Thursday, January 15, 2009

The Restructuring Supply Chain

The reorganization effort is underway across the supply chain lately, as the home loan collapse snowballed into the credit crunch, which in turn has snowballed into the global financial crisis. Respondents to our 2009 forecast question, "How can PCB assemblers cut costs in 2009?" unanimously pointed to smart management and lean manufacturing. Growth is achievable in a down market, with brain power and strong organization, and sacrifice. Companies from Camtek to Rockwell Collins announced cost-cutting plans of late, proving that no sector or industry will escape the situation rocking the global financial markets. Even Harvard University is troubled, as the school is facing worries related to the "roiling turbulence" of global finance, as university president Drew Faust puts it.

A company's realignment, restructuring, or reorganization can affect their customers, their suppliers, and their market. What are we committed to saving? R&D, surprisingly. Not only will companies retain and increase R&D spending, but some will partner more with third-party research institutes. As European research group IMEC sees it, collaborative research reduces not just the cost of R&D, but the risk associated with it. Especially since not all experiments result in success. However they do it, companies are taking pains to preserve their ability to innovate. Let's take a look at the recent announcements from major companies and what impact they might have.

AOI provider Camtek Ltd. implemented a cost reduction plan, one element of which involves reducing its global work force by about 55 employees. This reduction represents about 12% of the company's total workforce. "We have preserved our R&D capabilities to position ourselves for the future recovery of our markets," said Rafi Amit, Camtek's CEO, adding that "the inspection industry will be driven by technological advanced during the economic slowdown." He pointed out that customers rely on support from their suppliers even more in these times than normal, so targeted product development must coincide with efforts on technical support. Read more about the restructuring at

Cadence Design Systems Inc. began a restructuring program to focus the design software company's strategy, streamline business, and improve operational execution and financial performance, representatives explain. The design software company expects to achieve annual operating expense savings of at least $150 million through a combination of workforce and other expense reductions. They will eliminate at least 625 fulltime positions, representing 12% of its global employee base, plus a substantial number of contractors and consultants. The restructuring plan emphasizes market segments where Cadence foresees tangible rewards, such as mixed-signal design, advanced verification, and low-power design, said Charlie Huang, senior VP, member and chief of staff of the interim office of the chief executive. Cadence decided to focus on core business areas, and says that it will continue to address the needs of semiconductor and electronic systems design customers. See more at

Two major equipment suppliers, Siemens and Assembléon, also face restructuring efforts. Siemens obviously has the larger task, as the company-wide trimming will touch on many divisions within and without the electronics manufacturing supply chain. Read the full story in our November issue News. MSD handling products provider Totech previously announced the restructuring of their Americas organization with the formation of Totech Universal and the appointment of Protean Marketing to manage the new company.

High-reliability electronics OEM Rockwell Collins produced a cost reduction plan to manage the impact of the economic downturn, such as air travel declines, delays and cancellations in several government programs, and the prolonged Boeing strike, according to Rockwell Collins chairman, president, and CEO Clay Jones. Rockwell Collins will reduce discretionary spending, delay merit increases, manage current staffing levels, lay off approximately 300 employees across the company and reduce the number of contract laborers by approximately 100 people. This layoff represents an estimated 1.5% of the current workforce. Operations staff will see the largest percentage of layoffs, Rockwell Collins reports, while contract laborers will be trimmed out primarily in the engineering area. Every department is working on plans to implement the cost-cutting measures, explained Pam Tvrdy, company spokeswoman. Reducing workforce by less than 2% is mild compared to most restructuring plans underway in the industry, so Rockwell Collins will need to pull more money out of related cut backs, like discretionary spending and pay raises, if their plan is going to be significant. While Rockwell Collins has reduced its originally projected 2009 R&D budget, funding levels in this area will still grow modestly compared to 2008. "R&D is absolutely necessary to remain competitive in the current global economy. We take great pride in the fact that on average investment in R&D spendings approximately 20% of our total sales," reports Tvrdy. Learn more at Back on Halloween, United Press International reported that Motorola Inc. would lay off 3,000 workers as part of a plan to save $800 million, citing CEO Greg Brown. About 2,000 layoffs would come from the OEM's mobile phone division, and Motorola may postpone its planned breakup, offering no date for when the company would split into two. The previously announced target date for spinning off the company's cell phone division was October 2008.

Even peripheral supply chain companies will impact your daily operations at manufacturing facilities. For example, shipping company DHL will restructure, phasing out its domestic freight to focus on international transport, targeting phase-out by January 2009. The restructuring measures will reduce U.S. operating costs by over 80%; 71% of all international shipments to and out of major metropolitan areas in the U.S. will see improved service levels. The company foresees an "extremely challenging 2009," said John Mullen, global CEO of DHL Express. DHL's U.S. Express business will discontinue domestic-only air and ground products. As a result of the change, DHL Express will close all of its U.S. ground hubs, reduce the number of stations from 412 to 103 and retain 3,000 to 4,000 U.S.-based employees serving DHL's international express customers.

Semiconductor and electronics supply companies, like Sun Microsystems and Orbotech, are announcing massive restructuring plans seemingly every day. Others like Intel began making changes back in 2006. Even if a company is in sound standing, investors or equity holders may not have such strong balance sheets, and the company can be altered as a result. As more companies go into restructuring phases to protect themselves or realign with the current market, the industry will evolve and change as well. Unfortunately, you cannot assume your business is bullet-proof because your financials and operations are in good order. As Camtek's Amit put it, "This [global slowdown] is a situation we have never before faced. We should review our strategy daily and act as necessary." Widespread volatility can and has devalued companies by faulty association to the financial crisis, or simply through investor panic, so vigilance and awareness are in order. Strong relationships with suppliers and customers can minimize disturbance to the manufacturing floor and inventory rooms.

Meredith Courtemanche, managing editor

No comments:

Post a Comment