Siemensisa German electronics manufacturer that designs, develops and manufactures arrange of products for the entertainment and home electronics sector in Germany. Management has recently focused on two related products,Atomicand Bionic. The Atomic is a video and audio player with a flash drive. The company has invested heavily in the research and development of this new product, which is a small hand-held unit about the size of a credit card, and is about 50 percent thinner than its-competitor's offerings. The Bionic is a flash drive and MP3 player. Siemens sells this product to a distributor in North America and to a major European retailer.

The Bionic has been on the market for over six years. This product experienced healthy growth for its first four years, and has stabilized over the past two. TheBionicis not a product that will contribute to significant revenue growth for Siemen, although its presence in the market contributes to brand continuity and awareness in an increasingly competitive marketplace.The market for these two products is highly competitive, and Siemens relies on product differentiation as a source of competitive advantage in both Europe and North America. The retailpriceisthesameas,orslightlyhigherthan,itscompetitors.Product uniqueness is based on the small size of the Atomic and the storage capacity of the Bionic. TheAtomicis a relatively new product on the market and was designed to meet predicted future growth in the popularity ofhandheldvideodevices.Demandis anticipated to be low to moderate for the first few years of sales, and expected to grow thereafter. Currently, Siemens purchases components for these products from suppliers in China then ships them to its manufacturing plant in Germany. The suppliers are reliable, and do not contribute to any delays in production. The manufacturing process for both

involves mounting a SMD (surface-mount device) decoder chip and a PIC controller to-a circuit board, testing the assembled boards and then integrating the tested boards into the product casing. Due to the recent development of theAtomic, Siemens is experiencing increasing production delays in its products, contributing to its 30 percent late delivery rate. As a-result, management is considering outsourcing the manufacturing process to one of its suppliers. The company now needs to determine which of the two products, the Atomic or the Bionic, is the best candidate for outsourcing manufacturing.In Need of Advice Siemen hired the services of Marc and Marc, a manufacturing consultant, to help decide what to do. There are very specific measurements for circuit board quality testing compliance ,defined in terms of the solder used and the soldering process. The circuit boards for both the Atomic and the Bionic must have a minimum life span of ten years.AnnualdemandfortheAtomicinthefirstyearofreleaseis300percentover forecasted demands. Production management and the sales team can not reasonably predict future demand. Since the Bionic has experienced stability in sales over the past two years, forecasting has been accurate and the margin of error is much lower than that of the Atomic. With the recent design and production of the Atomic, Siemens has had to include several new stages in manufacturing, to accommodate the video capability of the product. There is also a significant amount of proprietary information that is used during circuit board testing phase of the manufacturing process. Bionic has a well-established assembly process and its product testing is base do technology that is widely used and that has been around for five years. Outsourcing Criteria Marc and Marc's task is to assess which product is the most suitable candidate for outsourcing manufacturing. A key element that needs to be taken Into account is that the contract manufacturer must commit to delivering the assembled circuit boards tomeetSiemen'sdeliveryschedule.Withqualityanddefectiveratesaconcernofmanagement, thecontract manufacturer must ensure Siemen will maintain its market position and competitive advantage.

1.Based on the case study, which product do you think Marc and Marc should recommend as the best candidate for assembly outsourcing and why?Discusseach reason in a separate paragraph explaining your choice. (10 Marks)

2.Based on Marc and Marc's decision, what will be the benefits and disadvantagesof outsourcing manufacturing? Explain why each is a benefit or disadvantage. (10Marks)

3.If Siemens can outsource the manufacture of the product to an existing supplier,discuss the key things Siemen will need to ensure is in the contract with its suppliers in order to protect itself. Include the reason each thing is important. (5Marks)

4.What Incoterm rule, other than CIF, would you recommend that Siemens use intransporting the product? Give your reasons. (5 marks)