®, an internally developed shop-floor

database system to track product information on the production floor to control quality, product genealogy and

history.

Flextronics Milpitas uses BAAN® for our ERP system for production planning, master production scheduling

and material requirement planning for seamless end-to-end execution of material inflow and finished goods

inventory outflow for all 100 customers. The flexibility of the above system architecture and in-house business

process solutions enables the Milpitas site teams to communicate information seamlessly to our customers and

suppliers 24/7.

3. Opportunity

The emergence and acceleration of Wearable Technology (WT) products converged in Silicon Valley from 2010

to 2012. Some of the products include augmented reality eyeglasses, headbands for monitoring brain activity,

concussion sensors nestled within a helmet, sensor-guided canes for the blind and smart t-shirts for soldiers in

the battle field. The current burgeoning wearable market led by industry giants like Google, Samsung and Nike

has captured the attention of a wider mass of professionals and start-up companies, and is promising to be a

critical game changer in the technology landscape. The supply chain demands supporting product development

and innovation exposed gaps in the services available in the Electronics Manufacturing Services (EMS)

industry.

i. Advanced Manufacturing and Engineering Collaboration. Very sophisticated tools and a high

degree of specialization in multiple disciplines are required to design, prototype and manufacture WT

products. A streamlined product development process and manufacturing flow is a prerequisite to

deliver on schedule and within the established cost targets. Manufacturing engineering needs to pull in

established processes from a very wide range of manufacturing technologies, and modify and

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appropriate them successfully. EMS providers’ capabilities typically have been spread across locations

globally, as well as through multiple partners.

ii. Consumer Product IP Protection. Since the new products in this growing industry are primarily

consumer focused, and looks/shape/feel are differentiators, the capability of tighter security controls

through the material management and manufacturing process become critically important. EMS

providers must manage these requirements within a system that by definition supports multiple

customers.

iii. Time-to-Market/Location. The race to release new products and implement new ideas drives a

significantly accelerated pace of product concept through prototype through production manufacturing.

Engineers do not have time to travel to China back-and-forth for the many steps and iterations in the

process. Changes must be made rapidly, and hands-on joint work running prototypes and analyzing

output cuts weeks out of the development process. Matching the speed of innovations was a major

challenge for any conventional Supply Chain team.

Figure 4: Challenges to Conventional Supply Chain

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4. Value proposition

Recognizing the emerging needs and demands of this new and developing marketplace, Flextronics ‘leadership

set a vision to create world class innovation centers around the globe. The Milpitas site was selected from

Flextronics’ 125 global sites to be a pilot for the Center of Excellence initiative – making it a customer gateway

to the company’s worldwide capabilities. The plant management’s objective is to drive continuous

improvements to make Milpitas a supply chain business process excellence and technology hub, creating a

favorable environment for inventive entrepreneurs and emerging customers from Silicon Valley.

The Milpitas site’s value proposition is to:

 be the Flagship Center of Excellence Gateway Launch Center

 offer the best possible total customer experience and service level

 provide end-to-end solutions to enable full customer scalability

 lead in advanced technology with state-of-the-art equipment to support fast product development and

launch; and

 promote a success driven environment, culture and mindset through its organization and people.

www.flextronics.com

Figure 5: Creating Value to Our Customers

5. Transformation: Setting the Roadmap

The transformation process of a PCBA manufacturing facility to Product Innovation Center began with an

approach of identifying gaps to the vision, and creating and executing an action plan by assigning owners and

driving transformation through the site’s continuous improvement program. At a three-day summit meeting,

subject matter experts around the world discussed the requirements needed for the Milpitas site to become the

Center of Excellence in Silicon Valley across multiple functions and technologies, resulting in identifying the

Gap Analysis. After brainstorming and role playing as customers, the group developed a vision, a gap analysis

tracker, and a time line for different phases of the journey.

The site assigned seven leaders who worked in a collaborative environment to facilitate and close the gaps in

Sales and Business Development, Technology, Engineering, Operations, Materials, Quality, and Business

Process.

Figure 6: Gap Analysis Summary

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Actions from the gap analysis were planned and executed in phases as follows:

Figure 7: Product Innovation Center Roadmap

i. Continuous Improvement:

At Flextronics, continuous improvement (CI) is driven by the leadership team across our organization,

and involves all levels of employees from all functions utilizing Lean and Six Sigma tools and

methodologies. CI focuses on eliminating ‘waste’ and adding ‘value’ to our processes in order to improve

quality, cost and delivery (QCD) -- part of our competitive advantage that creates customer satisfaction.

Continuous improvement activities at the Milpitas site are deployed through External Kaizen Workshops

(EKW), Internal Kaizen Workshops (IKW) and Small Group Activities (SGA).

Figure 8: Deployment approach

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Preparation for Kaizen projects begins with a development of a formal business case using the PDCA

(Plan, Do, Check and Adjust) approach. The Kaizen team will initiate a problem statement with Adjust

(Voice of customer or shareholder expectation). Based on the gap and problem statements, the teams

define the plan of engagement based on the Flextronics Lean Maturity Tracker or Lean methodologies.

As part of Do, the team performs improvements at Gemba by applying 3G approach (Gemba - actual

place, Genbutsu - actual product, Genjitsu - actual fact) and the effectiveness of improvements is

sustained through Check.

ii. Driving Transformations:

Multiple cross-functional teams were formed at the site level to fix the gaps and improve the end-to-end

supply chain business processes. The internal supply chain execution tools were streamlined to remove

manual steps, increase efficiency and reduce time required to gather information on material availability

and procurement. The Milpitas Collaboration Portal (MCP) is a consolidated dashboard of critical tools

that automate business processes including:

 Item Validation (to continuously validate procurement parameters of parts)

 New Buys Quote and Procurement (to automate the quote generation for immediate turn-

around on new material requirements)

 Component Availability (for one-touch visibility to a material clear-to-build analysis)

 Excess and Obsolete (E&O) visibility, and

 Part Number Change (to share common components across projects and reduce acquisition

time).

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Benefits from this portal include:

 Reduction in processing time, using automated tools and 24/7 access to all site teams.

Improved communication between multiple departments spread across multiple geo-

locations

 Simultaneously supports all site customers

 Ease of doing business through poke-yoke business processes and fast access to historical

data

Figure 9: Milpitas Collaboration Portal

All of the above transformational changes were fueled by active employee participation. An online in-

house continuous improvement portal was created by site Business Excellence and IT teams to assist

site teams to track end-to-end supply chain continuous improvement projects, improve our customer

satisfaction levels, and meet our management goals.

Figure 10: Business Excellence Portal for Sharing and Proliferation of Best Practices

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6. Outcome

After 18 months of hard work toward a defined leadership vision, Flextronics created a state-of-the-art “one stop

shop” Product Innovation Center. Capabilities above and beyond current available options for our customers

are offered to strengthen US manufacturing and create a worldwide Center of Innovation.

The newly created Product Innovation Center covers all phases of the product life cycle. Highlights of the center

are listed below with enhanced capabilities across each phase of the product life cycle.

Figure 11: Various Phases of Product Life Cycle

Figure 12: Enhanced Capabilities of Flextronics Milpitas

The success of the process to develop and launch the Product Innovation Center was recognized by our

leadership:

Product life Cycle Phase Capabilities

Product Concept  Incubator Accelerator (LabIX) &

 Innovation Design Lab

Design & Engineering

 Failure Analysis Lab

 Advanced Engineering lab

 Robotics & MicroElectronics lab

Rapid Prototyping  NPI, 3D Printers – metal & plastic

 Sheetmetal

Product Stabilization

 End-to-end leading edge manufacturing - with

State-of-the-Art Equipment & Supply Chain

Solutions

Volume Production

Repair & Refurbish

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"We have invested more than $40 million dollars to date in this 600,000 square-foot campus that supports major

industries in bringing innovative products to market rapidly in a confidential environment," said Mike McNamara,

CEO of Flextronics. "Our investment in this facility underscores our commitment to our customers' success and

providing end-to-end supply chain solutions that enable and scale innovation."

Customer quotes on PIC services:

7. Benefits

The development and opening of the Silicon Valley Product Innovation Center has driven significant interest

from current customers, new customers and educational institutions wanting hands-on learning of end-to-end

supply chain real life applications. The Center hosted 387 tours in 15 months from October 2012 to December

2013.

The surge in activity has resulted in the following benefits for Flextronics:

Figure 13: Facts & Figures on Customers Interest in PIC

“ We are going to come out of the gate with a product and finish that we didn’t think we would be able to

accommodate for another year or so!” - President & CEO, Customer A

““Flextronics has shown an ability to anticipate problems before they happen and propose solutions. It’s a great

partnership!” - VP & COO , Customer B

” ….. Casey Stowe VP & COO Icedot

www.flextronics.com

 An increase in our customer base by 47 new customer accounts – from 53 in April, 2012 to 100.

 A quarter-to-quarter average increase in revenue of 9.1 percent -- driving a total run-rate increase of 30

percent from FQ3 2015 versus FQ4 2014.

 A new business pipeline engagement of multiple potential customers in the wearable and consumer

market segment, along with additional across other market segments such as networking and industrial

products.

8. The Future

Flextronics’ focus on the end-to-end supply chain solution supporting innovation in Silicon Valley has expanded

the company’s presence in two key ways moving forward. First, the initiative, while focused in the global

integration of supply chain offerings from Flextronics, is resulting in more and more customers keeping

manufacturing in the USA – either ramping to volume at the Milpitas site or moving to other US locations. The

site has become the pilot site for a broader “Made in the USA” initiative of Flextronics to support the growing

on-shoring trend of manufacturing back to the USA.

Second, the PIC offering has been integrated into an accelerator program launched by Flextronics, called LabIX,

which reaches out to very early start-ups. The co-location of this venture with the Product Innovation Center in

Milpitas gives new start-up companies the workspace, tools and access to the advanced benefits of prototype

to volume manufacturing and supply chain services.