On The Road with Riverwood: Southeast Asia Part 3
By Ron Keith, CEO, Riverwood Solutions - On tour in Asia
Aug 29, 2012
Over the past few days we visited a number of suppliers in Batam Indonesia including EMS providers Flextronics and Sanmina-SCI.
Although Riverwood Solutions does not maintain an office in Indonesia, for the past 15 months or so we have
considered this locale to be an incredibly attractive manufacturing destination for EMS suppliers and their customers. In June of 2011 we named Indonesia our "most attractive location for new EMS investment for the next 5 years" at our inaugural Outsourced Manufacturing Academy.
Indonesia is the 4th most populous country in the world with a population of more than 248M people that have a median age of just over 28 years. It is also the world's 16th largest economy and currently has an unemployment rate of 6.5%. This nation of islands is about 1,750 miles long and currently spans three different time zones. The country will officially adjust to a single time zone on October 28th, 2012, with the whole country adopting the same time zone as Singapore, Hong Kong and China. This single time zone will simplify at least some aspect of international trade and commerce. As with any country of meaningful size, different regions of the country have different characteristics, different cost structures, different local customs and of course different levels of infrastructure development.
The World Bank ranks Indonesia's overall logistics performance index 75th in the world out of the 155 countries it monitors behind such notable laggards as India (47) and Columbia (72). But when viewed on its own, Batam clearly has a more developed infrastructure than many of the countries ahead of Indonesia in the rankings. Although our view here is far less scientific than the exhaustive analysis conducted by the World Bank, we feel very comfortable saying that the logistics infrastructure in this region is at least on par with that of EMS destinations Thailand and the Philippines (ranked 35th and 44th respectively).
We started our morning off bright and early in Singapore and took the ferry to Batam Centre, one of a handful of passenger ferry terminals on Batam. The journey took just under an hour as the northern end of the island is only 20km from the southern end of Singapore. In fact the relatively new Marina Bay Sands Hotel & Casino in Singapore is clearly visible from Batam at night across the Singapore Strait. After clearing immigration we went straight to Flextronics' facility in the Batamindo Industrial Park which was jointly developed by the Indonesian and Singaporean governments. Flextronics' plant here dates back to 1992 and has changed hands through EMS buys EMS acquisition twice in the last 15 years as the EMS industry has gone through several waves of consolidation. The plant was originally an EMS factory for NatSteel which was acquired by Solectron in 2001, which was then in turn acquired by Flextronics in 2007. The current facility is 135,000 square feet and was expanded in 2008.
Upon our arrival we met with the senior staff responsible for the Batam factory as well as regional executives from the company based in Singapore. As Riverwood Solutions maintains good working relationships and NDAs with a few dozen of the top EMS providers, we were given a very detailed run down of plant operations, logistics, technical capability, basic customer profiles, and general plant economics. For certain products and technologies the economics of manufacturing in Indonesia are quite compelling; however our own internal analysis and benchmarks had slightly understated some of the factor input costs in Indonesia related to indirect staffing levels, expat support, and loaded labor costs & efficiencies. Our tour of the factory was led by the plant manager who was understandably proud of his operation and the performance levels his team has been able to achieve. The MES system deployed in the operation, unlike the case in many factories we visit, is clearly used with rigor and discipline even when there are no visiting VIPs. The efficient work flow and minimal WIP levels both exceeded my expectation which I think is due in part to the influence of ME and materials management support from the company's regional headquarters in Singapore.
One of the more interesting little tidbits we picked up on the tour and subsequently saw in other operations in Batam was the concept of a quality management tool called the "fish market". Now I have seen the basic concept of prominently displaying a factory's defects in a public area for all to see in hundreds of factories around the world - but to the best of my fading memory I do not recall this area ever being called the Fish Market. I have heard this area, and this practice, called many colourful names including the "wall of shame", the "problem parade", "deadpan alley", and one of my all-time favourites - the "bonus graveyard." But in Batam Indonesia defects are displayed on a table under a sign marked "Fish Market", much the way the local catch is displayed in open air stalls a few kilometers down the road from the plant.
Tomorrow we are off to Singapore and then China - but in my next instalment I want to first elaborate more on Indonesia, discuss our visit to Sanmina-SCI, and opine a bit on managing EMS suppliers half a world away.
Contributed by Ron Keith, Riverwood Solutions