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Sourcing Model Transformation in the Creation of a World Leader

Jonsson Skog, Christian and Olsson, Björn (2009) MIO920
Production Management
Abstract
The semiconductor industry is one of the most technologically advanced and
complex industries in the world, not only because of the extreme
development pace, but also because of the necessary production processes to
create the finished product. The value increase from silicon as raw material, to
integrated circuits (IC), is equivalent to the transformation of sand into a
product worth more than its weight in gold.
Ericsson Mobile Platforms (EMP) is the part of Ericsson AB that develops
mobile platforms, i.e. the hardware and software that constitutes the core of a
mobile phone. EMP works as a design house today with no production of its
own; hardware partners, who then sell the components to the mobile phone
manufacturers, handle... (More)
The semiconductor industry is one of the most technologically advanced and
complex industries in the world, not only because of the extreme
development pace, but also because of the necessary production processes to
create the finished product. The value increase from silicon as raw material, to
integrated circuits (IC), is equivalent to the transformation of sand into a
product worth more than its weight in gold.
Ericsson Mobile Platforms (EMP) is the part of Ericsson AB that develops
mobile platforms, i.e. the hardware and software that constitutes the core of a
mobile phone. EMP works as a design house today with no production of its
own; hardware partners, who then sell the components to the mobile phone
manufacturers, handle production instead. EMP participates in this sale
through royalties and surrounding services.
In August, Ericsson and the semiconductor company ST Microelectronics
announced a merger of their “wireless” businesses into a joint venture (JV)
owned 50-50.The JV will consist of EMP and ST-NXP Wireless, and it will
offer the customers a complete platform solution.
In the creation of the JV, the sourcing model, that is what will be outsourced
and what is made in-house, used by EMP will change. The report focuses on
how the creation of the JV will change the sourcing model, and the effects.
As EMP becomes a part of the JV, the number of activities performed in-house
will increase and there will be two, rather than three, parties involved in the
development and production chain. This leads to an increased possibility to
capture higher margins for more value creating activities. The higher level of
ownership increases the financial risk in aspects of production, product and
quality.
ST Microelectronics, as one of the parent companies, will handle part of the
production for the JV. This could have a negative effect on cooperation with
other hardware partners for the JV. A close cooperation with the mother
company can have many advantages in the shape of transparency and
uniformed targets, but it also creates a risk of the JV becoming blind to
alternatives and will not use external foundries, even when these are more
beneficial economically.
The communication with the customers will benefit from a single interface,
rather than one for each circuit as before. The expectations on technical
support, and the risks from having ownership will however increase. The JV
will have a true potential to become a top player in its industry; the company
will reach critical mass, have a complete product offer, and has relations with
the majority of the top handset manufacturers. There are however many
challenges on the way, both internally and externally. Internally, a unified
culture and structure must develop, and externally the parent companies
must offer sound directions and an offer that satisfies customer demands. (Less)
Please use this url to cite or link to this publication:
author
Jonsson Skog, Christian and Olsson, Björn
supervisor
organization
course
MIO920
year
type
M1 - University Diploma
subject
other publication id
09/5318
language
English
id
1978375
date added to LUP
2011-06-16 16:13:06
date last changed
2011-06-20 12:41:55
@misc{1978375,
  abstract     = {The semiconductor industry is one of the most technologically advanced and
complex industries in the world, not only because of the extreme
development pace, but also because of the necessary production processes to
create the finished product. The value increase from silicon as raw material, to
integrated circuits (IC), is equivalent to the transformation of sand into a
product worth more than its weight in gold.
Ericsson Mobile Platforms (EMP) is the part of Ericsson AB that develops
mobile platforms, i.e. the hardware and software that constitutes the core of a
mobile phone. EMP works as a design house today with no production of its
own; hardware partners, who then sell the components to the mobile phone
manufacturers, handle production instead. EMP participates in this sale
through royalties and surrounding services.
In August, Ericsson and the semiconductor company ST Microelectronics
announced a merger of their “wireless” businesses into a joint venture (JV)
owned 50-50.The JV will consist of EMP and ST-NXP Wireless, and it will
offer the customers a complete platform solution.
In the creation of the JV, the sourcing model, that is what will be outsourced
and what is made in-house, used by EMP will change. The report focuses on
how the creation of the JV will change the sourcing model, and the effects.
As EMP becomes a part of the JV, the number of activities performed in-house
will increase and there will be two, rather than three, parties involved in the
development and production chain. This leads to an increased possibility to
capture higher margins for more value creating activities. The higher level of
ownership increases the financial risk in aspects of production, product and
quality.
ST Microelectronics, as one of the parent companies, will handle part of the
production for the JV. This could have a negative effect on cooperation with
other hardware partners for the JV. A close cooperation with the mother
company can have many advantages in the shape of transparency and
uniformed targets, but it also creates a risk of the JV becoming blind to
alternatives and will not use external foundries, even when these are more
beneficial economically.
The communication with the customers will benefit from a single interface,
rather than one for each circuit as before. The expectations on technical
support, and the risks from having ownership will however increase. The JV
will have a true potential to become a top player in its industry; the company
will reach critical mass, have a complete product offer, and has relations with
the majority of the top handset manufacturers. There are however many
challenges on the way, both internally and externally. Internally, a unified
culture and structure must develop, and externally the parent companies
must offer sound directions and an offer that satisfies customer demands.},
  author       = {Jonsson Skog, Christian and Olsson, Björn},
  language     = {eng},
  note         = {Student Paper},
  title        = {Sourcing Model Transformation in the Creation of a World Leader},
  year         = {2009},
}