Chapter 4 Key Factors Used by Notebook-Computer Contact
4.2 Key Factors Selected from Each Dimension in Different Models… 25
there are seven manufacturers with capital exceeding 10 billion, five manufacturers with annual revenue exceeding 100 billion, and six manufacturers with more than 4000 employees. All of the manufacturers operate global supply chains in cooperation with multinational brand companies in major markets such as Europe, United States and Mainland China. Table 4.1 lists the operational model classification, and differs from cooperative relationship with different multinational brand companies.
Table 4.1 Operation Model Classifications in Taiwan Process Model
Type of operation
model BTF BTO CTO
OEM
BenQ, Asus, Uniwill, ECS
Inventec, FIC, Asus, BenQ, Twinhead , ECS, Arima, Uniwill, Clevo
Mitac, Inventec, FIC, Asus, ECS, Twinhead, Arima, Uniwill, Clevo Business
Model
ODM
Compal, BenQ, Asus, Uniwill, ECS
Twinhead, Compal, Quata, FIC, Uniwill, Clevo, Inventec, BenQ, Asus, ECS
Twinhead, Compal, FIC Uniwill, Mitac, Clevo, Inventec, Asus, ECS
According to the questionnaire investigation, OEM/ODM business models and BTF/BTO/ CTO process models are combined to produce six model types.
Following the process of grey relation matrix construction, eigenvalue and eigenvector calculation and weighted sorting by each factor in different dimensions, an example is presented as follows. Table 4.2 lists the weighted value of each factor in the dimension of “supply chain targets”. The weighting priority demonstrates that the supply chain targets of OEM/BTF manufacturers focus on “Decrease delivery time”, “Reduce purchasing cost”, “Increase good rate of production” and “Improve logistics channel”. Based on grey relation analysis, the key factor in each sub-dimension is chosen for the purpose of to clarify how manufacturers pay much more attention in decision level for supporting brand company global operations.
Figure 4.3 shows the key factor relational structure in different operational models, and represents the hidden knowledge possessed by the respondents. It describes how manufacturers reach their supply chain targets based on the characteristics of the dimensions of “Supply Chain Management Efficiency”, “Strategic Alliance” and
“Logistics Facility Locations”. Such structures can be considered reference models which draw the operational outline of different operational models in leading Taiwanese notebook manufacturers. The key factor in each sub-dimension is described in the form of “(Name of key factor) / (Name of sub-dimension)”.
For OEM/BTF manufacturers reaching the targets, shown in fig. 5, “Purchasing cost/Purchase”, “Inferior goods ratio/Manufacture”, “Inventory cost/Inventory”,
“Adopt EDI system/IT Application”, “Transportation time/Transportation” and
“Response time to customer/Customer Service” are the key factors reflecting the attention paid by manufacturers to improving their management efficiency in each operational process. Furthermore, to enhance cooperative efficiency, reduce costs and control risk, “Manufacture/Complementary Resources”,
“Commitment/Organization Culture” and “Competitive advantages/Market Power”
are the key factors reflecting the importance placed by manufacturers on strategic alliances. On the other hand, the external environment directly influences the effectiveness of global supply chain operations. “Stable politics climate/Government Policy”, “Low labor cost/Labor Force”, “Superior transshipment location/Support Capability”, “Vertical integration/Developing Opportunities”, “Exchange rate/Financial Support” and “Potential of local market/Market Demand” are the key factors reflecting the concern of manufacturers with logistics facility locations.
Different types of key factor relational structures regarding different operational models are shown in Fig. 5. All of the key factor relational structures are further described in the discussion of managerial implications at the end of this section.
Table 4.2 Weighted Value of Each Factor in The Dimension of “Supply Chain Targets”
OEM ODM Sub-dimension Factors Description BTF BTO CTO BTF BTO CTO
Decrease purchasing time 0.2465 0.2883 0.2942 0.2323 0.2734 0.2990 Decrease production time 0.2952 0.3099 0.2863 0.2506 0.2899 0.2911 Time
Decrease delivery time 0.3022 0.2639 0.2971 0.3139 0.2602 0.2974 Reduce purchasing cost 0.3019 0.2680 0.2761 0.2863 0.2661 0.2679 Reduce production cost 0.2963 0.2600 0.2782 0.2852 0.2586 0.2670 Reduce inventory cost 0.2529 0.2603 0.3111 0.2500 0.2596 0.3063 Cost
Reduce transportation cost 0.2957 0.2684 0.2836 0.3000 0.2656 0.2945 Increase purchasing quality 0.2957 0.3116 0.3090 0.3008 0.2982 0.3036 Increase good rate of
production
0.3084 0.2960 0.3039 0.3014 0.2885 0.3053 Quality
Improve logistics channel 0.2962 0.2908 0.3110 0.2854 0.2988 0.3022 Flexibility in production 0.2809 0.2933 0.3131 0.2587 0.3055 0.3091 Flexibility
Variety of production design 0.2404 0.3123 0.2914 0.2461 0.3140 0.2912
Comparing the different types of OEM manufacturers reveals that their supply chain targets are different because of the cooperative relationship with brand companies. These targets indicate the commitments to be accomplished to maintain long-term cooperation. Failure to reach the desired level for any specific target results in weakened cooperation. The factor priority of supply chain targets is changed into the “Variety of product design/Flexibility” in OEM/BTO model and
“Flexibility in production/Flexibility” in the OEM/CTO model. Particularly,
“Reduce inventory cost/Cost” is concerned in OEM/CTO manufacturers for differentiated components storage. On the other hand, the same key factors in
“supply chain management efficiency” dimension are “Inferior goods ratio/Manufacture”, “Inventory cost/Inventory”, “Adopt EDI system/IT Application”
and “Transportation time/Transportation”. Differences exist in the sub-dimension of
“Purchase” and “customer service”. “Purchasing cost/Purchase” and “Response time to customer/Customer Service” are concerned in OEM/BTF manufacturers.
“Purchasing quality/Purchase” and “Provide customization service” are similarly concerned in OEM/BTO and OEM/CTO manufacturers.
Figure 4.3 Key Factors Relational Structures in Different Operational Models
Supply chain Targets in OEM/BTF Model QualityÆ QB : Increase good rate of production TimeÆ TC: Decrease delivery time CostÆ CA: Reduce purchasing cost FlexibilityÆ FA: Flexibility in production
Supply Chain Management Efficiency
Purchase PA: Purchasing cost
Manufacture MD: Inferior goods ratio
Inventory IVA: Inventory cost
IT Application ITB: Adopt EDI system
Transportation TRB: Transportation time
Customer Service CSD: Response time to customer Strategic Alliance MC: Competitive advantages
Government Policy GA: Stable politics climate Logistics Facility Locations
Labor Force LA: Low labor cost Support Capability LSC: Superior transshipment
location Developing Opportunities
IC: Vertical integration Financial Support FD: Exchange rate Market Demand MA: Potential of local market Supply chain Targets in OEM/BTF Model
QualityÆ QB : Increase good rate of production TimeÆ TC: Decrease delivery time CostÆ CA: Reduce purchasing cost FlexibilityÆ FA: Flexibility in production
Supply Chain Management Efficiency
Purchase PA: Purchasing cost
Manufacture MD: Inferior goods ratio
Inventory IVA: Inventory cost
IT Application ITB: Adopt EDI system
Transportation TRB: Transportation time
Customer Service CSD: Response time to customer Strategic Alliance MC: Competitive advantages
Government Policy GA: Stable politics climate Logistics Facility Locations
Labor Force LA: Low labor cost Support Capability LSC: Superior transshipment
location Developing Opportunities
IC: Vertical integration Financial Support FD: Exchange rate Market Demand MA: Potential of local market
Supply chain Targets in OEM/BTO Model FlexibilityÆ FB: Variety of product design QualityÆ QA : Increase purchasing quality TimeÆ TB: Decrease production time CostÆ CD: Reduce transportation cost
Supply Chain Management Efficiency
Purchase PB: Purchasing quality
Manufacture MD: Inferior goods ratio
Inventory IVA: Inventory cost
IT Application ITB: Adopt EDI system
Transportation TRB: Transportation time
Customer Service CSA: Provide customization
service MC: Competitive advantages
Government Policy GA: Stable politics climate Logistics Facility Locations
Labor Force LA: Low labor cost Support Capability LSC: Superior transshipment
location Developing Opportunities
IC: Vertical integration Financial Support FD: Exchange rate Market Demand MB: Potential of globalization Supply chain Targets in OEM/BTO Model
FlexibilityÆ FB: Variety of product design QualityÆ QA : Increase purchasing quality TimeÆ TB: Decrease production time CostÆ CD: Reduce transportation cost
Supply Chain Management Efficiency
Purchase PB: Purchasing quality
Manufacture MD: Inferior goods ratio
Inventory IVA: Inventory cost
IT Application ITB: Adopt EDI system
Transportation TRB: Transportation time
Customer Service CSA: Provide customization
service MC: Competitive advantages
Government Policy GA: Stable politics climate Logistics Facility Locations
Labor Force LA: Low labor cost Support Capability LSC: Superior transshipment
location Developing Opportunities
IC: Vertical integration Financial Support FD: Exchange rate Market Demand MB: Potential of globalization
Supply chain Targets in OEM/CTO Model FlexibilityÆ FA: Flexibility in production CostÆ CC: Reduce inventory cost QualityÆ QC : Improve logistics channel TimeÆ TC: Decrease delivery time
Supply Chain Management Efficiency
Purchase PB: Purchasing quality
Manufacture MD: Inferior goods ratio
Inventory IVA: Inventory cost
IT Application ITB: Adopt EDI system
Transportation TRB: Transportation time
Customer Service CSA: Provide customization
service MA: Relative scale
Government Policy GA: Stable politics climate Logistics Facility Locations
Labor Force LA: Low labor cost Support Capability LSC: Superior transshipment
location Developing Opportunities IA: Good logistics infrastructure
Financial Support FD: Exchange rate Market Demand MB: Potential of globalization Supply chain Targets in OEM/CTO Model
FlexibilityÆ FA: Flexibility in production CostÆ CC: Reduce inventory cost QualityÆ QC : Improve logistics channel TimeÆ TC: Decrease delivery time
Supply Chain Management Efficiency
Purchase PB: Purchasing quality
Manufacture MD: Inferior goods ratio
Inventory IVA: Inventory cost
IT Application ITB: Adopt EDI system
Transportation TRB: Transportation time
Customer Service CSA: Provide customization
service MA: Relative scale
Government Policy GA: Stable politics climate Logistics Facility Locations
Labor Force LA: Low labor cost Support Capability LSC: Superior transshipment
location Developing Opportunities IA: Good logistics infrastructure
Financial Support FD: Exchange rate Market Demand MB: Potential of globalization
Supply chain Targets in ODM/BTF Model TimeÆ TC: Decrease delivery time QualityÆ QB : Increase good rate of production CostÆ CD: Reduce transportation cost FlexibilityÆ FA: Flexibility in production
Supply Chain Management Efficiency
Purchase PB: Purchasing quality
Manufacture MC: Adopt new technology
Inventory IVA: Inventory cost
IT Application ITB: Adopt EDI system
Transportation TRB: Transportation time
Customer Service CSD: Response time to customer Strategic Alliance
Complementary Resources RA: Manufacture Organization Culture CB: Compatibility of strategies
Market Power MA: Relative scale
Government Policy GA: Stable politics climate Logistics Facility Locations
Labor Force LA: Low labor cost Support Capability LSC: Superior transshipment
location Developing Opportunities
IC: Vertical integration Financial Support FD: Exchange rate Market Demand MA: Potential of local market Supply chain Targets in ODM/BTF Model
TimeÆ TC: Decrease delivery time QualityÆ QB : Increase good rate of production CostÆ CD: Reduce transportation cost FlexibilityÆ FA: Flexibility in production
Supply Chain Management Efficiency
Purchase PB: Purchasing quality
Manufacture MC: Adopt new technology
Inventory IVA: Inventory cost
IT Application ITB: Adopt EDI system
Transportation TRB: Transportation time
Customer Service CSD: Response time to customer Strategic Alliance
Complementary Resources RA: Manufacture Organization Culture CB: Compatibility of strategies
Market Power MA: Relative scale
Government Policy GA: Stable politics climate Logistics Facility Locations
Labor Force LA: Low labor cost Support Capability LSC: Superior transshipment
location Developing Opportunities
IC: Vertical integration Financial Support FD: Exchange rate Market Demand MA: Potential of local market
Supply chain Targets in ODM/BTO Model FlexibilityÆ FB: Variety of product design QualityÆ QC : Improve logistics channel TimeÆ TB: Decrease production time CostÆ CA: Reduce purchasing cost
Supply Chain Management Efficiency
Purchase PB: Purchasing quality
Manufacture MC: Adopt new technology
Inventory IVA: Inventory cost
IT Application ITB: Adopt EDI system
Transportation TRB: Transportation time
Customer Service CSA: Provide customization
service Strategic Alliance
Complementary Resources RA: Manufacture Organization Culture CB: Compatibility of strategies
Market Power MA: Relative scale
Government Policy GA: Stable politics climate Logistics Facility Locations
Labor Force LA: Low labor cost Support Capability LSC: Superior transshipment
location Developing Opportunities
IC: Vertical integration Financial Support FA: Free capital flow
Market Demand MB: Potential of globalization Supply chain Targets in ODM/BTO Model
FlexibilityÆ FB: Variety of product design QualityÆ QC : Improve logistics channel TimeÆ TB: Decrease production time CostÆ CA: Reduce purchasing cost
Supply Chain Management Efficiency
Purchase PB: Purchasing quality
Manufacture MC: Adopt new technology
Inventory IVA: Inventory cost
IT Application ITB: Adopt EDI system
Transportation TRB: Transportation time
Customer Service CSA: Provide customization
service Strategic Alliance
Complementary Resources RA: Manufacture Organization Culture CB: Compatibility of strategies
Market Power MA: Relative scale
Government Policy GA: Stable politics climate Logistics Facility Locations
Labor Force LA: Low labor cost Support Capability LSC: Superior transshipment
location Developing Opportunities
IC: Vertical integration Financial Support FA: Free capital flow
Market Demand MB: Potential of globalization
Supply chain Targets in ODM/CTO Model FlexibilityÆ FA: Flexibility in production CostÆ CC: Reduce inventory cost QualityÆ QB : Increase good rate of production TimeÆ TA: Decrease production time
Supply Chain Management Efficiency
Purchase PC: Purchasing cycle
Manufacture MC: Adopt new technology
Inventory IVA: Inventory cost
IT Application ITB: Adopt EDI system
Transportation TRB: Transportation time
Customer Service CSD: Response time to customer Strategic Alliance
Complementary Resources RA: Manufacture Organization Culture CB: Compatibility of strategies
Market Power MA: Relative scale
Government Policy GA: Stable politics climate Logistics Facility Locations
Labor Force LA: Low labor cost Support Capability LSC: Superior transshipment
location Developing Opportunities IA: Good logistics infrastructure
Financial Support FD: Exchange rate Market Demand MB: Potential of globalization Supply chain Targets in ODM/CTO Model
FlexibilityÆ FA: Flexibility in production CostÆ CC: Reduce inventory cost QualityÆ QB : Increase good rate of production TimeÆ TA: Decrease production time
Supply Chain Management Efficiency
Purchase PC: Purchasing cycle
Manufacture MC: Adopt new technology
Inventory IVA: Inventory cost
IT Application ITB: Adopt EDI system
Transportation TRB: Transportation time
Customer Service CSD: Response time to customer Strategic Alliance
Complementary Resources RA: Manufacture Organization Culture CB: Compatibility of strategies
Market Power MA: Relative scale
Government Policy GA: Stable politics climate Logistics Facility Locations
Labor Force LA: Low labor cost Support Capability LSC: Superior transshipment
location Developing Opportunities IA: Good logistics infrastructure
Financial Support FD: Exchange rate Market Demand MB: Potential of globalization
emphasized in different OEM and ODM models. The tables can be used to identify the common and different factors involved in global supply chain decisions from the perspectives of different OEM/ODM manufacturers. For all types of OEM manufacturers, as shown in Table 4.3, a total of ten common key factors were established in three dimensions, including four in the “Supply Chain Management Efficiency” dimension, two in the “Strategic Alliance” dimension and four in the
“Logistics Facility Location” dimension. It means that such factors are equally important in global supply chain operations. Furthermore, five different representative factors exist due to the different process model types (BTF/BTO/CTO). These factors also reflect the differentiated decisions made by OEM manufacturers while supporting] brand company global operations under different cooperative relationships.
Table 4.3 Common Factors and Different Factors Stressed in Different OEM Models
Classification BTF BTO CTO OEM
Supply Chain Management
Efficiency
Manufacture – Inferior goods ratio Inventory – Inventory cost
IT Application – Adopt EDI system Transportation – Transportation time Strategic
Alliance
Complementary Resources - Manufacture Organization culture - Commitment Common
Key Factors
Logistics Facility Locations
Government Policy - Stable politics climate Labor Force – Low labor cost
Support Capability
Superior transshipment location Financial Support – exchange rate
OEM
Classification BTF BTO CTO
Supply Chain Management
Efficiency
Purchase Purchasing cost Customer Service Response time to customer
Purchase
Purchasing quality Customer Service Provide
customization service
Purchase
Purchasing quality Customer Service Provide
customization service Strategic
Alliance
Market Power Competitive advantages
Market Power Competitive advantages
Market Power Relative Scale Different
Key Factors
Logistics Facility Locations
Developing Opportunities Vertical integration Market Demand Potential of local market
Developing Opportunities Vertical integration Market Demand Potential of globalization
Developing Opportunities Good logistics infrastructure Market Demand Potential of globalization
In all types of ODM manufacturers, as listed in Table 4.4, there are a total of ten common key factors based on three dimensions, including four factors in the dimension of “Supply Chain Management Efficiency”, three factors in the dimension of “Strategic Alliance” and three factors in the dimension of “Logistics Facility Locations”. Furthermore, five different key factors exist due to the characteristics of different process model types (BTF/BTO/CTO). Comparing the OEM and ODM models reveals that only three factors differ between the two groups of common key factors. “Inferior goods ratio/Manufacture” in the OEM model and
“Adopt new technology/Manufacture” in the ODM model are diverse within the dimension of “Supply Chain Management Efficiency”. Moreover, “Relative scale/Market Power” is diverse in the ODM model within the dimension of
“Strategic Alliance” and “Exchange rate/Financial support” is diverse in the OEM model within the dimension of “Logistics Facility Locations”. Restated, seven factors are identical for all OEM and ODM manufacturers.
Table 4.4 Common Factors and Different Factors Stressed in Different ODM models
Classification BTF BTO ODM CTO
Supply Chain Management
Efficiency
Manufacture – Adopt new technology Inventory – Inventory cost
IT Application – Adopt EDI system Transportation – Transportation time Strategic
Alliance
Complementary Resources - Manufacture Organization culture - Commitment Market Power – Relative Scale Common Key
Factors
Logistics Facility Locations
Government Policy - Stable politics climate Labor Force – Low labor cost
Support Capability
Superior transshipment location ODM
Classification BTF BTO CTO
Supply Chain Management
Efficiency
Purchase
Purchasing quality Customer Service Response time to customer
Purchase
Purchasing quality Customer Service Provide
customization service
Purchase Purchasing cycle Customer Service Response time to customer Strategic
Alliance
-- -- -- Different Key
Factors
Logistics Facility Locations
Developing Opportunities Vertical integration Financial Support Exchange rate Market Demand Potential of local market
Developing Opportunities Vertical integration Financial Support Free capital flow Market Demand Potential of globalization
Developing Opportunities Good logistics infrastructure Financial Support Exchange rate Market Demand Potential of globalization
4.3 Conclusion Remarks
In the global notebook-computer market, Taiwanese OEM/ODM manufacturers are focused on supporting the global operations of multinational brand companies. It is extremely difficult to continue generating benefits from brand companies in the long-run, due to the risks of shortening product lifecycles declining product prices.
Recently low profits and intense competition have increased the need for manufacturers to adjust strategies to focus on innovation, flexibility, efficiency, quality and cost control and cooperate more closely with brand companies. This study applied a questionnaire survey and in-depth interviews to leading notebook-computer manufacturers to explore and understand the key factors involved in global operations. Based on the analysis and results, the managerial implications and suggestions are presented below:
1. OEM manufacturers typically emphasize orders fulfillment and production quality control for quick response to multinational brand companies, and focus on improving manufacturing process to reduce the inferior goods rate, control inventory costs, establish an EDI system and reduce transportation time. In the aspect of logistics facilities locations, low labor cost, stable politics climate, superior transshipment location and exchange rate are all influences on logistics.
In the aspect of strategic alliance, commitments in coordinated operations and complementary resource in manufacture are emphasized for establishing a quick response system to satisfy the requirements of brand companies.
2. ODM manufacturers activate the process of product design, purchase, and manufacture according to the requirements of brand companies. Technological innovation, inventory cost control, EDI system application and reducing transportation time are important in supply chain management. ODM manufacturers thus support the supply chain of brand firms based on their ability and efficiency in innovative manufacturing. The main influences on supply chain layout are stable politics climate, low labor cost and superior transshipment location. The main determinants of strategic alliance formation include complementary manufacturing resources, commitment to coordinated operations, and relative scale between partners in terms of market power.
3. BTF manufacturers are characterized by forecasting production. Order fulfillment is based on the comprehensive inventory of finished goods. Therefore,
3. BTF manufacturers are characterized by forecasting production. Order fulfillment is based on the comprehensive inventory of finished goods. Therefore,