Relationships in Supply Chain Management 11/2011 Miikka Lemmetty

Agenda Nokia company information Supply chain structure Kraljic’s Matrix & Relationships Comparison with Apple Negative Impact of Relationships Strengths and Weaknesses Analysis & Recommendations What is the role of relationships in the supply chain of communications industry?

Company information Nokia: In 2010 sold 453 million phones in 150 countries Operating revenue €51bn (2008)  €42bn (2010) 15 manufacturing plants in 9 countries Handles 100 billion components 60 strategic suppliers Lost reputation as the world leader in supply chain management to Apple in 2008 Currently adjusts supply network to meet the market demand Apple Operating Revenue - €48Bn Sources: http://www.nokia.com/NOKIA_COM_1/About_Nokia/Sidebars_new_concept/Annual_Accounts_2010/Nokia_vuonna_2010.pdf http://ncomprod.nokia.com/results/Nokia_results2010Q4e.pdf http://www-935.ibm.com/services/us/gbs/bus/pdf/bcw00617-scm_executive_summit_2006_insights.pdf

Supply chain structure Relationships ensure quality Raw Materials Compatible parts Parts Manufacture Compiling final product Nokia Manufacture Quality control Final Product Enviroment plays a vital role with the supplier of Nokia and Apple http://www.nokia.com/NOKIA_COM_1/Corporate_Responsibility/Sidebars_new_concept/Nokia_Suppliers_and_the_Environment/env_guide.pdf http://www.theferrarigroup.com/supply-chain-matters/2011/07/07/closed-vs-open-supply-chain-important-that-you-understand-the-implications/ Role of relationships with Suppliers Technology requirements Quality control Environmental impact Minimising disruptions

Kraljic’s Matrix & Relationships Supply’s impact on financial results Supply risk Leverage products Bottleneck products Routine products Strategic products Relationships Linking relationships to Kraljic’s matrix: http://www.cpmtraining.co.uk/art/Supplier%20Relationship%20Matrix.pdf

Comparison with Apple Similar supplier relations for both companies 2010 2009 2008 2007 2006 Operating cycle Nokia 87 88 86 101 66 Apple 104 75 Cash conversion cycle 34 44 49 50 33 48 60 67 42 Nokia Apple Delivery Time 3 10 Stock turnover 17,01 68,05 *O-Cycle: Payable periods increased from 69 days to 97 days in 2007 *CC-cycle: payable payment period has increased for nokia to 52 days from 44 days Closed Supply Chain-Manufacturer exerts control over the whole supply chain from design to retail store Stock turover= cost of goods sold/ average inventory Operating Cycle: time period from inventory purchase until the receipt of cash Cash Cycle: period from when cash is paid out, to when cash is received. Stock turnover decreased a bit for nokia (From 21 to 17) Design-to-market time: ~ 18 months Sources: Value-Added Logistics in Supply Chain Management By Henriette Bjerreskov Dinitzen, Dorthe Bohlbro http://www.stock-analysis-on.net/NYSE/Company/Nokia-Corp/Ratios/Short-term-Operating-Activity http://uk.advfn.com/p.php?pid=financials&symbol=N%5EAAPL http://quicktake.morningstar.com/stocknet/efficiencyratios10.aspx?symbol=aapl http://www.apple.com/procurement/ http://bx.businessweek.com/supply-chain-performance/view?url=http%3A%2F%2Fwww.theferrarigroup.com%2Fsupply-chain-matters%2F2011%2F11%2F07%2Fapples-supply-chain-capabilities-leak-out-take-the-time-to-review-them%2F http://www.tuaw.com/2011/11/04/exploring-apples-supply-chain-secrets/ http://finance.mapsofworld.com/corporate-finance/management/operating-cycle-and-cash-cycle.html Similar supplier relations for both companies Relationship lengths with suppliers vary Very high quality and price pressure Apple: ” we periodically review our relationships and add new suppliers as needed”

Negative Impact of Relationships Personal and very good relationships can be harmful Personal relationships can lead to losing business focus Elcoteq – Nokia’s strategic EMS supplier Trusts in Nokia Increases production capacity Nokia reduces orders Production capacity too high for demand Elcoteq is forced to declare bankruptcy Nokia partners with Foxconn EMS- Elctronics Manufacturing Service Sources: http://evertiq.com/news/10092 http://globalspin.blogs.time.com/2011/05/23/woes-continue-in-china-for-an-apple-parts-manufacturer/

Strengths and Weaknesses Fast cash cycle times Low stock turnover value Flexible supply chain to mitigate disruptions Loss of market share reduce bargaining power Control over suppliers Large order volumes enable ruthless behaviour if required http://www.theferrarigroup.com/supply-chain-matters/2011/10/25/apple-a-supply-chain-with-recognized-strategic-impact/ http://www.semi.org/en/node/37971

Analysis & Recommendatios Role of supplier relations in 5 years Strategic suppliers will be increasingly more important Supplier network will adjust according to new innovations Recommendations Maintain good relationships with strategic suppliers Avoid requirements for bottleneck products

Thank you for your attention Any Questions?