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Strategies & Market Trends : Electronic Contract Manufacture (ECM) Sector -- Ignore unavailable to you. Want to Upgrade?

To: Rosemary who wrote (1514)	5/16/1998 6:23:00 AM
From: Asymmetric	Respond to of 2542

HP's outsourcing vision May 11, 1998, TechWeb News Like most major OEMs, Hewlett-Packard Co. has shifted more and more of its production to contract electronics manufacturers (CEMs) to reduce costs. The company made headlines when it moved a large percentage of its PC production to the world's largest CEM, SCI Systems Inc., Huntsville, Ala. What did not make headlines is that the Palo Alto, Calif., company relies heavily on an assortment of CEMs. Last year, for example, HP spent roughly $1 billion on product procurement and contract manufacturing in Taiwan. This year, it could increase that spending by about 50%. To get some perspective on a major OEM's outsourcing efforts, Sandy Chen, EBN's Taipei correspondent, recently interviewed HP chairman, president, and chief executive Lewis Platt during his recent stop in Taiwan. Here are excerpts from the interview. EBN: What is HP's position on contract manufacturing? Platt: Hewlett-Packard, like most large electronics companies today, is turning more and more toward contract manufacturing. Ten years ago, we virtually owned most of our own manufacturing sites. But we've found there are many advantages in having contract manufacturers. We're finding [that contract manufacturers] work very well for us. EBN: What are the challenges for HP in having outside CEMs? Platt: The challenges, of course, are that anytime you have two companies or three companies doing what one company used to do, you have more complex and subtle communication problems. We, for example, have to hand a design that's been done in Hewlett-Packard in France or in the United States to a manufacturer-let's say here in Taiwan. But then you have a marketing program that goes on around the world, but it has to be connected with a manufacturer. The good news is that technology, like the Internet, is allowing us to interconnect organizations and build what we call the virtual company. A virtual company does not refer to just a single company. It refers to a company, its suppliers, its contract manufacturers, and its marketing representatives-all connected together electronically-so you get a very rapid roll of all this information. EBN: What are the criteria that HP uses in selecting a contract manufacturer? Platt: I think it first starts with quality. The Hewlett-Packard name stands for a very high quality throughout the world. Obviously, if we're going to put the Hewlett-Packard name on a product, we want to make sure the quality of that product is exactly what the customer has always expected from Hewlett-Packard. The quality has to go right on top of the list. Second, the ability to make timely deliveries. Good logistics is important so that deliveries can be made anywhere in the world on a timely basis. Flexibility-we look for people who can respond very rapidly. Cost always is a consideration. Every company nowadays is under tremendous pressure to keep lowering prices. EBN: What is Asia's role in contract manufacturing for HP? Platt: Asia is the primary place where we use contract manufacturers today. It's not the only place. We have large contract-manufacturing capabilities in countries like Mexico. We're starting to do some in Brazil, as well as in the United States. By the way, there are some attractive contract manufacturers in the U.S. But most of our contract manufacturing is done here in Asia. I expect that will continue in the future. Asia offers virtually all the characteristics I've talked about-high-quality manufacturing, responsiveness, flexibility, very well-developed distribution systems, and thorough technology. EBN: What is Taiwan's role in contract manufacturing? Platt: Taiwan has become an attractive place for contract manufacturing because the contract manufacturers here in Taiwan do a good job in meeting criteria that I've discussed. Quality is high here. Prices are reasonable, but not necessarily the lowest in the region. The infrastructure here is very well developed for contract manufacturing. The contract manufacturers [in Taiwan] themselves are surrounded by the suppliers that support their activities. Taiwan companies are quite sophisticated technically. So, I think this country is really a very attractive place to do contract manufacturing because it really does a [better] job than any country does in meeting those criteria. EBN: How much outsourcing does HP do in Taiwan? Platt: Even today, Taiwan is the largest contract manufacturing location in the world [for HP]. We have 20 different partners in Taiwan that we're working with. EBN: How long will Taiwan remain competitive in contract manufacturing? Platt: Taiwan will face a lot of competition within five years. Thailand and China are already competitive. Malaysia has some [CEMs]. I think Taiwan can continue to be quite strong. ... You have very good infrastructure here. You have very well-educated people. It's the total infrastructure that makes you very competitive. Copyright (c) 1998 CMP Media Inc.