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4.2 Case background ‐ ADVANSUS
Advansus Corp. was established in January 2006 as a joint venture between ASUSTeK and Advantech based on the strategic alliance agreement signed in September 2005.
The main scope of company operations is to provide both of the partners as well as their growing body of customers with the industrial computing and Design and Manufacturing Services (DMS).
The main idea was to have an platform, where both companies can share their industry talent to work on tailor made solutions and still keeping the costs low. This proved to be a successful move for both of the companies, where Advansus is working hard to become the industry global leader in its market niche.
Advansus has quite an unique position in the value chain, where we can see them an as both an imported and skilful supplier as well as an demanding customer to the suppliers of the
components they employ in their solutions. They often end to be very knowledgeable of both their suppliers and customers needs so that they can provide with the tailor made solutions tat are necessary.
They are in so called “embedded systems”, which means they do design computer subsystems that do control functions within a larger system, It is embedded as a part of a complete device, often including hardware and mechanical parts – embedded are dedicated to control and handle particular tasks.
In general, embedded systems have 3 main characteristics6:
1) They are designed to do some specific task, rather than general purpose computers for multiple tasks. Also, they usually have real‐time constraints that must be met (safety, usability, performance etc).
2) Embedded systems are not always stand alone devices – often they are small computerized parts within larger device that serves more general purpose (e.g. motherboard within PC) 3) The program instructions written for embedded are referred as firmware and are stored in
read only read only memory flash chips. They run very limited computer resources (little memory, small/no keyboard and screen etc.)
It is common that engineers would optimize these systems to reduce the size and cost or increase reliability and performance based on the customers need. To do so they will need to
6 http://en.wikipedia.org/wiki/Embedded_system
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have a complete knowledge of the components they employ on hand or extensive connections with their supplies. Also, the odds that they will work on something completely new with their suppliers are quite high. Therefore ADVANSUS is an good case to study the supplier‐buyer integration.
Sometimes they do employ the economies of scale, however usually they are working with smaller numbers and they aim their strengths on better customer satisfaction in niche markets.
4.2.1 Architecture
4.2.1.1 Differentiation
Advansus` products all utilize a great number of components. Motherboards, as an example – which is one of their flagship product and major source of their revenue – consists of 7 crucial areas of components at minimum. These are the sockets(or slots) to install the microprocessors, slots for memory, chipset which will form the interface between the CPU`s front side bus, main memory and peripheral buses, non‐volatile memory (such as Flash ROM or BIOS), a clock generator to synchronize the various parts of the system , slot expansion cards and finally the power supply. Also, nearly every motherboard will include connectors to communicate with input devices such as keyboard and mouse. Each of the categories mentioned above is not final, but rather a component group which will only increase the total number of components in the system.
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4.2.1.2 ‐ Connectivity
All these components are deeply interconnected – connection is the raison d`etre of the motherboard – to provide the electrical communication with the other components use to communicate. Therefore a deep knowledge about the components is usually necessary. This suggests, that the connection alignment is the reciprocal one – where ever element`s output is other element`s input.
4.2.2 – Innovativeness
4.2.2.1 Product newness
Although the components that the motherboards utilize are subject to constant change, there is not any critical innovation necessary within the motherboard industry. The typical innovation would happen within the switching arena (e.g. mixing the 3D video cards) – utilizing
components from different vendors or different models to coexists within one computer and thus increase its computing power, connectivity or power saving innovations etc.
Considering the Wheelwrigt and Clark concept, these findings does not suggest high innovativeness, nor the Booz, Allen & Hamilton one does. Most commonly we are seeing Improvement sand revisions of existing products – incremental innovations that build on the success of the previous research within the industry and technology.
4.2.2.2 Time to Market
The time to market issue might differ dramatically. There are several projects which take less than a year from the pre‐concept up to the marketing. These are most commonly the market extensions and additions to the existing lines. There are, however projects with longer time to market – these are usually projects of merely research importance whose immediate chance of introduction to the market is rather low. There projects usually take into consideration the medium to long term technology strategy of the company and are the link of the company to
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the future – to make sure they will stay competitive on the markets in the future as well and will possess the important technologies to do so.
4.2.3 Buyer‐supplier relationship in NPD
4.2.3.1 ‐ Supplier selection
Advansus` position in the supply chain is little different from the other two companies studied – as an ODM they are both component supplier and customer, depending the angle of view we employ. This offers us a great opportunity to explore the problematic from both points of views.
Still, Mr. Chang, who was kind enough to do interview with me mentioned, that the general principle stay the same and differences would be in only details of merely tactical substance.
4.2.3.2 Segmentation of suppliers and vendor management
In general, they divide their suppliers on strategic and non‐strategic suppliers. This division is based on the scare rarity of the component – meaning how easily can it be replace, its relative importance for the product. In this way, Intel is the top strategic supplier, who they wish to keep as close as possible, where suppliers of easily replaceable components have much lower strategic importance.
Another important factor is the business scale they wish to reach with the supplier – the transaction amount. Since Advansus is typical example of embedded company, who work with relatively smaller volume orders than consumer companies. For example introducing new supplier would create the risk of lowering the orders from the old suppliers, and in its
consequence jeopardizing the relationship between supplier and customer. Lastly, they would
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4.2.3.3 Supplier Roles
Still, we can observe that relationships7 between customer and supplier are important. There is an existing pool of suppliers, so called “Supplier List” with more than 100 suppliers onboard.
This list is managed mostly by procurement, but they might create a special group (consisting for example of quality, engineering etc as well), who would help to evaluate. They would evaluate and update these regularly based on their long term policy levels, pricing, competitiveness and engineering capabilities.
They would also keep track (technology bookshelves) on the technologies their customers posses and try to develop – the component information system. This system is maintained by the engineers themselves, who would coordinate with the procurement. This is so, since they have good understanding of the suppliers and can point out where their expertise is – and highlight potential suppliers of new technologies as well.
This is very important, since it they would choose the potential suppliers for new projects from this group – based on the past experience and also their assessment of suppliers capabilities – they would choose the most suitable candidates based on the two selection criteria.
On the supplier level, Advansus is trying to promote their own products and solutions in the same way. They would send newsletters and organize events to the counterparts from their customers – to show what is the direction of Advansus` innovation and where are their medium term targets.
Mr. Chang says:
“Its something like talent management on our employees – somebody goes in and the old guys – out…but changing suppliers is costy and risky, so we try to keep them.“
4.2.3.4 Reasons to invite suppliers
The main reason why they invite suppliers is their un‐ability to find suitable component for their project – there is some technology distance between the existing parts and what they want. As
7 The relationship building can be also seen on the example of the testing. Anytime they have cooperation with an new vendor, they would conduct their own testing along with the testing data provided by the supplier. After some time, once the relationship is longer and they can have better understanding if each other procedures, they would often waive the testing to save the cost. They would also often do the same thing in regard to their customer – after some time, their customer would usually agree to use the data from Advansus tests only and waive their own tests to save the costs.
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Mr. Chang says – They don’t have the out of box component but they might have the knowledge. So we invite them or commit some sort of investment.
As for Advansus` customers Mr. Chang has the feeling that the model is very similar – where their customers would also segment their suppliers into different groups based on their strategic importance. As for the main reason to be selected, however, he pointed out their technology capacity and engineering capabilities, instead of the rarity of the component. As he put it:
We have the technology and we are one of the leading companies in the industry. If you are doing something, you usually want to invite the leaders to ensure the success.
4.2.4 – Timing
If they think, that the supplier might have potential for Advansus, than they would invite them as soon as possible – usually during the concept stage already. Still, there is no real
understanding on any procedure in Advansus on when to invite –and even though it considered as a generally good idea to consult earlier than later – they would still invite whenever they feel its necessary, so lare introduction of supplier into the development is also nothing uncommon.
So their own understanding of the technology plays very important role – and they would ask merely on solution of a problem, they cannot solve by themselves in any other way.
At this stage, they would mostly expect to see something they can use in their new project immediately – as he comments on this:
We expect to give us some input. Whether the existing product from the supplier or their new product to be. We won`t be expecting them to give us any concepts on our design, rather we would like to have something tangible. Some THING we can start with
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4.2.5 Development responsibility and Development Scope
In this part the research findings regarding managerial alignment and scope of responsibilitie of each company during NPD are presented.
4.2.5.1 Managerial alignment
Mr. Chang believes, that proper alignment between the companies is very important for the development output. He mentioned, that I order to cope with the project successfully, complete support from all levels of the managerial structure are necessary. The relationship needs to be multilayer – from entry level PM to top manager...so we go from bottom to middle – e.g. our procurement and their sales would meet every time to time to discuss new products, strategies etc and to see whether are we compatible. And as for some strategic partnerships, the top management would have also some sort of this relationship. So when the new innovation happens, it involves the involvement of every each layer.
It is important to mention, that this structure and all the relationships build in this way would also move to the product development phase.
So once there is any issue between two engineers originating from the two companies (supplier and customer), they can easily move one layer up to resolve the issue between them – as there is already existing connection between the two managers of these engineers etc.
However, although such the relationships exist for most of the strategic suppliers, there will be negotiations and communication only when developing new strategic components. For those suppliers of commodity based components – the relationships usually does not need go that high, as the issues between these are solved on quite low organization level and rather early – and Advansus does not see the point to elevate to the higher management involvement.
Moreover, since the component is not crucial for the new product, Advansus does not need to involve the supplier since their own understanding of the component technology is enough for the changes they wish to do. Involving the suppliers increases the engineering hours as well as costs and suppliers negotiation position, and they would prefer to go alone if its not very necessary.
These ties are also the way, how the management usually discuss and set the clear goals and specs of the development project – and then communicate it down on each side solely. Once the specs are set between the two sides – each party would do their own adjustments to meet the goal. Of course, the need for communication among teams on different levels might occur – and this is usually maintained by the teams themselves. Only if there is a
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serious conflict, the higher level would get involved and determine the quarrel. This is not that often case, but it might occur – especially in cases when they reach technology limit and need to choose another solution – for example the supplier cannot deliver the component as the specs were negotiated – and they would need to discuss with the customer on possible changes. Sometimes they can accept the changes, but if the changes would endanger the whole project, than supplier needs to adjust and provide new, different solution. It is always the customer who has the ownership and last word in discussions like this – since there is only very low overlap between the component/system knowledge between the companies and the customer usually does not provide the supplier that much information on the overall goals of the project.
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4.3 Case background – Sanav/San Jose
SAN JOSE NAVIGATION, INC. is a GPS hardware and turnkey solution manufacturer specializing in mobile and marine GPS receivers/antennas. Sanav started its operations in 1990 first in the telecommunications technology. Later in 1995, in cooperation with prominent GPS companies in USA & Japan, they started the technical interflow & research on GPS technologies as well so to differentiate into other industries. Today, Sanav`s expertise is in the field of GPS‐based vehicle tracking & marine navigation technologies, GPS receivers and variety of antennas, where they deliver products to their overseas customers who market those on their markets under different brand names.
Sanav, is a company that started as an OEM and then recently achieved to become an ODM and therefore we can expect they would have quite a loose relationship with their suppliers.
They have the recent experience of moving up in the value chain, and they will work hard to keep their hard won position – to block out their supplier to overtake their position.
San Jose is an OEM/ODM manufacturer. As such, they cooperate with the customer, who sells the product to the market, but does not design or manufacture. These tasks are on ODMs responsibility, who needs to have a good understanding of their customer`s needs and create products that would fit in.