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The Implications of Lenovo’s U.S. Manufacturing Announcement

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The following commentary is this author’s weekly guest commentary for the Supply Chain expert Community web site.

Lenovo has announced that it will start- up a U.S. personal computer production line in Whitsett, North Carolina, near Greensboro.  Lenovo anticipates that this production capability will commence in early 2013 and will create 115 new manufacturing jobs.  Plans call for the assembly of Think-branded notebook and desktop PCs, along with tablets and engineering workstations.

Our readers will probably note that the size of this facility is not really large, compared to contract manufacturing facilities in China that rival the population of small cities. The fact that the facility will be deployed as an adjunct to an existing distribution center further implies a smaller-scale assembly-type of operation geared to unique customer needs of the U.S. market. A Wall Street Journal article noting the announcement was quick to point out Lenovo statements that implied that this move was more than just symbolic.  The announcement also comes at the high point of the U.S. presidential election season, which has its own resonance when any global company announces an expanded U.S. presence. We as a supply chain community are best equipped to assess the longer-term implications to high tech and consumer electronics supply chains in the U.S.

The Supply Chain Matters blog has featured some recent commentaries regarding Lenovo’s existing business and global supply chain strategies, and thus we were not all that surprised by this announcement.  The industry implications, however, are worthy of some speculation and commentary.

Lenovo desires to continue to grow market share in the U.S., and with a brand associated with China, it must overcome certain inherent buyer perceptions.  A U.S. manufacturing presence, however small, sends a statement of commitment to the U.S. market and the needs of U.S. customers. Lenovo continues to demonstrate that very strategy in other countries, including Latin America. Because Lenovo’s hybrid supply chain capability is deployed as a leveraged combination of both in-house and external contract manufacturing operations, a U.S. production presence has the potential to provide Lenovo yet another edge in a more timely response to U.S. market needs.

We wonder if this announcement sends another statement, especially to the global supply chain teams of competitors Apple, Dell and HP.  Manufacturing strategies involving China are now under the looking glass. Given the current high visibility issues related to labor unrest and involving responsible supplier social responsibility strategies, the open question is whether a revised strategy needs to be pursued concerning high volume manufacturing within China. An associated challenge resides within global based ocean and air transportation industry players awash with excess capacity, attempting to offset current high fixed costs by announcing considerably higher shipping rates for 2013.

Supply Chain Matters thus proposes the following question to high tech and consumer electronics related supply chains: Are the business and economic factors related to low cost manufacturing strategies concerning China in need of a review?

Let’s be clear, China continues to represent an enormous consumer market, and there will always be a need for a significant value-chain presence to support that market. However, the economics for fulfilling needs in other global markets are changing, and a looming economic downturn implies more sensitized views from consumers as to where their electronic devices originated.  Global supply chains must therefore move toward a more demand-focused orientation.

The takeaway of our commentary is to not dismiss Lenovo’s announcement as just symbolic. The factors related to global sourcing have reached a new complexity.

What’s the view among your supply chain and product teams?  As the focus turns toward 2013 strategies, insuring the value-chain is focused toward more demand-focused supply chain fulfillment capabilities will be important.

Bob Ferrari

 

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  1. Bob – this is a great example of the dual sourcing opportunities that companies producing or assembling in off-shore low cost countries (LCC) combined with high response (e.g on-shore) can achieve. It is not about lowest cost exclusively, but ability to maximize the use of the network to optimize total margin dollars (volume X margin).

    The biggest challenge is to determine which products to dual source and what is may be the criteria to select these products. Several years ago, I worked with two Operations Professors at Northwestern’s Kellogg School of business – Jan Van Mieghem and Gad Allon who evaluated the potential variables (e.g. cost of capital, demand and supply variability, lead time, etc) to help define allocation to both LCCs and on-shore. For these seeking to evaluate a Dual Sourcing Strategy, I encourage you to look into this research.