On The Road with Riverwood: Southeast Asia Part 4
Sep 05, 2012
Today we are again in Indonesia visiting Sanmina-SCI and then heading back to Singapore by ferry. Our investigations here in Batam have reinforced our conviction around the potential this region of Indonesia has for the EMS industry over the next 5 years.
Indonesia has the world's 5th largest workforce of 115M workers, just behind the US (4th) which has about 153M currently in the workforce. The country's economy today is still heavily based on agriculture, natural resources and services with only about 13% of the workforce employed in industrial activity. This industrial employment number is only slightly lower than the current equivalent rate in the US. Industrial production in Indonesia expanded by just over 4.1% last year, slightly ahead of the same number in the economically recovering US. As with so many natural resource rich nations, Indonesia's largest trading partner is China, although Japan currently consumes more exports from Indonesia than does China, mainly as a result of the Japanese manufacturing presence in the country. Although some parts of this geographically dispersed country have underdeveloped communications infrastructure, it is interesting to note that the population of 248M currently subscribe to more than 235M active cell phone accounts - or about a 94.7% adoption/penetration rate. This compares to Singapore (not that Indonesia could or should ever be compared to Singapore as they could not be more different) which has an adoption rate of 138% or roughly 7.3M cell phones for its 5.3M citizens. This fact, along with all of my firm's other research on Indonesia and its future prospects, has led me to go and buy a few shares of PT Telekomunikasi Indonesia Tbk (NYSE: PLK), the leading cell phone and internet service provider in the country, for my retirement account.
We arrived this morning at Sanmina-SCI in Batam (one of 4 Sanmina-SCI EMS factories in Southeast Asia). The operation in Batam has 17 SMT lines and employs about 1,150 people including around 380 indirects. A number of the indirects are expats from Singapore and Malaysia that work as materials and engineering support staff. This reliance on expat technical support is common in Indonesia and other low cost locales in Southeast Asia. But in the case of Sanmina-SCI Batam, this practice has been at least somewhat controversial. The use of expats and their relative pay disparity was cited by the local union in Batam, the FSPMI (Federasi Serikat Pekerja Metal Indonesia), as one of a handful of grievances that lead to a strike at the facility in February of 2012. The issues surrounding the strike have since been resolved and the labor environment in the facility seems to be quite cooperative these days.
This 100,000 square foot factory represents about 12% of Sanmina-SCI's EMS capacity in Southeast Asia alongside plants in Singapore, Malaysia and Thailand. The plant was started in 2004 and today builds a range of products, mostly at the PCBA only level, including medical products, server boards, RAID controllers and POS systems. The operations in Batam have a number of registrations/certifications including TL-9000, ISO-13485, and somewhat surprisingly AS-9100. Like most Sanmina-SCI plants, the Batam facility has widely deployed the Sanmina-SCI Operations Management System (SOMS) which utilizes real time data collected from the factory's MES to drive preventive and corrective actions related to both quality and productivity. Each of the plant's Customer Focus Teams (CFT) have created their own meeting areas, called "living rooms", where they hold their CFT meetings in an informal and creative setting that is created and decorated by members of each team. The central aspect of the living rooms that we saw was a large display that constantly communicates customer account production data and line specific information from SOMS to the customer focus team.
On the plant tour the management team seemed to be very proud of a number of ideas, processes, tools & fixtures etc. that had come from the people on the direct labor staff. The executive staff at the plant has institutionalized a process that they refer to as "Moonshining" – which as they explained it involves employees from throughout the plant who are allowed to work past regular work hours on special projects and initiatives that are important to them. Throughout the tour we were consistently shown various small innovations that had originated as a product of the plant's "moonshining" program and that were broadly adopted throughout the operation. The innovations that we saw deployed throughout the factory were the kind of practical, simple, and yet extremely helpful ideas that generally can only originate in the minds of those people that spend 2,000 or more hours a year performing a specific role and thus constantly thinking about ways to make it, and their specific job better.
At first we thought that the idea of moonshining was a great idea, even if it was a strange name for this program of after-hours innovation. It wasn't until we were about to leave Sanmina-SCI that we finally realized that "moonshining" was really just a mistranslation of the American term "moonlighting." Much to our dismay, despite all the talk of moonshining (and the slide deck telling us how many people at SSCI were actively involved in moonshining), there was not a single drop of 150-proof sugar cane rum being distilled (or offered to guests) on the premises. So in the absence of any good Indonesian hooch, and with our factory visits and research on Indonesia done for this trip, my colleagues and I headed back to Singapore to kick back a few Singapore Slings at the Long Bar at the Raffles Hotel where this tasty libation was first concocted by legendary bartender & mixologist Ngiam Tong Boon at the onset of WWI.
Tomorrow it's off to China to visit a number of emerging, purely Chinese EMS providers...and perhaps have a Tsingtao or two with our local Riverwood Solutions' team.
Contributed by Ron Keith, Riverwood Solutions