Given the factors below that can foster better Operational Effectiveness, with regards to Motorola Semiconductor Products Sector Asia-Pacific(SPSAP).

Describe the definition of the factors below, and briefly explain why it affects operational efficiency and how to improve it in this respect:

Employee Satisfaction Intellectual Property Logistics Information System Business Procedure Tranning System Export Policies R&D Scale Effect

Here is the reference:

Motorola Semiconductor Products Sector, Asia-Pacific: Improving the Logistics: Distribution Channel

A leading factor that had helped Motorola to achieve its position as the world's leading producer of embedded processors was the dedication of the Semiconductor Products Sector (SPS) towards satisfying the needs of its customers. SPS understood that having a thorough knowledge of its customers' needs and its suppliers' capacity was crucial to its success strategy. As such, it placed a high priority on identifying and satisfying the needs and requirements of its customers while forging long-term relationships with its suppliers. A continuous formulation and implementation of new supply chain management (SCM) initiatives had supported its expansion over the years. To better able to serve its customers world wide, SPS categorised its operations into regions. One of these was the Asia-Pacific region, which was credited as the fastest growing region for chip consumption. Handled by Motorola Semiconductor Products Sector Asia-Pacific (SPSAP), a strong factor in its favour was its distribution system, which had allowed it to ship products to customers quickly and efficiently. However, aware that the global environment and technology trend brought new challenges as well as competition, it was necessary to reshape the logistics operations of SPSAP to improve responsiveness and shorten the total service cycle time. The question was how.

Development of Global Logistics & Supply Chain Management

In the 1980s, driven primarily by corporate restructuring and downsizing as company strategies responded to accelerated opening of global markets, the majority of companies focused their supply chain initiatives on reengineering supply chain cost structures. During that period, companies managed to achieve a reduction in logistics costs of an estimated 33 per cent. The 1990s saw global customers became increasingly demanding, expecting ever- higher levels of product and service performance and requiring greater customisation of products and services to serve their individual needs. Many companies strove to achieve "mass customisation", i.e. providing customised products and services with the economies of scale and mass market penetration stemming from the mass production techniques. It was during this period that the term supply chain management (SCM) was popularised.

Supply chain management was popularly defined as a business strategy in which trading partners along the supply chain jointly commit to work closely together to bring greater value to the customer for the least possible supply chain cost and time. This meant that companies could use SCM as a strategy to capture and retain market share while reducing the total operating costs. In fact, companies in all sectors, realising that the quality and cost of their products depended on their suppliers, were increasingly extending their focus from internal operations such as planning and scheduling, enterprise resource planning (ERP) and sales force automation, toward relationships beyond their own four walls with external customers and suppliers. (However, in practice, most companies found themselves caught up with short-term objectives and used SCM as a tool to reduce operating and inventory costs instead of as a catalyst for revenue growth.) As such, SCM became an increasingly important business concern.

The semiconductor industry

The growing importance of communications created a boom in semiconductor sales and lucrative profit margins. However, in the wake of the Asian economic crisis of 1997, many companies streamlined their operations and became more aggressive in sales and marketing instead. This created a very competitive environment in the semiconductor industry, causing profit margins to be squeezed. At the 2000 DesignCon conference held in the US, Ahmed Nawaz, the Vice President of ICs for Lucent Technologies Inc.'s Microelectronics group, told attendees that component suppliers had to get used to lower margins and faster commoditisation. He stressed that business practices had to change as customers increasingly expected flexible ordering possibilities with short turnaround times. Analysts and executives at a Dataquest/GartnerGroup conference held in the US in 2000 echoed these thoughts. They emphasised on a better flow of information and improved flexibility when responding to customers' demand changes.

A few companies in the industry, such as Intel, NEC, Toshiba, Texas Instruments, Hitachi and Motorola Inc. managed to effectively harness the advantages of supply chain management to their benefit. (In 1998, these companies were ranked highly byElectronic Businessin terms of worldwide semiconductor sales.) For example, Intel's supply line management application allowed its suppliers to share demand status and to forecast demand. This gave them the capability to adjust their production levels accordingly. Furthermore, suppliers' data was utilised by Intel to forecast its own ability to meet demand from its major customers. If it foresaw potential delays, it could pre-emptively warn customers to divert, delay or cancel their orders. This level of supply chain management placed Intel in the top position as a preferred partner. A quarter of Hitachi's products were pushed through distribution, significantly more than was projected in 1998. Hitachi forecasted that as much as 35 per cent of its sales would be generated through distribution in the near future. As a result of its efforts to improve distribution, Hitachi's microcontroller sales grew 29 per cent in 1999, reaching the second position worldwide, just behind that of Motorola's.

Motorola Inc.

Motorola Inc. was a global leader in providing integrated communications solutions and embedded electronic solutions, employing approximately 129,000 people worldwide. Company-wide profit for the year 1999 was US$817 million on revenue of US$30.9 billion, compared to a loss of US$962 million on revenue of US$29.4 billion in 1998.

Background and development

In 1928, Paul V. Galvin and his brother Joseph E. Galvin founded Galvin's Manufacturing Corporation (GMC). GMC manufactured battery eliminators - devices that enabled battery- powered radios to be operated by household electrical currents. In the 1930's, GMC came up with an idea that was initially dismissed by the electronic giants as a waste of time and money - putting a radio in an automobile. The car radio, as it was know, was successfully marketed to the public under the brand name of Motorola, linking the ideas of motion and radio. This was the invention that established GMC as a leader in electronics in the United States market. Over the years, GMC came up with other inventions and ideas that further entrenched its image as an innovative electronics giant. In 1947, due to the wide recognition of the brand name Motorola, GMC was renamed as Motorola Inc.

Robert W. Galvin succeeded Paul Galvin as President of Motorola in 1956. From manufacturing transistors and semiconductors for its own exclusive use, Motorola became a commercial producer and supplier of semiconductors to other manufacturers. In the 1960s, Motorola expanded into international markets and shifted its focus away from consumer electronics, concentrating its energies on high-technology markets in commercial, industrial and government fields. It soon became renowned in some of the fastest-growing electronic markets: cellular telephones, two-way mobile and portable radios, paging devices, semiconductors, satellite communications, cellular infrastructure, and Internet technology.5 In 1997, Christopher Galvin became the third generation of Galvins to run Motorola.

The Culture in Motorola

Many of the products invented by Motorola were the results of recognising customers' needs and requirements. In addition, Motorola was willing to take significant risks in developing new technology, starting new industries and segments, and opening new regions and markets. Throughout its history, it had phased out businesses with limited potential to focus on new technologies and new markets. For example, in the 1960s, it invested heavily into a new technology, which many laughed off as a gimmick at that time. The technology was the cellular telephone, one of the most lucrative markets in the world in the 1990s.

This culture was based on three principles: 'Leadership of Renewal', 'Renewal of Leadership', and 'Thinking the Unthinkable'.6 Under the first principle, Motorola encouraged ongoing reinvention of itself by delivering a consistent message about the need to change, seeking to render its own technologies obsolete before the competition did. It also encouraged a concept of legacy, requiring all officers to declare a "legacy-leaving" goal by which they wanted their career to be measured. Under the second principle, 'Renewal of Leadership', stressed the importance of developing leaders who had a heart for people and a head for business, rewarding leaders not only for what they achieved but also how. The third principle, 'Thinking the Unthinkable', emphasised the concept of doing the unconventional.

Motorola Inc.'s Business Structure

To cater to the demands and needs of its key customers, Motorola was structured into three business segments: Communications Enterprise, Semiconductor Products Sector and Integrated Electronic Systems Sector.

i. Semiconductor Products Sector

As the world's number one producer of embedded processors, Motorola's SPS offered multiple DigitalDNATM solutions enabling customers to create new business opportunities in consumer, networking and computing, transportation and wireless communications markets. This sector also provided high-volume unique semiconductors that powered electronic equipment. Worldwide sales were US$7.4 billion in 1999, yielding an operating profit of US$619 million compared with a loss of US$1.2 billion on revenue of US$7.3 billion in 1998. It had over 32,000 employees at manufacturing facilities, major laboratories, technology and design centres, and sales offices around the world. SPS was divided into five business groups

ii. Integrated Electronic Systems Sector

This sector designed and manufactured electronic components, modules, and integrated electronic systems and products for automotive, computer, industrial, transportation, navigation, energy systems and consumer markets.

iii. Communications Enterprise

CE aligned Motorola's communications businesses into one co-ordinated unit that provided integrated communications solutions to the world's consumers. Composed of seven major business units, CE comprised approximately 70 per cent of Motorola's global business.

Due to its global operations, Motorola structured its business segments into regions (the Americas, Europe, Middle East, Africa and Asia-Pacific/Japan regions), placing itself in a better position to response to the needs and requirements of its customers.

Semiconductor Products Sector Asia-Pacific

The ability of the SPS to anticipate and react to regional needs was assured by maintaining and strengthening the role of existing regional headquarters in the Americas, Europe, Middle East, Africa and Asia-Pacific/Japan regions. The Asia-Pacific region was credited as the fastest growing part of the world for chip consumption. This region was handled by Motorola's Semiconductor Products Sector Asia-Pacific (SPSAP), which was headquartered in Hong Kong, employing an estimated 2,000 employees. The region was a significant contributor towards the sales of SPS and Motorola.

The success of SPSAP was mainly due to its dedication towards customer satisfaction. In order to be customer-oriented, it had concentrated its efforts on its logistics system, aiming for a shorter delivery cycle for customers. To achieve this objective, it had continuously sought to renew its distribution methods.

The centralised approach

Prior to 1988, the logistics system of SPSAP was based on a centralised concept. Output from factories in various countries were shipped to a central distribution centre that was based in Hong Kong. At the central distribution centre, products were sorted out according to customers' orders and then shipped back to the respective customers, who were usually in various locations. This process allowed the distribution centre to monitor the output and inventory levels of each factory.

In 1988, SPSAP formed a task force charged with the responsibility of studying and recommending product distribution and dropshipment activities in Asia-Pacific. It was required to review various aspects of dropshipping finished goods from Asian factories, including subcontractors, directly to the end customers in major Asia Pacific markets and to recommend the most efficient shipping logistics while balancing the operational and tax considerations. The objective of this exercise was to achieve a best-in-class logistics system that provided customers with the shortest delivery cycle time possible while helping Motorola to save money on taxation and distribution costs.

The task force considered the prevailing distribution channel as ineffective. By shipping all output from factories to a central distribution centre, the distribution channel inevitably gave rise to ineffective situations. For example, if a customer in Taiwan placed an order for certain goods which were manufactured in Taiwan, the factories in Taiwan had to ship their goods to the central distribution centre in Hong Kong which were then shipped back to the customer in Taiwan. Evidently, this type of situations gave rise to unnecessary distribution costs. As such, the task force explored other alternatives of distributing products to end customers. The main recommendation was establishing distribution centres in other countries, specifically in Taiwan and Singapore.

In 1988, on the recommendation of the task force, SPSAP decided to establish a distribution centre in Taiwan. This would allow it to reduce both total distribution costs and income tax payments in Taiwan. However, it encountered several problems. Customs rules and regulations were complicated and restrictive. This caused customs procedures to be lengthy, taking from five to seven days to process customs documentation. In addition, no experienced personnel, either from SPSAP or from the Customs Department, were available to operate the distribution centre and to co-ordinate operations. As a result of these problems, no shipments could be delivered to customers in Taiwan during the initial two weeks of operations. This adversely affected more than 1,500 customers, many of whom made complaints to the local media and government officials. News of this situation reached the Motorola corporate office in the US and another task force was formed to resolve the situation.

The re-engineered distribution channel

In 1994, the Asia-Pacific logistics system was re-engineered, revolutionising the distribution channels in Asia-Pacific so as to serve customers directly in different countries. Two additional distribution centres were established in Taiwan and Singapore, after much negotiation with the respective governments. (SPSAP managed to influence the Taiwan government to change seven customs rules and regulations to facilitate the smooth operation of the Taiwan distribution centre. However, it had to spend millions of dollars to sort out the difficulties caused by the local customs and government politics in Taiwan.) Output from factories were sent to a distribution centre, depending on the location of the customer. For example, if a customer's location was in Malaysia, the respective order was sent from the relevant factories to the Singapore distribution centre to be shipped to Malaysia.

The major benefits of this new logistics service dropship channel included reductions in the total in-transit cycle time of more than three days. For example, in Taiwan, total in-transit cycle time was reduced from seven days to less than two days, reducing the total cycle time and eliminating unnecessary freight costs for customers in Taiwan. As goods were not shipped to the Hong Kong distribution centre, freight costs paid by customers were reduced, thereby reducing their cost of material acquisition. This system also reduced the usage of inventory and storage spaces in Hong Kong. It also enhanced customer service by providing one local contact point for customer order entry, that is, achieving the "one face to customer"

Working Towards Better Distribution Channels

Figuring out how to reach a supply-chain initiative that accommodated the requirements of all customers while minimising costs for the company was something only a few companies had done. Most high-tech companies had a vision of the ideal distribution channel, could map out problems, and see the benefits of implementing various techniques. Beyond that though, it got complicated.

Since the re-engineering in 1994, the logistics of SPSAP supply chain strategy had remained relatively unchanged as the model served its needs. Addition of new markets and factories basically followed the same model. In 1999 however, SPSAP evaluated the efficiency of its external communications channels, particularly with its foundry partners. It discovered that data was being transmitted inefficiently between the parties even though foundries were crucial to SPS' manufacturing strategy. According to Wayne K. Nesbit, the Vice President and Director of Worldwide External Technology for SPS' order-fulfilment organisation, the lack of a common format for partners to talk to each other electronically and through the Internet was a big stumbling block.10 SPS intended to move from 14 per cent foundry outsourcing to 30 per cent by 2000 and 50 per cent by 2002.11 This meant that SPS would be partnering with more factories or foundries, especially in Asia-Pacific where a number of its existing manufacturing plants were already based. By then, its network of partners would tend to be complex.

In addition to a more complex supply network, the numerous initiatives taken by competitors to shorten their delivery times and cost had made end-users of semiconductors more demanding. As such, SPS's customers began to demand for shorter cycles and more efficient services. Furthermore, the increasing use of the Internet as a part of supply chain initiatives increased the opportunities for companies to expand their market share. These factors placed an urgent need for SPSAP to restructure its distribution channels to better accommodate its customers and to retain its position as a leading semiconductor company in logistics and distribution.