analyst roundtable – global supply china: the lenovo...
TRANSCRIPT
© 2008 Lenovo
Analyst Roundtable – Global Supply China: The Lenovo Transformation Story
Gerry P. Smith Senior Vice President, Global Supply Chain
December 3, 2008 – Hong Kong
Page 2 of 29
The Legend Behind Lenovo
1990s Today1980s
• US$16+ billion in revenue• 23,000+ employees in 60+ countries• Customers in 160+ countries
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Closed the acquisition ahead of schedule
Since 2005, Lenovo has…
Become a global PC leader (US$16B in FY07/08; sales in 160 countries)
Reached record high share in China (#1 for 11 straight years)
Made unprofitable business profitable
Accelerated innovation across the product line
Increased customer satisfaction
Transformed the Global Supply Chain into a competitive weapon
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Diverse global perspectives
Input and ideas from everywhere
Distributed decision-making
No headquarters
Operate in the time zone called “now”
Serving markets anywhere
Worldsourcing Drives Innovation
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Exceptionally Engineered Products
ThinkCentre M57/M57p ECO
The FIRST Lenovo ThinkStation
ThinkPad Silent Owl Blade
BatteryStretch Activated.
Battery life extended +1:04 minutes
Click here to view settings.
.
ThinkVantage – Battery Stretch
ThinkVision - Best 4-Display Solution
Slim AC/DC Adapter
The Perfect Laptop - X300!
Green Initiatives
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A True End-to-End Global Supply Chain Organization
WW Services Operations &
Planning
Global Manufacturing
Global Logistics
Global Procurement
EMEA Supply Chain
APSupply Chain
AGSupply Chain
GCR Supply Chain
PMI / Consumer
Strategy & Comms
Lean Six SigmaChief of Staff
Legal Counsel Human Resources
Enterprise Products
Supply Chain
Chief Financial
Officer
SVPGlobal
Supply Chain
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Lenovo’s Global Supply Chain Network
Monterrey, Mexico
Beijing, China
Campinas, Brazil
Fulfillment Operations &/or Distribution Center
Yamato, Japan
Tilburg, NL
Raleigh, NC U.S.A
Panama
Paris, France
Bangalore, India
Pondicherry, India
Baddi, India
Legnica SEZ, Poland
Shanghai, China
Toronto, Canada
Kunshan, China
Huiyang, China
Shenzhen, China
Singapore
Bratislava, SlovakiaGreensboro, NC U.S.A
Paisley,Scotland
Manufacturing
GSC Professional Center
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Become #1 Supply Chain in the PC Industry
Our Mission
• Exceed Our Customers’ Requirements– Delivery– End-to-End Cost– Quality
• Enhance Lenovo’s Financial Position - CCC
• Build Strong Partnerships With Our Suppliers
• Create Flexible & Efficient Supply Chain
• Build Team & Talent
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Stabilize operation and
close performance
gaps
Phase 1 Phase 2
Enable competitive
advantage for Lenovo
Phase 3
Achieve best practices in the
PC industry
..and Our Journey
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Building a World Class Supply Chain Organization
GCRSupply Chain
EMEA Supply Chain
AGSupply Chain
APSupply Chain
Chief Financial Officer
Legal Council
EnterpriseProducts Supply Chain
HR
SVPGlobal
Supply Chain
Global Procurement
• Building on a strong foundation• Infusing new diverse talent• Across breadth and depth of the organization
Global Logistics
Global Manufacturing
WW Services Operations & Planning
Strategy & Communications
PMI / Consumer
Chief of Staff
Lean Six Sigma
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Lenovo’s Strategic Focus
Accelerate Trust-Based & Performance-Driven CultureAccelerate Trust-Based & Performance-Driven Culture
1Pursue
Operational Excellence
2Embrace Customer Intimacy
3Win in Priority
Businesses
4Gain Scale
Profitably
5Build Our
Brand
Grow faster and more profitably than the industry by delivering exceptionally engineered PCs and an unequaled ownership experience.
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GSC Strategy
Accelerate Trust-Based & Performance-Driven CultureAccelerate Trust-Based & Performance-Driven Culture
1Pursue
Operational Excellence
World-Class Serviceability
Best-in-Class Quality
Industry- Leading
E2E Costs
Seamless Execution on BT/IT Future
Releases
Premier Cash
Conversion Cycle
AccelerateLean Six Sigma Processes WW
Grow faster and more profitably than the industry by delivering exceptionally engineered PCs and an unequaled ownership experience.
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WW OrderWW Order--toto--Delivery
Three-Year Trend
Keys to Success:• Leading With Lean – Speed / Efficiency
• Improved Materials Management
• Re-engineered Logistics
• Manufacturing Cycle Time Improvement
Jan2006
Jan2007
Jan2008
Oct2008
89% Improvement
Page 15 of 29
GSC KPI Results Q2 FY06/07 – Q2 FY08/09
Two-Year Improvement
E2E Cost 32%Material Cost Achieved Target
8 Straight QuartersCCC (Days):
DPO 22%E&O 286%Serviceability
WW NBWW DT
77%102%
QualityDOA +30 NBDOA +30 DT
54%37%
End-to-End Cost =+ Manufacturing+ Logistics+ Excess & Obsolete+ Overhead
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Leading with Lean Six Sigma
• Key Success Factors– Part of Corporate KPIs, Financial & Operational Metrics
• 30% Improvement (cost, speed, quality) of Core Business Process– Aligned to strategy through Hoshin planning– Across all Lenovo business functions– Part of Lenovo Business Management System, CEO review 2x per quarter
• Key Successes
• 81% reduction of custom image cycle time• Latin America Kaizen drives +30pt serviceability uplift• Logistics enables 4x increase in end-of-Q shipments• Forecasting improves global process E2E• Service parts savings opportunity
Completed projects deliver:Financial, operational & quality improvements
YTDHard Savings
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Stabilize operation and close
performance gaps
Phase 1 Phase 2
Enable competitive advantage for
Lenovo
Phase 3
Achieve best practices in the PC industry
Our Journey Continues…
• Expand mfg / logistics footprint• Use LEAN to drive efficiencies• Hit material cost targets• Maintain commitment to green• Consistently achieve E2E costs• Develop leaders with global mindset
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Procurement Transformation: The Challenge Of Two
Lenovo’s Supply Base
LenovoInternational
LenovoChina
• China’s Golden Supply Chain• Cost Advantaged• Serviceability Excellence• Unique Requirements• Unique Relationships
• Internationally Dispersed• Cost Challenged• Serviceability Challenged• Unique Requirements• Unique Relationships
• Conflicting Messages• Conflicting Priorities• Unreliable Forecast• Unclear Requirements
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Procurement Transformation: The Power Of One
Lenovo’s Supply Base
• One Focus• One Message• One Team• One Business Management System
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Cost TargetCost Target
P&L DrivenIndustry
Benchmark
SVP OfficeManagement Review
Deliverables:
• Over-achieve SVP cost targets across all commodities
• Over-achieve industry average
• Weekly deep dive across all commodities (SVP driven)
• PTI retention system shields savings from Sales Geo’s
Stretch Challenge Weekly Review
Procurement: Material Cost Management System
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Procurement: Continuity of Supply
GOAL: 95% Delivery in 8 Days in Mature Markets
• Regional Based State-of-the-Art Manufacturing Facilities
• Focus on Parts Shortage Prevention Management
– Key Parts Stocked in Geo Supplier Hubs Worldwide
– DOI Compliance
– Lead-time Reduction
– 30% Upside Flexibility
– 13 weeks supply outlook
• Consolidated Purchasing Org. with COS Accountability
• Process Continuously Improved via Lean Six Sigma
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Engagement• Commodity Strategy• Supplier Selection• RFQs and E-Bidding• Share Allocation
Agreement Management• CTA & Tech. Agreement• Statement of Work• Long Term Agreement
Evaluation• Quarterly Exercise• Score Metrics• Weigh Adjust by Commodity
SUPPLIER
MANAGEMENT
Procurement: Supplier Management Approach
Execution• Best Price - DMO, Clean Sheet• Supplier Collaboration
Daily Commit/ Hub Mgmt• Quality Insurance - LRR, DOA+30
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Procurement: Excess & Obsolete – Parts Inventory
• Weekly Management System
– Enhanced Visibility and Accountability by Geo
– Interlock with all Geographies
• Focus on EOL-LTB & Shell LTS (Left To Sell)
• Improved Supply Demand Conditioning
• Align with Suppliers on E&O consumption
• GCMs have KPI for E & O
Parts Inventory E&O
0
2
4
6
8
06/07 Quarterly Rate 07/08 Quarterly Rate 08/09 1Q 0809 2Q
Page 24 of 29
Manufacturing Transformation: Quality Management System
Integrated Lenovo Quality Management System
LenovoInternational
LenovoChina
• Rigid & comprehensive new product release
• Premium brand quality• Conservative incident recovery• Consistent DOA performance• Multiple geographic complexity
• Balanced time-to-market new product release process• Common quality KPI, key processes and reporting tools• Time & quality efficient incident recovery process• Consistent & industry-leading DOA performance• Common daily/weekly management review system
• Flexible & fast new product release• Improving brand quality• Best-in-class incident recovery• Fluctuating DOA performance• Localized process & decision-
making
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Lenovo Desktop Pure Manufacturing Cycle Time
Actions:• Re-Layout project • Balance mfg steps capacity
FY 06/07 FY 07/08 FY 08/09 (1H)
Lenovo Notebook Pure Manufacturing Cycle Time
Data: Lenovo International Production
Manufacturing Transformation: Cycle Time
Actions:• Test process optimization
• Reduce workmanship defects
• FPY improvement
Actions:• New test deployment• Idle time reduction• Further line re-balancing• FPY improvement
39% Reduction
27% YOY reduction 16% YOY reduction
Actions:• LEAN mgmt set-up• Process optimization• Line modification
FY 06/07 FY 07/08 FY 08/09 (1H)Actions:• Line balance• Idle time reduction• Test time reduction• Improve assembly efficiency
Actions:• LSS method extending• Quality optimization• New test deployment
16% YOY reduction 16% YOY reduction
28% Reduction
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Manufacturing Transformation: Quality - DOA
Notebook DOA+30
06/07 07/08 1Q08/09 2Q08/09
Desktop DOA+30
06/07 07/08 1Q08/09 2Q08/09
29%Improvement
Key DOA Improvement Initiatives• Early manufacturing involvement• Lessons Learned review & implementation• Commodity quality improvements• Smart Launch deployment• Incident management system & DOA failure analysis process enhancement
44%Improvement
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Logistics Transformation: YOY Cost Reductions
3Q07/08 4Q07/08 1Q08/09 2Q08/09
Prior YearCurrent Year
Cost Per Box (Ex Fuel)Keys to Success:• Network and carrier optimization
• Shipment consolidation
• Shifts to lower cost MOT’s
• Tight accessorial management
Avg 15% YTYImprovement
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Logistics Transformation: Delivery Performance Improvement
WW Global Logistics Performance 3-Year Trend
50%
60%
70%
80%
90%
100%
Q1FY06/07
Q2 Q3 Q4 Q1FY07/08
Q2 Q3 Q4 Q1FY08/09
Q2 Q3% D
eliv
ery
Per
form
ance
to T
arge
t
• Key Success Factors– Redesigned networks– LSS improvements on end-to-end processes– Direct shipments & reduced deferrals
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IR Contacts (Hong Kong)Gary Ng – [email protected] / +852 2516-4840Feon Lee – [email protected] / +852 2516-4843
IR Contacts (Beijing)Sun Kai – [email protected] / +8610 5886-5679