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SEAGATE TECHNOLOGY PROFILE: Real-Time Response to Demand
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Seagate sees this as a major opportunity to cut costs both internally and externally while increasing the speed and accuracy of information flowing up and down the supply chain. Linking with suppliers also gives Seagate a better idea of where its orders are in the queue. This information is especially critical when suppliers have long lead times, such as semiconductor manufacturers. Seagate can get a better view into their processes and immediate updates on order status.
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This multitiered visibility the ability to see up and down the supply chain is a critical component of Seagate s supply chain strategy. It s also the Holy Grail for many of Seagate s customers that have outsourced production to contract manufacturers. These customers have less control over their supply chain as a result and fear that scarce components may go to their competitors. Seagate is extending the concept of multitiered visibility beyond its immediate suppliers, as reflected in its dealings with providers of application-specific integrated circuit (ASIC) semiconductors, for instance. Once vertically integrated, ASIC suppliers could no longer afford to maintain their manufacturing facilities, so the companies sold their plants and outsourced production to major subcontractors. Seagate is now in the position of placing orders and forecast demands with suppliers that aren t actually manufacturing the parts and through multiple levels of subcontractors. The wafers may be built in Taiwan, for instance, sent to Korea for testing, and then shipped to Singapore for packaging and final testing before going back to the original semiconductor company for shipment to Seagate. To deal with this added layer of complexity, Seagate is working on a process for gaining visibility into these subcontractors. The company is piloting a project that dives deep into a supplier s supply chain. And then it is tying that process all the way through to one of Seagate s end customers for true end-to-end multitiered visibility. The bottom line of multitiered visibility, both upstream and downstream, is better capacity utilization throughout the supply chain.
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Gaining visibility into subcontractors is one way that Seagate manages the risks inherent in an extended supply chain. But the company also maintains
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control through vertical integration a maverick approach among industry players. The industry trend has been to disaggregate, outsource, and get lean. Bucking that trend, Seagate adopted a vertically integrated model, which many observers thought was unwise. The benefits of breadth, control, and flexibility seem to work to Seagate s advantage. The company s competitors can t always be sure they ll get the critical components they need when they need them, and any change order triggers a negotiation process and a series of requests that has to trickle down through many layers. By contrast, Seagate can move more quickly on behalf of the customer and believes that developing component technology in-house gives the company an edge, given the technical complexity of its products. Seagate can codevelop and codesign each component and the respective process technologies instead of buying components from a variety of vendors and cobbling them together. Today, Seagate manufactures many of its high-cost/ high-complexity components in-house. Vertical integration doesn t come cheap, though. The barriers to entry are huge, given the capital needed for technology development and to produce components and drives. Seagate spends $700 million a year on research and development and $600 million in capital far more than its non-vertically-integrated competitors. This investment pays handsome dividends. Customers are willing to pay a premium for Seagate s high-performance disc drives while the company s competitors race to catch up.
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Although Seagate s supply chain efforts have delivered substantial benefits, managing change has been a challenge, both internally and externally. Altering decades-old attitudes takes time and effort. Not surprisingly, customers and suppliers didn t embrace the changes Seagate introduced immediately. Customers were used to the security of a fully stocked JIT hub, even if it was a false sense of security. The drives in stock weren t necessarily the drives they d need. And those safety cushions of inventory were driving up costs throughout the supply chain. Seagate s value proposition was a strong one: Let us cut the inventory levels of your JIT hubs, and we ll actually be more responsive to changes in your demand we ll have the capacity in reserve to meet your needs as they arise. To further support this effort, Seagate has invested heavily in a factory of the future alliance fully automated drive assem-
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