Supply Chain Metrics That Matter: A Focus on the High-Tech Industry - 2015

Supply Chain Metrics That Matter:
A Focus on the High-Tech Industry
A Review of Progress on Supply Chain Excellence
for the Period of 2006-2014
01/08/2016
By Lora Cecere
Founder and CEO
Supply Chain Insights LLC
and Regina Denman
Client Services Director
Supply Chain Insights LLC

Contents
Research
Disclosure
Research Methodology
Improving Performance
Driving Profitability
Improving Cycles
Managing Complexity
Defining Improvement
Balance
Strength
Resiliency
Evaluating Supply Chain Excellence: Putting It All Together
Executive Summary: Current State of the High-Tech Industry
Which Companies Performed the Best in Consumer Electronics?
Which Companies Performed the Best in B2B Electronics?
Which Companies Performed the Best in the Semiconductor Industry?
Supply Chains to Admire
A Look Back at History
Cash-To-Cash
Recommendations
Conclusion
Appendix: Metrics Definitions
Prior Reports in This Series
About Supply Chain Insights LLC
About Lora Cecere
Endnotes
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Research
The Supply Chain Metrics That Matter report series is an analysis of supply chain excellence for a
specific industry. The goal is to help supply chain leaders understand what is possible in driving
supply chain excellence programs. In this report we take a closer look at, and share insights on, the
High-Tech industry. The analysis focuses on three sectors: consumer electronics, B2B high-tech, and
semiconductor companies. The analysis is difficult because some companies like Samsung span
these subsegments. When this is the case we group the company by the most similar industry
segment.
These reports are based on data collected from financial balance sheets and income statements over
the period of 2000-2014. Our source of data is YCharts. In these Supply Chain Metrics That Matter
reports we analyze how companies made trade-offs in balancing growth, profitability, cycles, and
complexity during the last decade.
Within the world of Supply Chain Management (SCM) each industry is unique and sectors vary within
industries. As a result, it is dangerous to list all industries in a spreadsheet and declare a supply chain
leader. We believe a better methodology is to evaluate change over time with a focus on overall
performance and improvement within an industry peer group. In this series of reports—Supply Chain
Metrics That Matter—we analyze the potential of each supply chain peer group while sharing insights
and recommendations from industry leaders based on general market trends. In the appendix of this
report we share information and links to other reports in this series which are focused on progress in
other industries.
Disclosure
Your trust is important to us. As such, we are open and transparent about our financial relationships
and our research process. This independent research is 100% funded by Supply Chain Insights.
These reports are intended for you to read, share and use. Please share this data freely within your
company and across your industry. All we ask for in return is proper attribution when you use the
materials in this report in public forums. We publish under the Creative Commons License Attribution-
Noncommercial-Share Alike 3.0 United States and our citation policy is outlined on the Supply Chain
Insights Website.

Research Methodology
The methodology to understand supply chain performance and improvement is based on ten years of
data mining of supply chain financial ratios. In Table 1 we share the supply chain ratios we analyzed
to understand the trends in the Supply Chain Metrics That Matter report series.
Table 1. Financial Ratios Considered in the Development of the Supply Chain Index
While there are other measurements which we believe are important in the determination of supply
chain excellence—forecast accuracy, case fill rate, carbon footprint, and inventory write-offs—we
cannot find a reliable and consistent source of data for these metrics which covers all industries and
the years studied. We find the industry data sources for these additional measurements are spotty
and largely inaccurate due to the self-reporting of data. As a result, they are not included in this
analysis. Without a consistent data source across the industries we cannot include these factors,
even though we believe they are important.
The Supply Chain Index methodology was built on the belief that the supply chain is a complex
system with increasing complexity. We believe it is the supply chain leader’s role to build and manage
supply chain performance to drive year-over-year improvements which are balanced, strong, and

resilient. In our research we find that most companies throw the supply chain system out of balance,
and as a result are able to drive progress only on a single metric, not a balanced metrics portfolio. To
illustrate this point, in the development of the Supply Chains to Admire Report we studied public
manufacturing and retail companies for the period of 2006-2014, and we found that only 21 of the
companies in the study group performed better than their peer group on the portfolio of metrics of
operating margin, inventory turns and Return on Invested Capital (ROIC).
In the management of the supply chain there are many metrics. In fact, we find that most supply chain
leaders measure too many on their scorecards, which drives confusion. Our first goal in the research
was to determine which metrics should be tracked in the portfolio analysis. To understand the
relationship between supply chain performance and market capitalization, we calculated the
correlation of seven years of financial ratios (based on quarterly reporting) to market capitalization
(the number of outstanding shares multiplied by the share price on a quarterly basis). The results of
this study are presented in Table 2. Our goal was to select a portfolio of metrics that could be
meaningful to all industries.
Table 2. Correlation to Supply Chain Financial Ratios to Market Capitalization
For leaders, we find that progress is slow and deliberate. In our research we find it takes at least
three years to drive significant supply chain progress, and the best supply chain transformation
projects take at least five to six years.

We also find it is difficult for supply chain leaders to sustain progress. A bad project, a quality issue,
or a merger can result in deep balance sheet gyrations. As a result, most companies go through ups
and downs with distinct patterns.
Our work is a study of metric performance patterns. We believe the patterns matter. It is for this
reason that in this report we analyze companies’ progress in time periods—pre-recession, during the
recession, and post-recession—to discover year-over-year trends. In our research, supply chain
excellence is defined as ‘performance better than a competitor on a portfolio of metrics’, and
‘improvement better than the peer group average’. While this sounds easy, what will be seen by the
reader of this report is a tough standard which few can meet.
Improving Performance
To evaluate performance we analyzed a portfolio of metrics against industry averages and
improvement for three periods of time: 2006-2014, 2009-2014, and 2011-2014. This allowed us to
analyze the companies for the longer view, and post-recession recovery.
The basis of the analysis in this report is the Effective Frontier model. As shown in Figure 1, the
Effective Frontier model illustrates the principle that a supply chain is a complex system, with
increasing complexity, which needs to be managed using a balanced metrics portfolio.
Figure 1. The Effective Frontier
In our writing it is deliberately not termed the ‘Efficient Frontier’—a term used in economic theory.
Why? Quite simply it is because the term ‘efficiency’ in supply chain processes is usually linked to the
lowest cost or the best revenue per employee. We find that the more efficient supply chain--with the

lowest cost per unit--seldom is the most effective in the delivery of the supply chain strategy. Instead,
it needs to be about balance of a portfolio to drive value. The concepts of the Effective Frontier are
based on the balance of growth agendas with cost, cycle metrics (a focus on inventory), and
complexity. We use Return on Invested Capital as a proxy for complexity.
In this report we analyze the progress of the High-Tech industry on the Effective Frontier. Across all
industries we find that nine out of ten companies are stalled at the intersection of two important
metrics: inventory turns and operating margin. While some companies made no improvement over
time, most companies were able to either improve inventory turns, or operating margin, but not both
together. The reason? We believe it is due to the rise of unchecked complexity. As will be seen in this
report, unchecked complexity throws the supply chain out of balance.
Driving Profitability
There is often an inverse relationship between margin and attaining supply chain excellence. Why?
Industries with the thinnest margins are more serious about delivering on the promise of supply chain
leadership. With shrinking margins in the high-tech industry, the supply chain has been an important
industry imperative. Progress was faster in the last decade than over the past five years.
In our analysis for this report we use operating margin as the measure of profitability. The
methodology is equally applicable to EBITDA.
Improving Cycles
When it comes to managing cash-to-cash cycles, a small number is better. The question in the
boardroom is “How small can supply chain working capital cycles be managed to pump cash into the
organization?” There is seldom the question of “How low can we go in working capital cycles before
we put the supply chain at risk?” Or, “When will payables be so low that our suppliers will not be able
to survive?” To answer these questions, and understand the management of cycles in the high-tech
sectors, we evaluated the cycles in three time periods: 2006-2014; 2009-2014; and 2011-2014.
Cash-to-cash is a composite metric of receivables, inventory, and payables. As can be seen through
the charts, the greatest improvement in supply chains in the last decade has been made in
payables—lengthening payment terms to suppliers. Inventory levels and receivables have been more
constant. In our analysis we use inventory turns as our measure of supply chain cycles. The higher
the inventory turn value, the stronger the results (correlation to market capitalization).

Managing Complexity
By definition, the high-tech industry is asset intensive. Factory smokestacks are iconic
representations of manufacturing excellence. Within the high-tech company supply chain there are
many forms of complexity: increase in items, customer policies, geographic reach, and markets. Over
the last decade complexity in the high-tech industry increased. This includes: new product launch; the
speed of software development; the evolution of open source standards; global sourcing alternatives;
and increases in competition.
Return on Invested Capital is a less well-known metric compared to Return on Assets (ROA). Return
on Assets has a narrower focus. Our research indicates that ROIC has a better correlation with stock
market capitalization, and provides a broad perspective on cash flow generation and profitability
based on shareholder equity. The formula used for ROIC is:
𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐼𝑛𝑣𝑒𝑠𝑡𝑒𝑑 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 =
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐼𝑛𝑐𝑜𝑚𝑒 + 𝐼𝑛𝑐𝑜𝑚𝑒 𝑇𝑎𝑥 𝑇𝑜𝑡𝑎𝑙
𝑇𝑜𝑡𝑎𝑙 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟′ 𝑠𝐸𝑞𝑢𝑖𝑡𝑦
ROIC is a measurement of the company’s use of capital. The goal is to drive higher returns than the
market rate of the cost of capital. As will be seen in this report, for many companies this is a struggle.
Defining Improvement
In judging improvement, the patterns matter. We built the Supply Chain Index to gauge the progress
of supply chain leaders. The methodology starts with understanding the resulting pattern when two
supply chain metrics (generally ratios) are plotted over time on an orbit chart.
To illustrate the power of patterns, and the limitation of averages, we share Figures 2a-2c. In the case
of Apple, the company has made substantial progress on operating margin while losing ground on
inventory turns. In the case of Intel, shown in Figure 2b, success was made on both operating margin
and inventory turns for the period of 2006-2013, but the company lost ground on operating margins
for the period of 2013-2014. In the case of Cisco Systems, demonstrated in Figure 2c, the pattern is
gnarly with the company losing ground on two important metrics. Distinctly different patterns depicting
very different journeys for industry leaders in delivering on their vision for supply chain excellence in
very different markets.

Figure 2a. Example Orbit Chart. Apple - Inventory Turns and Operating Margin for 2000-2014
Figure 2c. Example Orbit Chart. Intel - Inventory Turns and Operating Margin for 2006-2014

Figure 2C. Example Orbit Chart. Cisco Systems - Inventory Turns and Operating Margin for 2006-2014
When you find a supply chain leader you see a clearer pattern of supply chain improvement. This is
the case of Intel. As you trace Intel’s progress in Figure 2b you can see that performance improved in
2006-2010, and then the company’s progress reversed in 2011-2014. This pattern is stronger, with
more balance and resiliency, than Apple or Cisco Systems. Seldom do you find a company making
linear improvement.
Due to the complexity of the charts, our first challenge in the creation of a methodology was to define
‘Supply Chain Improvement’. This was our goal in building the Supply Chain Index. We wanted to
develop a means to analyze improvement across a variety of industries, with applicability to
companies with different levels of revenue, and at different levels of supply chain maturity.
As we shared our findings, and educated supply chain leaders about financial ratios, the interviews
with companies helped us to better understand the data. “What caused this downswing in inventory in
2007?” we would ask. The company would then share that it was a six-month laser-focus brought on
by a new manager. When we asked, “What caused these cash-to-cash cycle gyrations in the period
of 2002-2004?” they told us the story of a difficult merger. We found that this was a new way of

looking at data; and while it took adjustment and training, it provided a new and fresh perspective at
most organizations.
Our insight? Supply chain progress happens over time; not in months or quarters, but in years. It
usually takes at least three years to see impactful change. The interrelationships between the metrics
are real. The supply chain is a complex system with nonlinear relationships between the metrics of
growth, cost, inventory turns, and ROIC. The effective management of the supply chain requires
embracing it as a system. The data cannot properly be assessed in a spreadsheet. Our approach
was to plot the shifts over time using orbit charts. In this report we share the orbit charts of high-tech
manufacturing leaders.
In 2013 we partnered with Arizona State University’s School of Computing, Informatics and Decision
Systems Engineering. After two years of work we believe that we now have a methodology which
enables the comparison of supply chain progress in the delivery of the Supply Chain Index. We
defined the Index as a whole, and applied the methodology across industries to measure supply
chain improvement. To help the reader understand the Supply Chain Index calculations in this report,
we first define the separate pieces—balance, strength, and resiliency—and then evaluate the input of
the pieces to the total Index.
Balance
Balance in the supply chain is a constant struggle. Growth requires an increase
in inventory. Forecasting and managing a new product launch is difficult.
Excessively long Days of Payables leads to weakened supplier health. The
examples are endless. The two metrics which comprise our balance measure
are Revenue Growth and Return on Invested Capital.
The balance measure in the Supply Chain Index is a mathematical calculation
of the vector trajectory of the pattern between growth and ROIC for the periods of 2006-2014 and
2009-2014.To understand this measurement, imagine a four quadrant grid with growth and ROIC on
the two axes. In our calculation, the overall trajectory of this vector from Year 0 (2006) to Year 8
(2014) is simplified into a single value which represents the company’s ability to balance growth while
improving ROIC.
Companies that were able to drive improvement in both metrics scored the best, while companies
that deteriorated in both scored the worst. The companies are then stack ranked based on factor
ratings. In Figure 3 we profile Intel. Intel has made more progress than its peer group.

Figure 3. Orbit Chart. Growth vs. Return on Invested Capital (ROIC) for 2006-2014 for Intel
The balance factor comprises 1/3 of the total Supply Chain Index calculation. Sustained improvement
on both year-over-year growth and ROIC indicates a balanced supply chain and is reflected in a high
balance score.
Strength
A successful supply chain is strong and reliable. Supply chain leaders strive to
deliver year-over-year improvements in both cost and inventory management.
Our research on pattern recognition has uncovered a rich relationship between
operating margin and inventory turns. For most supply chain leaders these are
some of the most important measures of their performance. Not only are they
important, they are more directly influenced by day-to-day supply chain
decisions than other, and more broadly used, corporate metrics. It is for this reason they are the two
components of our strength factor in the Supply Chain Index.
The strength measure in the Supply Chain Index is a mathematical calculation of the vector trajectory
of the pattern between inventory turns and operating margin for the periods of 2006-2014 and 2009-
2014. Like the balance factor calculation, the work starts with understanding the orbit chart pattern.
To understand the calculation, imagine a plot—an orbit chart—of inventory turns and operating

margin. In this report, performance is graphed on an annual basis from an origination point
representing performance on the two metrics at Year 0 (2006). The overall trajectory of this vector
from Year 0 (2006) to Year 8 (2014) is simplified into a single value which represents strength.
Improvement on both metrics simultaneously is graphically shown as movement to the upper-right
quadrant with increasing values for both inventory turns and operating margin over the period.
The companies are then stacked ranked based on performance and assigned a strength factor.
The strength factor comprises 1/3 of the total Supply Chain Index calculation. Sustained improvement
on both inventory turns and operating margin indicates a strong supply chain and is reflected in a high
strength score.
In Figure 4, when comparing Intel to Taiwan Semiconductor Manufacturing Co. (TSMC), while both
companies have made recent progress, TSMC is operating at a significant advantage with a 35%
operating margin and almost 15 inventory turns. TSMC is stronger than Intel in delivering supply
chain performance.
Figure 4. Orbit Chart. Operating Margin vs. Inventory Turn Comparison of Intel and TSMC for 2016-2014

Resiliency
Resiliency is an adjective easily tossed around as one of the most important
qualities of a successful supply chain in today’s volatile world. However, the
concept of resiliency is difficult to define, and there is rarely clarity among
stakeholders as to what resiliency is or should be.
As we plotted orbit chart after orbit chart, we could see that some supply chains
had very tight patterns at the intersection of operating margin and inventory
turns, and that other companies had wild swings. We wanted to find a way to measure the variation.
So we turned to the experts at ASU. After evaluating several methods to determine the pattern in the
orbit chart, we settled upon the Euclidean Mean Distance between the points.
These results were published in our March 2014 report, Supply Chain Metrics That Matter: Improving
Supply Chain Resiliency, where we define resiliency as the tightness of the pattern at the intersection
of inventory turns and operating margin. These metrics, both critical for any supply chain, are
components of both the strength and resiliency metrics in our Supply Chain Index model.
Table 3. Supply Chain Resiliency by Industry

The tightness of the pattern (mathematically speaking, the Euclidean Mean Distance) indicates the
ability of a supply chain to maintain a tight, consistent pattern across these two metrics as the
business environment shifts and changes over a nine year period (2006-2014). As shown in Table 3,
supply chain resiliency varies considerably by industry. The high-tech industry is more resilient than
contract manufacturing and consumer electronics, but more volatile than consumer packaged goods.
The resiliency metric is similar to the cash-to-cash cycle in that a smaller number is better. A lower
number for resiliency is an indicator of a tighter pattern and greater reliability in results over the time
period.
Evaluating Supply Chain Excellence:
Putting It All Together
In the analysis, each company is judged by their own potential to make progress. While the average
values of a company’s performance may be higher, in the
Supply Chain Index we are evaluating companies on their
ability to drive year-over-year improvement, and reliable
progress on the metrics that we believe matter.
The Supply Chain Index is a measurement of supply chain improvement. Each of the factors—
balance, strength and resiliency—as defined above, comprises 1/3 of the total score.
𝑆𝑢𝑝𝑝𝑙𝑦 𝐶ℎ𝑎𝑖𝑛 𝐼𝑛𝑑𝑒𝑥 =
1
3
𝐵𝑎𝑙𝑎𝑛𝑐𝑒 𝐹𝑎𝑐𝑡𝑜𝑟 +
1
3
𝑆𝑡𝑟𝑒𝑛𝑔𝑡ℎ 𝐹𝑎𝑐𝑡𝑜𝑟 +
1
3
𝑅𝑒𝑠𝑖𝑙𝑖𝑒𝑛𝑐𝑦 𝐹𝑎𝑐𝑡𝑜𝑟
Companies that are underperforming their peer group can drive supply chain improvement faster than
higher-performing companies. As a result, when evaluating supply chain excellence, it is important to
look at improvement and performance together. We use this analysis to determine the best
performing supply chains through our Supply Chains to Admire methodology.

Executive Summary: Current State of the
High-Tech Industry
Globalization. Commodity inflation. Margin squeeze. Economic uncertainty. Warranty issues.
Shortening product life cycles. Recalls. Labor arbitrage and outsourcing. The list of market pressures
could go on and on, but one thing is clear: the high-tech industry was redefined over the course of the
last decade. In Table 4 we show the progress of discrete industries for the periods of 2006-2014 and
2011- 2014. Notice there is more red (lack of progress) than green (progress) in the industry trends.
Table 4. Supply Chain Performance by Industry within the Discrete Industries
High-tech companies have the most advanced practices for inventory management, planning and
analytics. They are just treading water (keeping slightly ahead of the market dynamics). The rate of
change drives innovation. Within this industry there are more supply chain innovators taking a hard
look and driving the adoption of prescriptive analytics and canonical value network infrastructures.

Taking a closer view at the value chain of the sub-industries within high-tech, i.e. consumer
electronics, B2B Electronics, and semiconductor industries, the impact of the industry drivers and the
importance of supply chain performance becomes clearer.
Table 5. Supply Chain Performance by Industry within the High-Tech Sector
The entire value chain is struggling to maintain margins and improve inventory turns. For consumer
electronics and B2B electronics, growth is down, operating margins are degrading and inventory turns
worsening. Supply chain matters more than ever.
Which Companies Performed the Best in
Consumer Electronics?
For the period of 2006-2014, and in the face of declining growth, Lexmark outperformed primarily
through the redefinition of the business model and the use of the Internet of Things (IOT) to redefine
service.
While this sector has lower margins than its suppliers in the B2B Electronics or Semiconductor
industries, they struggle with shrinking life cycles, price and margin management, and overall margin
management. It is a very competitive market.
The companies struggle to deliver on a portfolio of metrics. Companies will often make progress in
one or two, but struggle with delivering progress on the balanced portfolio. The results, shown in
Figure 6, speak for themselves.

Table 6. Comparison of High-Tech Companies for the Period of 2006-2014
Which Companies Performed the Best
in B2B Electronics?
In the B2B Electronics market, the companies that outperformed using these criteria were Cisco
Systems, EMC, Qualcomm and Western Digital. All four are seasoned B2B leaders with complex,
outsourced supply chains. These four companies have worked to build outside-in channel sensing
and the translation of demand and supply signals across their networks. Sitting three and four layers
back in the value network, and knowing that they are subject to the Bullwhip Effect, these companies
implemented more advanced inventory strategies (to buffer demand and supply) and channel sensing
processes to reduce demand latency. There has been more progress in supply chain practices in this
sector than in the consumer electronics segment.
The segment has led in corporate social responsibility practices, supplier development programs, risk
mitigation strategies, and B2B connectivity. The dependency of the segment on contract
manufacturing, with a more uncertain business model and thinner margins, is a risk.

Table 7. Comparison of B2B Electronics Companies for the Period of 2006-2014
Which Companies Performed the Best in the
Semiconductor Industry?
The leader in semiconductors is Intel. While Altera and Taiwan Semiconductor posted strong
performances, they are not driving an equal level of supply chain improvement as Intel and
Qualcomm.

Table 8. Comparison of Semiconductor Companies for the Period of 2006-2014

Supply Chains to Admire
When it comes to understanding the Supply Chain Metrics That Matter, the performance of each
industry is different. The study needs to be industry specific. In the 2015 Supply Chains to Admire
analysis, seven companies makes the list from the High-Tech Industry. As shown in Figure 5, this
includes: Cisco; EMC; Intel; Lexmark; Qualcomm; Samsung; and Western Digital. Three of the
companies--Cisco, EMC and Intel--made the list for two consecutive years.
Figure 5. Supply Chain Insights’ 2015 Results of the Supply Chains to Admire

A Look Back at History
In reviewing annual reports for the period, several facts are clear:
• Supply Chain Matters More Than Ever: The annual reports have a higher number of supply chain
citations than those in process industries for the same period. The industry has a strong
dependency on suppliers and has aggressively built supplier development programs. While the
automotive industry focused on reducing costs with suppliers (and almost killed its supply base), the
high-tech industry’s focus has been on improving capabilities.
• Volatile Times and Growing Risk: In this period the high-tech industry faced unprecedented levels
of demand and supply volatility. This is reflected in statements on strategic decisions for sole-
sourcing, supplier development, Lean and Kaizen events in operations, and the use of advanced
forms of connectivity.
• Aggression on Corporate Social Responsibility. The companies have been aggressive in
reducing technology waste and eliminating Congo metals. The CSR officer and the programs are
stronger in these high-tech industries than their process equivalents.
• Building of Knowledge Workers: The industry is also investing in supply chain talent and pushing
innovation in training programs. The most advanced career development program is at Intel.
The importance of these programs is echoed in the annual report citations for the period of 2006-
2010. Here we share some of the most relevant annual report excerpts:
2006 Alcatel-Lucent
“We must seek out efficiencies as well. We will achieve cost savings by the optimization of our supply
chain and services, the elimination of duplicate resources, and product rationalization, among other
measures. Globally, our planned changes will affect about 12,500 positions.
Alcatel-Lucent is leveraging the integration of its two formative companies to create a strongly
competitive enterprise that is highly efficient in its operations. Identifying synergies that enable cost
reductions is essential to this. Alcatel-Lucent’s synergy plan will help realize a total of €1.7 billion in
pre-tax cost savings within three years–and at least €600 million in 2007 alone. More than 50% of
these savings will be generated through supply-chain and service optimizations and product
rationalizations.”i

2006 Cisco Systems
“While our inventory balance was $1.4 billion at the end of fiscal 2006 compared to $1.3 billion at the
end of fiscal 2005, our annualized inventory turns increased to 8.5 in the fourth quarter of fiscal 2006
as compared with 6.6 in the fourth quarter of fiscal 2005. The inventory balances and turns for the
fourth quarter of fiscal 2006 reflected increased sales, the initial implementation of the lean
manufacturing model…
In the third quarter of fiscal 2006, we began the initial implementation of the lean manufacturing
model. Lean manufacturing is an industry-standard model that seeks to drive efficiency and flexibility
in manufacturing processes and in the broader supply chain. Over time, consistent with what we have
experienced thus far, we expect this process will result in incremental increases in purchase
commitments with contract manufacturers and suppliers and corresponding decreases in
manufacturing inventory. Inventory management remains an area of focus as we balance the need to
maintain strategic inventory levels to ensure competitive lead times with the risk of inventory
obsolescence because of rapidly changing technology and customer requirements.”ii
2006 EMC
“We produce our products on the basis of our forecast of near-term demand and maintain inventory in
advance of receipt of firm orders from customers. We configure to customer specifications and
generally deliver products shortly after receipt of the order. Service engagements are also included in
certain orders. Customers may reschedule or cancel orders with little or no penalty. We believe that
our backlog at any particular time is not meaningful because it is not necessarily indicative of future
sales levels.iii
”
2006 Emerson
“Higher sales prices of approximately 2 percent and market share gains were substantially offset by
volume decreases due to inventory reductions in the supply chain in the United States and China, as
well as decreased wholesaler exports from Europe due to the strong Euro. Sales results for 2005
were mixed across the businesses, with strong growth in U.S. air conditioning compressors during the
fourth quarter driving the overall increase.iv
”
“During 2006, rationalization of operations primarily related to the exit of approximately 10 production,
distribution, or office facilities, including the elimination of approximately 1,700 positions, as well as
costs related to facilities exited in previous periods. …moving costs related to the shifting of certain
tool and motor manufacturing operations from the United States and Western Europe to China and

Mexico in order to consolidate facilities and improve profitability. The Company expects rationalization
expense for 2007 to be approximately $100, including the costs to complete actions initiated before
the end of 2006 and actions anticipated to be approved and initiated during 2007.v
2006 Ericsson
“As a knowledge company, our employees are our greatest asset. During the year we added a net of
7,726 employees. This increase was primarily a result of the Marconi acquisition and the remaining
additions were largely in Services to accommodate the 33 percent growth in that area.vi
At Ericsson we use the term operational excellence to refer to our philosophy of striving to do things
smarter today than yesterday and to do it in a smarter way than our competitors. By driving
excellence and innovation in everything that we do, we create a competitive advantage. Much was
achieved through operational excellence in 2006, including improved R&D lead times and the
successful integration of Marconi operations. We also reorganized our operations into three business
units, creating a more customer-oriented organization and paving the way for continuous efficiency
improvements in the years ahead.”
2006 Qualcomm
“Die, cut from silicon wafers, are the essential components of all of our integrated circuits and a
significant portion of the total integrated circuit cost. We rely on independent third-party suppliers to
perform the manufacturing and assembly, and most of the testing, of our integrated circuits. Our
suppliers are also responsible for the procurement of most of the raw materials used in the production
of our integrated circuits. The majority of our integrated circuits are purchased on a turnkey basis, in
which our foundry suppliers are responsible for delivering fully assembled and tested integrated
circuits. We also employ a two-stage manufacturing business model in which we purchase completed
die directly from semiconductor manufacturing foundries, and directly manage and contract with third-
party manufacturers for back-end assembly and test services. We refer to this two-stage
manufacturing business model as Integrated Fabless Manufacturing (IFM). IBM, Taiwan
Semiconductor Manufacturing Company, Ltd. and United Microelectronics are the primary foundry
suppliers for our family of baseband integrated circuits. Atmel, Freescale (formerly Motorola
Semiconductor) and IBM are the primary foundry suppliers for our family of analog, radio frequency
and power management integrated circuits. Our fabless model provides us the flexibility to select
suppliers that offer advanced process technologies to manufacture, assemble and test our integrated
circuits at a competitive price.vii
”

2006 SanDisk
“All of our flash memory card products require silicon chips for the memory and controller
components. The majority of our memory is supplied from our ventures with Toshiba and our Toshiba
foundry relationship. This represents captive memory supply and we are obligated to take the output
from the ventures with Toshiba. Also, in fiscal year 2006, we purchased noncaptive memory supply
primarily from Samsung. We are guaranteed a certain amount of the total output from Samsung and
Hynix Semiconductor Inc., or Hynix, but we are not obligated to use the guaranteed supply until we
give them an order for future purchases. Our controller wafers are currently supplied by Tower
Semiconductor Ltd., or Tower, and United Microelectronics Corporation, or UMC. We have a foundry
agreement with Tower on a purchase order basis.viii
„
2006 Western Digital
“Head technology is one of the variables affecting areal density. Historically, there have been rapid
technological changes resulting in several generations of head technology in a relatively short time.
However, in recent years the time has lengthened between changes in generations of head
technology. Currently, the desktop hard drive industry uses giant magnetoresistive (including
tunneling magnetoresistive) head technology, which allows significantly higher storage capacities
than the previously utilized thin-film head technology. Most of our hard drive product offerings
currently employ giant magnetoresistive head technology.
The WD product line generally leverages a common platform for various products within product
families with different capacities to serve differing market needs. This platform strategy results in
commonality of components across different products within product families and, in some cases,
across product families, which reduces exposure to changes in demand, facilitates inventory
management and allows us to achieve lower costs through purchasing economies. It also enables our
customers to leverage their qualification efforts onto successive product models. In addition to the
development of hard drives, we also invest considerable resources in the development of WD head
technology used in the majority of our hard drive products. The design and manufacturing of WD
heads consists of engineering and fabricating a read element for reading data from a disk, a write
element for writing data to a disk, and slider. The slider functions similar to an airplane wing and
allows the read and write elements to fly over the surface of the disk and to land, on either the disk or
a special ramp, when power is not applied to the hard drive.ix
”
“Many of our OEM customers utilize just-in-time inventory management processes or supply chain
business models that combine “build-to-order,” in which the OEM does not build until there is a firm

order, and “contract manufacturing,” in which the OEM contracts assembly work to a contract
manufacturer who purchases components and assembles the computer based on the OEM’s
instructions. For certain OEMs, we maintain a base stock of finished goods inventory in facilities
located near or adjacent to the OEM’s operations.”
“We generally retain multiple suppliers for each of our component requirements but in some instances
use sole sources for business reasons. For example, during 2006, we purchased media from several
outside vendors including Fuji Electric, Hoya Corp., Komag Inc. and Showa Denko KK. We have
volume purchase agreements with Komag Inc. and Showa Denko KK which obligate us to purchase
from each supplier, and obligates each supplier to supply to us, certain specified media volumes in
accordance with the terms in the agreements. We sole-source some components, such as custom
integrated circuit devices for certain products from STMicroelectronics and Marvell Semiconductor,
Inc. Because of their custom nature, these products require significant design-in periods and long
lead times. There has been a trend in integrated circuit design toward increased integration of various
separate circuits. We expect this trend to continue in custom integrated circuits for hard drives.x
As of June 30, 2006, we employed a total of 24,750 employees worldwide. This represents an
increase in headcount of approximately 7% since July 1, 2005 and an increase of approximately 42%
since July 2, 2004. Many of our employees are highly skilled, and our continued success depends in
part upon our ability to attract and retain such employees.xi
”
2008 Adtran
“Inventory decreased 8.6% from December 31, 2006 to December 31, 2007, reflecting our efforts
during 2007 to adopt leaner manufacturing processes to reduce average product manufacturing cycle
times and lower on-hand inventory requirements. Inventory levels will fluctuate as we attempt to
maintain sufficient inventory levels to ensure competitive lead times while guarding against the risk of
inventory obsolescence that may occur due to rapidly changing technology and customer demand.xii
”
2008 Alcatel-Lucent
“Telecommunications operators are considerably expanding the scope of their services and becoming
more global. We, their suppliers, are going through a massive consolidation process. Although not
fully complete, this dramatic change to our competitive landscape has taken place in just three
years—when it took decades in other industries—resulting in some immediate challenges to be
addressed.
Going forward however, it means that there will be fewer but larger equipment providers addressing a
market with rapid growth in volume. This is why we have a positive view of our industry in the long

term.xiii
In the framework of a global cost reduction initiative, Alcatel Lucent announced an initial
restructuring plan in February 2007, which will achieve savings in annual pre-tax costs over three
years, with a workforce impact of 12,500 positions by 2009. This is necessary to eliminate
duplications of effort resulting from the merger of Alcatel and Lucent and the acquisition of Nortel’s
UMTS activities.xiv
Corporate social responsibility extends beyond the walls of a company to include its relationships with
suppliers and other partners. With this understanding, Alcatel-Lucent worked in 2007 to ensure its
commitments were carried throughout its supply chain, reinforcing sustainable, responsible
purchasing tools and methods. Training programs were rolled out so that all involved in purchasing
understand their roles and responsibilities, working collaboratively to manage CSR throughout the
company’s supply base. Some 500 procurement personnel were made aware of the Responsible
Purchasing program. The Global Procurement and Sourcing Department (GPS), the Corporate Audit
Services (CAS) and the EHS Department within Alcatel-Lucent collaborated to monitor the
commitment and conformance of Alcatel-Lucent suppliers to internationally recognized standards for
ethical, social, health & safety and environmental practices.xv
”
2008 Belden
“More than a third of all new hires in 2007 were part of our growing Asia/Pacific team, and we added
several new people to our Lean Enterprise team as this critical initiative expands within our company.
It is especially telling that more than half of our senior management today is either new to the
company or in a new position since 2006.xvi
As a company, Belden has embraced the notion of becoming a Lean Enterprise, eliminating waste
and driving toward continuous improvement, not only in our manufacturing operations but throughout
our company. Clearly, this is a cultural change for our company that will require discipline over a
number of years. But we are driving real progress today. In support of this strategy, we greatly
expanded our Lean operations, adding more than a dozen people to our corporate Lean team and
embedding a dozen more in operations companywide. We ran more than 230 Kaizen events in 2007,
all focused on improving operations and cutting waste.
Lean is our template for transforming Belden from a “build to stock” company, in which manufacturing
is based on inventory, to a “build to order” company that responds to real customer needs. Our
commitment to Lean principles is allowing us to focus on building what the customer wants, when the
customer wants it. The result will be improved customer satisfaction and quality, reduced cycle times,
and increased manufacturing flexibility. It is a result we are already realizing. Companywide, we can

see the progress in inventory turns. Our goal is to improve our inventory turns by one full turn per
year. In the last quarter of 2007, we were turning inventory 6.6 times, up from 5.9 turns a year earlier
and 4.3 turns at the end of 2005.xvii
We consolidated and closed a number of plants in 2007, transferring production to our new 350,000-
square-foot Nogales operation in Mexico. Additionally, in Europe, we resized our operation and sold
excess real estate at our Netherlands plant.xviii
Over the past three years, the prices of metals, particularly copper, have been highly volatile. Copper
rose rapidly in price for much of this period and remains a volatile commodity. Materials such as PVC
and other plastics cost of raw materials through higher pricing of our finished products. The majority
of our products are sold through distribution, and we manage the pricing of these products through
published price lists which we update from time to time, with new prices taking effect a few weeks
after they are announced. Some OEM customer contracts have derived from petrochemical
feedstocks have also risen in price. Generally, we have recovered much of the higher provisions for
passing through raw material cost changes, generally with a lag of a few weeks to three months.xix
”
2008 Cisco Systems
“Our pursuit of operational excellence drives us to continually seek ways to improve and streamline
our business processes across our global operations. Fiscal 2007 marked the year in which we
realized greater operating efficiencies as a result of completing our implementation of a new
manufacturing model: lean manufacturing. As a result of this initiative, Cisco achieved annualized
inventory turns of slightly above 10 in the fourth quarter of fiscal 2007. This is a significant
accomplishment given the size and breadth of our product lines.xx
”
“In the third quarter of fiscal 2006, we began the initial implementation of the lean manufacturing
model. Lean manufacturing is an industry-standard model that seeks to drive efficiency and flexibility
in manufacturing processes and in the broader supply chain. We fully implemented the lean
manufacturing model in the fourth quarter of fiscal 2007.
The amount recorded to cost of sales related to the liability for purchase commitments with contract
manufacturers and suppliers was $34 million, $61 million, and $12 million in fiscal 2007, 2006, and
2005, respectively. If there were to be a sudden and significant decrease in demand for our products,
or if there were a higher incidence of inventory obsolescence because of rapidly changing technology
and customer requirements, we could be required to increase our inventory write downs and our
liability for purchase commitments with contract manufacturers and suppliers, and our gross margin

could be adversely affected. Inventory and supply chain management remain areas of focus as we
balance the need to maintain supply chain flexibility to help ensure competitive lead times with the
risk of inventory obsolescence.xxi
”
“Our headcount increased by 11,609 employees during fiscal 2007, reflecting the investment in R&D
and sales described above and also reflecting increases in investments in our service business; our
Juarez, Mexico manufacturing facility; and acquisitions. Approximately 3,300 of the new employees
were attributable to acquisitions we completed in fiscal 2007. Our headcount is expected to increase,
as we continue to invest in engineering and sales headcount. As a result, if we do not achieve the
benefits anticipated from these investments, our operating results may be adversely affected.xxii
”
2008 Emerson
“In 2007, we spent $874 million on developing new products, improving existing products, and
providing engineered solutions to our customers. By listening to customers and investing in
engineering and development, Emerson can identify emerging trends and meet them head-on with
innovative technologies. The overall increase in profit was partially offset by declines in certain tools,
storage and motors businesses, reflecting new product introduction costs in the disposer business,
foreign currency losses in the tools and residential storage businesses and restructuring
inefficiencies, including costs related to plant shutdown and ramp up of Mexican capacity in the tools
and motors businesses. Overall, increases in sales prices were offset by higher raw material
(particularly copper, steel and plastics), wage and benefit (pension) costs and negative product mix,
diluting the profit margin.xxiii
”
2008 Ericsson
“Operator consolidation continues in several regions. In the Americas, consolidation has reduced the
number of operators by more than half. In Europe, mergers continue as well as other types of
combinations, such as network sharing and outsourcing of network operations. In other regions,
operator consolidation has led to the emergence of rapidly growing pan-regional operators,
particularly in the CEMA markets (Central and Eastern Europe, Middle East and Africa). Although
operator consolidation does not impact the underlying growth of the mobile market, it often disrupts
market development by creating delays in procurement, reducing total capital expenditures, while
increasing pricing pressure on vendors as the combined entities have stronger negotiating power.xxiv
”

2008 HP
“PSG gross margin increased primarily as a result of component cost declines and improvements in
supply chain costs per unit, which were partially offset by ASP declines. During fiscal 2007, IPG gross
margin decreased due primarily to unfavorable hardware margins, increased costs associated with
new product introductions and a change in product mix.xxv
Restructuring charges for fiscal 2007 were
$387 million, which included $354 million of expenses related to severance and other benefit costs
associated with those employees who elected to participate in the 2007 EER and a net charge of $33
million relating to adjustments to our fiscal 2005, 2003, 2002 and 2001 restructuring programs.xxvi
”
2008 Seagate
“In FY2007, Seagate adopted the Electronics Industry Code of Conduct (EICC), and also began
expecting its suppliers to implement programs to meet the Code’s requirements and assisting them in
doing so. Seagate established a simple, online Supplier Collaboration workspace for suppliers and
Seagate’s Commodity Management Teams (CMTs) to speedily share information using a secure
website. This allows faster communication on key strategic issues, as well as maintaining one
common document as the master. The company also held its annual Supplier Day, where Seagate
executives and CMTs hosted key suppliers for each commodity. The intent of the meeting was to
share key information with suppliers to help build relationships and provide insight for planning,
product overviews and future roadmaps. Seagate factory tours were provided for suppliers to see and
learn about the company’s operations. Seagate executives also met with supplier CEOs at the
company’s annual Supplier CEO Advisory Council to share product information and discuss issues in
an open forum.xxvii
”
“In FY2007, Seagate established a simple, online Supplier Collaboration workspace for suppliers and
commodity management teams (CMTs) to speedily share information using a secure website. This
allowed faster communication on key strategic issues, as well as one common document used as the
master. The company also held its annual Supplier Day, where Seagate executives and commodity
management teams hosted key suppliers for each commodity. The intent of the meeting was to share
key information with suppliers to help build relationships and provide insight for planning, product
overviews and future roadmaps. Seagate factory tours were also provided for suppliers to see and
learn about the company’s operations. Seagate executives also met with supplier CEOs at the
company’s annual Supplier CEO Advisory Council to share product information and discuss issues in
an open forum.”

“Seagate believes that training is an integral and necessary part of our supply chain. Seagate actively
works to educate its supplier base– ensuring that they understand the GC requirements in their
contracts before signing, acknowledging that GC is of critical importance to both Seagate and its
customers, and realizing that future GC requirements might be forthcoming. To that end, the
company began in FY2007 to develop a comprehensive training package for suppliers. The company
expects to roll the training program out at the end of CY2007 to all key suppliers. The training will be
web based and can be accessed conveniently by the company’s suppliers. The website will
track/document the learning and completion activities of each supplier. To support this effort, Seagate
will require that at least one key individual at each supplier will be required to complete training, and
that person would then be responsible for cascaded the training within his or her own company.xxviii
”
2008 Xerox
“We are currently in the first year of a 2007 master supply agreement with Flextronics, a global
electronics manufacturing services company, to outsource portions of manufacturing for our Office
segment. The agreement is for three years with two additional one-year extension periods at our
option. Our inventory purchases from Flextronics currently represent approximately 20% of our
overall worldwide inventory procurement. We have agreed to purchase from Flextronics some
products and consumables within specified product families. Flextronics must acquire inventory in
anticipation of meeting our forecasted requirements and must maintain sufficient manufacturing
capacity to satisfy these requirements. Under certain circumstances, we may be obligated to
purchase inventory that remains unused for more than 180 days or becomes obsolete, or on the
termination of the supply agreement.”
2008 Alcatel-Lucent
“In another major shift, R&D is being rationalized and optimized by broadening the scope of Bell
Labs. And, finally, the entire organization can tap the resources of Alcatel-Lucent’s corporate
functions, i.e. Finance, Communications and Sustainable Development, Human Resources, Legal
Affairs, Strategy, and Public Affairs. The global Operations function has a key mission under the new
operational model rolled out on January 1, 2009, namely to strive for excellence in the infrastructures
and services supporting Alcatel-Lucent’s businesses.”
“Operations will supply highly efficient, cost effective, best in class services in Information Systems,
Procurement, Supply Chain, Product Maintenance and Repair, Real Estate and General Services.
Because of the consolidated nature of its missions, it is a key partner contributing to the Group’s
overall accountability to customers and society at large. A new procurement policy notably shares

common principles and commitments across all Alcatel-Lucent suppliers. A long-lasting procurement
program notably shares common CSR principles and commitments across all Alcatel-Lucent
suppliers. Six hundred of these have been assessed on their CSR practices since 2004 via a
combination of questionnaires and onsite evaluations.”
2009 Cisco Systems
“Our provision for inventory was $102 million, $214 million, and $162 million for fiscal 2008, 2007, and
2006, respectively. The provision for the liability related to purchase commitments with contract
manufacturers and suppliers was $97 million, $34 million, and $61 million in fiscal 2008, 2007, and
2006, respectively. If there were to be a sudden and significant decrease in demand for our products,
or if there were a higher incidence of inventory obsolescence because of rapidly changing technology
and customer requirements, we could be required to increase our inventory write-downs and our
liability for purchase commitments with contract manufacturers and suppliers and gross margin could
be adversely affected. Inventory and supply chain management remain areas of focus as we balance
the need to maintain supply chain flexibility to help ensure competitive lead times with the risk of
inventory obsolescence.xxix
”
2009 EMC
“Managing information in a manner that complies with laws, regulations, industry standards, rules,
policies, and the like has never been more complex or challenging. This is especially true since the
sheer volume of information created by and flowing into organizations is at an all-time high and
forecast to rise dramatically each year. All of this information must be properly managed, retained,
and discovered across the enterprise. EMC is investing heavily in helping organizations manage the
risks, costs, and potential opportunities associated with rising levels of information. In the pages that
follow we propose a proactive approach to information compliance management.xxx
EMC operates with a company-wide commitment to consistently exceed customers’ expectations for
quality, service, innovation, and interaction. We call this the Total Customer Experience, or TCE. We
make sure we understand what customer’s value most about our products, services, solutions, and
processes. And then we find the most efficient and cost-effective way to deliver this value within the
timeframes and quality standards customers expect. The voice of the customer informs everything we
do. All decisions are driven by data and Lean Six Sigma analysis.xxxi
”

2009 Emerson
“Other deductions, net were $303 million in 2008, a $128 million increase from the $175 million in
2007. The increase reflects numerous items including a $31 million impairment charge related to the
North American appliance control business due to a slow economic environment for consumer
appliance and residential end-markets and a major customer’s strategy to diversify suppliers and
transition to and internalize the production of electronic controls. As a result, the operations of this
business will be restructured and integrated into the North American appliance motors business to
leverage the combined cost structure and improve profitability on the lower volume, including
elimination of redundant manufacturing capacity and a substantial reduction in overhead. xxxii
”
2009 Ericsson
The synergies generated by the combined strengths of the segments differentiate Ericsson through a
continuous focus on operational excellence to better leverage an economy of scale in technology
development as well as in product and service delivery and customer support. The three strategic
imperatives show Ericsson’s business dynamics and their effects on results. With its scale advantage
secured by being the primary supplier to more operators, the Company plans to balance growth with
margins, focus on leveraging expanded primary supplier relationships and return to higher profitability
levels.xxxiii
”
“In 2008, Ericsson set a new group-level target to reduce its life-cycle carbon footprint by 40 percent
over the next five years, starting with a 10 percent reduction in 2009. The footprint will include total
CO2 emission from: Ericsson in-house activities, such as production, transports, sites and business
travel by air. The lifetime use of the products sold by Ericsson during the year (portfolio energy-
efficiency improvement). Ericsson ranked second on the Carbon Disclosure Project (CDP) Swedish
Index.xxxiv
“In the first quarter 2008, a cost reduction plan of SEK 4 billion in annual savings was announced,
including estimated charges of the same size. In the third quarter it was announced that further
charges would be taken in the fourth quarter. As part of this cost reduction plan SEK 4.3 billion in
provisions were made. The actual utilization was SEK 1.8 billion, where SEK 0.6 billion was related to
restructuring programs before 2008. The expected utilization for 2009 is estimated to approximately
SEK 3 billion.xxxv
“

2009 Western Digital
“We believe that we have significant know-how, unique product manufacturing processes, execution
skills and human resources to continue to be successful and have the ability to grow, as necessary,
our manufacturing operations. To be competitive, we must manufacture high quality hard drives with
industry leading time-to-volume production at competitive unit costs. We strive to maintain
manufacturing flexibility, high manufacturing yields, reliable products, and high-quality components
that we manufacture ourselves, while insisting that our suppliers provide high-quality components at
competitive prices. The critical elements of our hard drive production are high volume, low cost
assembly and testing, and establishment and maintenance of key supplier relationships. By
establishing close relationships with our strategic component suppliers, we believe we access best-
of-class technology and manufacturing quality. In addition, we believe that our sourcing strategy
currently enables us to have the business flexibility needed to select the highest quality, low cost of
ownership suppliers as product designs and technologies evolve.
We manufacture hard drives in Malaysia and Thailand. We continually evaluate our manufacturing
processes in an effort to increase productivity, sustain and improve quality and decrease
manufacturing costs. We continually evaluate which steps in the manufacturing process would benefit
from automation and how automated manufacturing processes can improve productivity and reduce
manufacturing costs.
We are currently expanding our head wafer fabrication facilities in Fremont, California and expect to
complete the expansion in calendar 2009, which will provide us with adequate wafer fabrication
capacity for the foreseeable future. Following our acquisition of Komag, we also have media and
substrate design and manufacturing facilities in Malaysia. We use these facilities to design and
manufacture most of the media and substrates that we use in our products.xxxvi
”
2009: Seagate
“The design and manufacturing of disk drives depends on highly advanced technology and
manufacturing techniques and therefore requires high levels of research and development spending
and capital equipment investments. Manufacturing our disk drives is a complex process that begins
with the production of individual components and ends with a fully assembled unit. We design,
fabricate and assemble a number of the most important components found in our disk drives,
including read/write heads and recording media. Our design and manufacturing operations are based
on technology platforms that are used to produce various disk drive products that serve multiple data
storage applications and markets. Our core technology platforms are focused around the areal

density of media and read/write head technologies. Using an integrated platform design and
manufacturing leverage approach allows us to deliver a portfolio of disk drive products to service a
wide range of electronic data storage applications and a wide range of industries.xxxvii
”
“We pursue a vertically integrated business strategy based on the ownership of critical component
technologies, allowing us to maintain control over our product roadmap and component cost, quality
and availability. We believe that because of our vertical design and manufacturing strategy, we are
well suited to meet the challenges posed by the close interdependence of components for disk drives.
Our manufacturing efficiency and flexibility are critical elements of our integrated business strategy.
However, a vertically integrated model tends to have less flexibility when there is a constraint in
demand, which then exposes us to higher unit costs. Due to the significant challenges posed by the
need to continually innovate and improve manufacturing efficiency and the required investments in
capital equipment and research and development, the disk drive industry has undergone significant
consolidation as disk drive manufacturers and component manufacturers have merged with other
companies or exited the industry. The global macroeconomic environment as well as the increasing
technological challenges, associated levels of investment and competitive necessity of large-scale
operations may continue to drive future industry consolidation. Additionally, we may in the future face
indirect competition from customers who from time to time evaluate whether to offer electronic data
storage products that may compete with our products.xxxviii
”
“Due to industry consolidation, there are a limited number of independent suppliers of components,
such as recording heads and media, available to disk drive manufacturers. Vertically integrated disk
drive manufacturers, who manufacture their own components, are less dependent on external
component suppliers than less vertically integrated disk drive manufacturers. Generally, we believe
that there is more than adequate supply of components to meet currently identified industry demand.
However, we believe that the supply of glass substrates, a component in mobile disk drives, may be
below adequate levels to support demand for mobile drives. This supply constraint may be
particularly pronounced if global macroeconomic conditions improve in the near term or if the shift in
demand from desktop compute to mobile compute accelerates. Drive manufacturers have adjusted
their capital spending plans in reaction to the reduction in demand. As a result, capital equipment
manufacturers may be increasingly financially constrained and, therefore, may be less able to supply
equipment when needed. The production of disk drives requires precious metals, scarce alloys and
industrial commodities, that are subject to fluctuations in prices, and the supply of which has at times
been constrained. In order to mitigate susceptibility to these conditions, we may maintain increased
inventory of precious metals, scarce alloys and industrial commodities. We believe that currently

there is adequate supply of these precious metals, scarce alloys and industrial commodities.
Additionally, volatility in fuel costs may increase our costs related to commodities, manufacturing and
freight, therefore, we may increase our use of ocean shipments to help offset any increase in freight
costs. From time to time the industry has experienced periods of imbalances between supply and
demand. To the extent that the disk drive industry builds capacity based on expectations of demand
that do not materialize, price erosion may become more pronounced. Conversely, during periods
where demand exceeds supply, price erosion is generally more benign.xxxix
”
Cash-To-Cash
Cash-to-Cash (C2C) analysis is a compound metric. It is the combination of: Days of Receivables
plus Days of Inventory minus Days of Payables. When comparing the periods of 2006-2009 and
2010-2014, the average high-tech company has reduced C2C by four days. In contrast, within the
automotive industry the C2C cycle for the same comparison was reduced by 22 days. Why the
difference? The industry was not as aggressive on payables, and had less room for inventory
improvement than other discrete industries.
As seen in Figure 6, the best C2C cycles were managed at Apple, Cisco Systems, and Lenovo.
Figure 6. Comparison of High-Tech Companies’ Cash-To-Cash Cycles for 2010-2014

Recommendations
In supply chain benchmarking it is important to look at the performance and improvement of peer
companies over time. The orbit charts are useful to see these patterns. The patterns matter more
than the averages.
As companies work to define supply chain excellence to enable their strategies, we recommend that
they:
• 1) Build a Guiding Coalition to Drive Improvement Based on Industry-Specific Data.
Organizations should benchmark companies within their industry to determine what is possible and
feasible. Each industry has unique rhythms and cycles. As a result, supply chain excellence
analysis needs to be industry-specific.
• 2) Understand the Potential of Your Supply Chain and Orchestrate Trade-offs on the Effective
Frontier. Supply chain leadership teams should analyze the total portfolio of metrics and study
progress at the intersections of the Effective Frontier. Companies with higher performance are using
more advanced analytics to plan outcomes and design the supply chain. Teams should align cross-
functionally to the metrics that matter with the functional metrics focused on improving reliability. An
example is shown in Figure 7.
Figure 7. Metrics Systems to Drive Alignment
• 3) Apply Systems Theory. Teams should evaluate performance over time to understand
improvement while realizing that they are managing a complex system. The functions should be
aligned to a balanced portfolio of metrics representing the Effective Frontier while functional metrics
should be focused on improving reliability (first-pass yield, OEE, hands-free orders, etc.).

• 4) Focus on Building Value Networks. The high-tech industry more successfully built global
supply chain capabilities when compared to other industries. Traditional supply chain planning
techniques have not been sufficient with supply chain leaders adopting new techniques for
forecasting, inventory management, and demand sensing. With the rise of commodity prices, the
principles of market-driven value networks matter more than ever for these industries. Companies
need to be able to orchestrate volume/mix/cost implications strategies bidirectionally from channel
to supplier.
• 5) Learn from Other Industries and Use a Steady Hand to Drive Improvement. While the high-
tech industries led in the innovation of supply and product innovation processes, they can learn
about demand sensing and channel data management from consumer goods.
Conclusion
The High-Tech industry innovated today’s supply chain practices. The pace of innovation in the
industry is fierce with a growing gap between high-tech supply chain practices and other industries.
Supply chain planning, inventory techniques, and value network connectivity are not options: they are
a necessity.
The Supply Chains to Admire Analysis methodology is a litmus test. As a yardstick of supply chain
excellence, the analysis helps clarify what is the right stuff to drive performance and improvement.
Overall, the High-Tech industry led the pack with seven out of the 24 winners.

Appendix - Metrics Definitions
The definitions of additional financial metrics used in this report are outlined in Table A.
Table A. Metrics Definitions

Prior Reports in This Series
Over the course of the last four years our methodology has changed and matured. You can track our
progress and find industry-specific information in these Supply Chain Insights publications:
Supply Chain Metrics That Matter: A Focus on Retail August 2012.
Supply Chain Metrics That Matter: A Focus on Consumer Products September 2012.
Supply Chain Metrics That Matter: The Cash-to-Cash Cycle November 2012.
Supply Chain Metrics That Matter: A Focus on the Food and Beverage Industry December 2012.
Supply Chain Metrics That Matter: Driving Reliability in Margins January 2013.
Supply Chain Metrics That Matter: A Focus on Hospitals January 2013.
Supply Chain Metrics That Matter: A Focus on Brick & Mortar Retail February 2013.
Supply Chain Metrics That Matter: A Focus on Medical Device Manufacturers February 2013.
Supply Chain Metrics That Matter: A Focus on Consumer Electronics April 2013.
Supply Chain Metrics That Matter: A Focus on Apparel May 2013
Supply Chain Metrics That Matter: A Focus on Contract Manufacturing August 2013
Supply Chain Metrics That Matter: A Focus on the High-tech Industry October 2013
Supply Chain Metrics That Matter: A Closer Look at the Cash-To-Cash Cycle (2000-2012) November 2013
Supply Chain Metrics That Matter: Third Party Logistics Providers December 2013
Supply Chain Metrics That Matter: A Critical Look at Operating Margin December 2013
Supply Chain Metrics That Matter: A Closer Look at Pharmaceutical Companies April 2014
Supply Chain Metrics That Matter: A Closer Look at Chemical Companies May 2014
Supply Chain Metrics That Matter: A Closer Look at Food and Beverage Companies June 2014
Supply Chain Metrics That Matter – A Focus on Pharmaceutical Companies April 2015
Supply Chain Metrics That Matter – A Focus on Chemical Companies – 2015 May 2015
Supply Chain Metrics That Matter: A Focus on Food and Beverage Companies-2015 June 2015
Supply Chain Metrics That Matter: A Focus on Consumer Products – 2015 August 2015
Supply Chain Metrics That Matter: A Focus on the Automotive Industry – 2015 October 2015
Supply Chains to Admire – 2015 September 2015
These reports, and additional information on the Supply Chain Metrics That Matter methodology, are
available at our Supply Chain Insights website and in the Beet Fusion community.

About Supply Chain Insights LLC
Founded in February, 2012 by Lora Cecere, Supply Chain Insights LLC is now beginning its fifth year
of operation. The Company’s mission is to deliver independent, actionable, and objective advice
for supply chain leaders. If you need to know which practices and technologies make the biggest
difference to corporate performance, we want you to turn to us. We are a company dedicated to this
research. Our goal is to help leaders understand supply chain trends, evolving technologies and
which metrics matter.
About Lora Cecere
Lora Cecere (twitter ID @lcecere) is the Founder of Supply Chain Insights LLC and
the author of popular enterprise software blog Supply Chain Shaman currently read
by 5,000 supply chain professionals. She also writes as a Linkedin Influencer and
is a a contributor for Forbes. She has written four books. The first book, Bricks
Matter, (co-authored with Charlie Chase) published in 2012. The second book, The
Shaman’s Journal 2014 published in September 2014; the third book, Supply Chain
Metrics That Matter, published in December 2014; and the fourth book, The
Shaman’s Journal 2015, in September 2015.
With over 12 years as a research analyst with AMR Research, Altimeter Group, and Gartner
Group and now as the Founder of Supply Chain Insights, Lora understands supply chain. She has
worked with over 600 companies on their supply chain strategy and speaks at over 50 conferences a
year on the evolution of supply chain processes and technologies. Her research is designed for the
early adopter seeking first mover advantage.

Endnotes
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