Nokia stops using subcontractors in mobile phone manufacture ...
>> Nokia Stops Using Subcontractors In Mobile Phone Manufacture
Helsingin Sanomat
26.3.2009
tinyurl.com
The mobile telephone giant Nokia is not currently using subcontractors in the production of any of its mobile phone models. The decision on the matter was made in October-November, when the market began to contract.
Nokia SVP, Manufacturing and Logistics Juha Putkiranta confirmed the decision.
“We use subcontracting in production as a way of balancing out cyclical peaks. When we are not in a cyclical peak we do not buy from outside subcontractors”, Putkiranta says.
Nokia has used subcontractors mainly for the manufacture of circuit boards. Last year Nokia bought 80 million of the circuit boards from subcontractors - 17 per cent of its entire production.
Nokia has made sure to keep the end phase of its manufacture - the installation of the largest components, such as the display, the mechanical parts, such as the plastic cover, and the loading of software - in the company’s own hands. In the final phases of production, the telephones are tailored for the needs of the individual customers, mainly through software.
“We buy ready or nearly-ready products from outside very rarely. We acquire them partly from the same partners from whom we also buy circuit boards”, Putkiranta says.
The greater the proportion of handsets that Nokia manufactures in its own factories, the better the profit margin per handset. Ending subcontracting in production means that Nokia’s own factories will be busy, as long as the market situation does not weaken any further. Nokia’s European sales have already declined so much that employees at the Salo factory in the southwest of Finland will be put on temporary lay-offs for five weeks this year.
The decision on subcontracting is a temporary one. Phones and their circuit boards will be bought again from subcontractors as soon as demand exceeds the production capacity of Nokia’s own factories. “We are able to change our production levels, and the products we manufacture very quickly according to demand. That is why our competitiveness is so high”, Putkiranta says.
Naturally, the subcontractors themselves are very disappointed with the suspension of orders.
“The danger is that other subcontractors will also react to this treatment, which comes close to a breach of contract, to the extent that they will end up examining the feasibility of cooperation in a very critical manner”, says the manager of one of Nokia’s foreign partners. “One option is to end cooperation. In any case, the pricing has already become unsustainable, and there is only one direction any more, which is up”, the anonymous partner adds.
The constant demands for lower prices stem from the emphasis on cheaper models in Nokia’s overall sales in recent years.
Nokia’s cheapest telephone costs about EUR 25. In the most expensive models, the profit margin per phone is better, even though the research and development costs and the component costs are significantly higher. The most expensive of Nokia’s mass-produced models costs nearly EUR 700.
Orders placed by the market leader are so large compared with those of its competitors that it can nearly dictate the terms to its subcontractors. The advantage of economies of scale is one of Nokia’s important competitive edges.
“We are clearly the most efficient manufacturer in production. Nobody else can achieve similar cost levels. Because of the subcontractors, we do not need to buy more machinery or hire more labour during economic booms”, Pitkäranta says, describing the current competitive situation.
Nokia’s most important subcontractors include the Taiwanese company Foxconn, the Chinese Byd, the American Jabil, and the Finnish firm Elcoteq. ###
- Eric - |
