Case Study

Global Supply Design for the Future: Nokia

In $2011,$ telephone users numbered more than $4\mathrm{.}6$ billion

worldwide. Until $2010,$ Nokia was the market leader

with $29$ percent of total market share, and it is still the

leader in emerging economies such as China and India.

Apple recently took first place in terms of revenue. In

$2010,1\mathrm{.}6$ billion cell phones were sold, a net increase of

$37$ percent from $2009,$ and $250$ million handsets were

delivered in the first quarter of $2011.$ Nokia, a Finish

company, originated in the mid$-19$th century as a paper

manufacturer. The conglomerate expanded into the electronics sector in the $1960$s and finally into the mobile

manufacturing business in the $1980$s$.$ The company currently employs more than $132,000$ people in $120$ countries, conducts business in more than $150$ countries, and

has annual revenues of $$42$ billion and operational profits of $$2$ billion. Over the past $30$ years, the industrial

outsourcing trend has stretched manufacturing facilities

from in$-$house production of almost all components to

global sourcing, keeping in house only the design and

the assembling of final products.

With customers all over the world and suppliers

from the United States to China, Nokia faces challenges

in the operation of its supply chain and sometimes has

some difficult choices to make.

Global Supply Chain Challenges

In $2000,$ in the facility of a New Mexico subcontractor

of integrated circuits, a fire started but was rapidly managed. Integrated components plants require highly sterilized environments, and the fire plus the intervention

compromised several months of integrated circuits supply to Nokia. Researchers at the Massachusetts Institute

of Technology calculated that when publicly listed

companies announce disruption in their supply chains,

share prices drop on average $8$ percent and take a long

time to recover. In addition to the financial element, the

rest of the supply chain has to support the strain from

replacing a supplier in a minimum amount of time. Furthermore, with wide product ranges and multiplicity of

parts, the challenges are growing every year. The lean

concept, when pushed to the extreme, could also be a

cause of supply chain rupture when an issue arises. Academics and consultants agree that these issues can be

overcome, if not avoided, thanks to early and constant

communication.

Nokia has to decide to either stay with this integrated circuit supplier or source an alternative plant in

China. The expected cost of sourcing a new supplier and

implementing the necessary quality assurance procedures is estimated at $$2$ million. Once in place, this partnership has a $50$ percent chance of yielding $$100,000$ in

savings for each of the three following years and a $50$

percent chance that it will yield $$150,000$ for each of the

three following years. For this scenario, the discount rate

is $3$ percent.

The other alternative is to stay with its supplier in

New Mexico. The cost of the damage to Nokia$$s supply

chain is estimated at $$1\mathrm{.}5$ million. Supply chain risk

assessors have estimated that there is a $60$ percent chance

the New Mexico$$s supplier will not yield any additional

savings for the three following years and a $40$ percent

chance that it will result in a yearly $$50,000$ loss $($additional cost$)$ for each of the three following years. For this

scenario, the discount rate is $9$ percent.

Global Supply Chains Environment

Hundreds if not thousands of suppliers are involved with

Nokia globally. The supply chain environment is by

nature complex and uncertain. Supply chain designers

have started to implement robust communication systems

coupled with geo$-$localization devices and RFID technologies. These technologies enable Nokia to track and

monitor shipments$$ progress around the world, thereby

accurately managing its inventory levels. IT is the answer

to efficiently managing complex global supply chains;

$188$ Chapter $6$ Designing Global Supply Chain Networks

however, IT systems require high levels of standardization from the suppliers$$ perspective, forcing them to

adapt to systems with which they are not necessarily

familiar. Thus, this view of standardizing techniques has

begun to be recognized as a problem that prevents the

implementation of true flexibility. The new view of the

supply chain is taking into account the old parameters

and adding a new one. A flexible supply chain should

include systems technology; infrastructures; and, as

important as these two elements, human behavior.

The Global Supply Chains of the Future:

Dynamic Alignment

The concept of dynamic alignment is often illustrated

with cyclists in a team or flocks of geese in V formation.

Both examples have the same purpose: a team dynamic

to reduce drag and efforts. The alignments are made by

each individual rather than by a command center. This

innovative view on supply chain dynamics relies on

human behavior. Nokia often has been praised for the

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