Huawei Supply Chain Management

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Submission Date AbstractHuawei appears to be an exemplification of cost innovation while maintaining sustainability with regards to supply chain management, which refers to how firms in China are managing to offer a wide range of customized and high-tech goods and services at relatively cheap prices. The trend has been labelled as disruptive innovation since it is based on the industrialization of the research and development process. Among the basic difficulties in operation management, the trade-off between cost and convenience, is at its centre, and expense innovation lies at the heart of this conundrum. This stance is particularly interested in the manner and amount to which Huawei has excelled in stretching the frontier and sometimes bypassing this trade-off by constructing and organizing their supply chains. In this context, the primary goal of this study is to examine Huawei Technologies’ worldwide supply chain policies and practices, with a particular focus around how these make a contribution to the company’s cost innovation capability and sustainability at the same time. The paper covers the supply chain design, supply chain strategies and priorities, sourcing and outsourcing, supply chain structure, and sustainable supply chain as applied by Huawei.

Contents

TOC o “1-3” h z u Abstract PAGEREF _Toc85140270 h 2Introduction PAGEREF _Toc85140271 h 4Literature Review PAGEREF _Toc85140272 h 4Supply chain design PAGEREF _Toc85140273 h 5Case Analysis PAGEREF _Toc85140274 h 7Case study of Huawei PAGEREF _Toc85140275 h 7Supply Chain Strategies and Priorities PAGEREF _Toc85140276 h 8Sourcing and outsourcing PAGEREF _Toc85140277 h 11Supply chain structure PAGEREF _Toc85140278 h 11Sustainable Supply Chain PAGEREF _Toc85140279 h 14Conclusion PAGEREF _Toc85140280 h 16References PAGEREF _Toc85140281 h 18

IntroductionSeveral years ago, few people beyond the telecom industry were familiar with Huawei Technologies. Ever since, the company has expanded at a rate of more over 30 percent per year, establishing itself as a worldwide competitor capable of competing with a technology company such as Ericsson on both the marketplace and the technical front (Shan and Jolly, 2011; Zheng, 2014). In response to this transformation, an increasing number of scholarly works are being written to illustrate the explosive expansion of Huawei, a company that in several ways epitomizes the spirit of ‘Chinnovation,’ a word that describes how inventive Chinese enterprises alter the market environment (Tan, 2011). (Nie et al., 2009). The majority of these contributions describe the performance of enterprises of China with regards to marketplace and globalization strategy (Low, 2007), as well as organizational and cultural characteristics (Low, 2007). Chinese companies’ science and technology catch-up techniques are being investigated in an emerging literature on latecomers, with findings such as the distinction between emulation and reliant strategy (Xiao et al., 2013) or path-following versus leapfrogging (Shan and Jolly, 2011) uncovering differences between the two types of catch-up techniques. After conducting a recent research, Zheng (2014) came to the conclusion that Chinese enterprises employ a variety of sorts of innovation, encompassing tactical, organizational, and practical innovations.

Literature ReviewDespite the expanding body of literature, nevertheless, there is limited understanding of supply chain management (SCM) processes and methods in Chinese companies like Huawei, for example. There are two key reasons why this location is noteworthy. First and foremost, superior technology is becoming less relevant as a distinguishing characteristic within the telecom equipment market, where radio base stations are the primary product. The key participants in the industry are all proficient in a range of second-, third-, and fourth-generation radio technology, which is widely used throughout the planet. Due to this, instead of a technical competition, the power balance is now centered on the capacity to construct and manage efficient and effective supply chains, rather than vice versa. The paucity of in-depth case studies on this change and the design of innovative supply chain approaches makes them particularly relevant. Among a few pieces of reserach, Wu et al. (2013) discovered the trend of isomorphism, which means that corporations in China as well as foreign-owned multinational corporations within the country are more or less the same in terms of supply chain management methods.

Supply chain designSuppliers are responsible for a significant portion of the costs and expertise of a manufacturer. This illustrates why the design as well as the management of supply chains has become extremely vital terms of improving the performance of businesses (Christopher, 2010). When it comes to the effectiveness of supply chains and networks, it all comes down to how they are structured and constructed, as well as how entities and operations within the system are linked, organized, and connected (Colotla et al., 2003; Shamsuzzoha and Helo, 2010). Any production system is ultimately guided by competitive priorities, which are defined as the equilibrium between effectiveness and adaptability. As a result, Hill (2000) proposes that a manufacturing strategy should be developed in order to sustain the company’s order-winning criterion.

This line of thinking has also been employed in the strongly linked research on supply chain management (Christopher et al., 2006). Smith (2012) demonstrates the close relationship that exists between a company’s strategic approach and the supply chain solutions that are implemented. The item given has an additional impact on the strategy and competitiveness priorities of the organization. When it comes to product attributes and supply chain design, Fisher (1997) makes a compelling case for continuity: “functional” items ought to be manufactured in “efficient” supply chains, while a “responsive” supply chain is advantageous whenever it comes to producing “creative” goods. Lee (2002) and Wong et al. (2005) extend this line of reason by claiming that an adaptive supply chain may be beneficial for variable demand as well.

Create and purchase are two basic strategic decisions that have to be made during supply chain designing. The first is whether any of the activities must be carried out in-house or outsourced to external suppliers who will be collaborators in the external supply chain. Applying theories of transaction cost economics and the resource-based view (Kim et al., 2007, or the review provided by McIvor, 2009), researchers have extensively investigated the motivation and reasons for outsourcing decisions. However, the actual result of outsourcing is less certain. Outsourcing has a negative effect on productivity, according to an ex post examination, although the findings are conflicting. According to some (Heshmati2003; Görg and Hanley, 2005), outsourcing has a positive relationship with performance results, whereas others (Gilley and Rasheed, 2000; Laugen et al., 2005; Espino-Rodriguez and Padron Robaina, 2006) assert that outsourcing has no substantial or perhaps even detrimental impact on organizational results.

The influence that various outsourcing options have on expense and innovation is of particular importance in this context. Even less is known about the long-term consequences of outsourcing on business competency and innovation capabilities, but studies have found a range of paradoxical effects and trade-offs between them. Taking the example of outsourcing for financial reasons, it has been demonstrated that it can have beneficial impacts on reducing costs while having detrimental consequences on innovative capabilities and flexibility (Bengtsson et al., 2009). In addition, past reserach have demonstrated that outsourcing to cheap suppliers located far away is advantageous when technological interdependencies are minor, whereas more complicated research and development and production processes necessitate close proximity. For example, (Mol et al., 2006) explain that global outsourcing is a “balancing act between cheaper production costs in another country and reduced transaction costs in the home country.” When it comes to the structure of international supply chains, decisions are made on how nodes and links are layered and tiered, the function of plants (nodes), how the supply chain is reconfigured (Harrison and van Hoek, 2002), and how the scattered supply chain network is integrated (Shamsuzzoha and Helo, 2010). Layering and tiering are terms that refer to the structure of information flows as well as the various coordination choices available for operations, linkages, and the geographical location of nodes.

Dong et al (2013) demonstrated that, throughout the midst of growing global rivalry, like that found in the telecommunications industry, it appears to be most advantageous to focus the core manufacturing on the home market. Ferdows has done extensive research into the functions of plants in a production process (1989, 1997). Regarding the strategic considerations for selected site and site competency, he developed a framework that defined six possible functions (master factory, overseas factory, source factory, server factory, contribution factory, and frontier factory) that may be played. The strategic reasons include availability to low-cost manufacturing, accessibility to skills and expertise, and closeness to a marketplace, among others. Competency is rated as high or poor depending on the situation. Vereecke and van Dierdonck (2002) conducted an actual study to validate his paradigm, and they discovered that a plant can perform a variety of functions. A third factor, site competency, has been added to Ferdows’ paradigm by Feldmann et al. (2013), who identify three degrees of competence for the site: manufacturing, distribution network, and development competence. The organization and business procedures are the fourth area of supply chain design, and they are also important. 

Case AnalysisHuawei Case Study

Huawei has quickly risen to be one of the world’s major telecom solutions companies in the universal telecommunications market, developing products in telecom networks, worldwide services, and gadgets. Huawei is headquartered in Shenzhen, China. When analyzing the annual revenues of Huawei versus Ericsson between 2003 and 2013, it is clear how quickly Huawei (established in 1988) quickly caught up with and recent decades exceeded Ericsson (formed in 1939). (Founded in 1876). In addition, it is worth noting that Huawei is currently regarded as being somewhat technologically advanced as their key rivals in the sector (Shan and Jolly, 2013). By the conclusion from this decade, the firm had also surpassed all other competitors in terms of the number of patent applications (WIPO, 2011).

Supply Chain Strategies and PrioritiesThis approach is founded on Huawei’s aim to integrate the competitive priorities of cost effectiveness with the customizing of high technology products in order to achieve competitive advantage. Delivering low prices is undoubtedly one amongst Huawei’s source of competitive advantage, which is rooted on comparable low internal manufacturing prices as a result of the company’s headquarters being in China. In comparison to western enterprises, labor expenses are one-tenth or less, while engineers and research and development employee salaries are between one-sixth and one-tenth of what they would be in the West. It is still worth to note that the average working hours for Huawei staff is approximately 2700 hours annually, which is approximately twice the average working time for European workers. The emphasis on keeping costs as low as possible is also widely entrenched across the organization. In the supply chain department, one manager asserts, “Huawei’s DNA is based on low-cost manufacturing.” In addition, when it comes to designing and managing outside supply chains, low cost is a top focus. The benefits are true for the vast majority of Huawei suppliers who are based in mainland China. Huawei’s Supply Chain management also assert that the company’s low-cost foundation enables it to negotiate better terms with suppliers based in the country than competitors. Among the suppliers is Foxconn, that has one of its main facilities in Shenzhen directly across the street from Huawei’s. When outlining Huawei’s ambitions and targets for cutting costs in procuring, the buying manager stated, “We wring every penny out of every penny.” Unlike their key rivals, Huawei does not face the challenge of moving to take benefit of cheap suppliers; instead, they face the challenge of keeping low-cost benefits while growing globally into high-cost regions. “Our globalization moves from low-cost nations to high-cost nations,” says the procurement manager. “The challenge is ensuring that every local Huawei firm behaves in accordance with and in rhythm with the headquarters in China.” “All telecommunications firms are currently confronted with much the same challenge,” he adds. Considering that high-cost nations have nearly identical sales, R&D, and procurement costs, the main variation is in service. It would be extremely expensive for Ericsson to deploy its regional service department from Sweden to China. Huawei, on the other hand, must make the transition from low-cost nations to high-cost nations. As a result, we are also confronted with the difficulty of high prices in local marketplaces. In our case, there is no short cut.” Consequentially, Huawei highlight the significance of product diversity, customer service, and customization in addition to the cost-cutting strategy. One amongst Huawei’s six basic values is ‘putting the customer first.’ Everybody at Huawei, from the CEO down to new hires, is presumed to understand that ‘customer happiness is the only rationale why Huawei runs,’ according to one of their top supply chain executives.

According to the director of the Delivery Planning and Management Department of Huawei, an excellent consumer emphasis and a desire to provide exceptional service are two of the company’s most important competitive advantages in the supply chain: “First and foremost, there is a focus on and dedication to the customer.” It is also a slogan that is made use of from within to express the core of customer centricity: “Once promised, there are no excuses.” To avoid unnecessary excuses, Huawei’s strategy is to increase resources by hiring as many people as possible to help them address their difficulties. “Whenever we receive client demands or needs, we pledge to respond under 24 hours,” said a manager at Huawei Technologies Nordic Office, explaining the manner in which this is accomplished in reality. Huawei was the sole provider able to provide comments the following day over a business transaction in the Nordic market.” This emphasis is evident in the critical performance indicators (CPI), where on-time delivery is the most important factor to consider. In attempt to optimise, Huawei turns outside of the telecom industry for inspiration. In his explanation, the procurement manager stated that “Huawei’s yardstick is no longer Ericsson or other telecom businesses.” Among our reference points are Google, Taobao (which is a Chinese online shopping platform), and the car industry.” Due to the customer-centric approach, product diversity has expanded. For example, at one point, Vodafone needed a dedicated platform that could accomodate 2G, 3G, and even 4G systems simultaneously. According to a supply chain manager at Huawei Nordic Office, “Huawei may have more than 200 modules for one type of cabinet, yet Ericsson has far less modules for every cabinet.” He was unable to provide a price for this particular type, nevertheless.

Product design and attributes are critical when it comes to developing supply chains for both effectiveness and responsive purposes. Huawei has attempted to unify the disparate logics of Research and Design and the Supply Chain Department into a single framework. According to the director of Huawei’s research and development department, “R&D helps to improve the efficiency and flexibility of the supply chain.” Because of client needs, Supply Chain always places a large number of criteria on our design. “We have no difficulty in addressing their needs.” To summarize, one of Huawei’s primary goals is to create supply chains that are both reactive and cost effective. A top supply chain manager summarized this by adding that supply chains that are characterized by “rapid response and high quality, low cost and adaptable global supply chain collaboration” ensure that contracts are fulfilled for customers.

Sourcing and outsourcing 

As part of a coordinated endeavour, strategic partnership, or partnership cooperation with a companion, Huawei has decided to outsource components of its manufacturing and logistics services, as well as training, site setup, running tests, and after-sales assistance, as well as some software development, to a variety of partners since 2000. This has resulted in lower manufacturing and administrative expenses, as well as lower inventory and warehouse costs, as well as shorter lead times and a more responsive reaction to market needs. Due to the fact that manufacturing prices in China are still cheaper than in conventional high-cost nations, Huawei has primarily outsourced their manufacturing to contractors in China, particularly in the Shenzhen area, which is close to the company’s headquarters and master production facility.

Supply chain structureHuawei’s worldwide supply chain system and architecture is comprised of five regional supply chain centres (SCCs), which are located in Shenzhen, Hungary, India, Mexico, and Brazil, respectively. The Shenzhen SCC serves as the major supply centre, wherein approximately 30% of all manufacturing takes place. To operate as an independent separate company, every SCC is a fully-fledged organization that performs the following functionalities: order management; logistics management; worldwide production; worldwide engineering; industrial acceptance test; quality; planning; sourcing; reverse engineering; business process and information technology; and human resources. Additionally, there are two regional logistic hubs, which are located in Amsterdam and Dubai, respectively. The hubs do not have any manufacturing capacity, but they do handle product transfers and provide a pick and pack service. In most cases, it takes one week for things to be delivered from the distribution centre to the client. The SCC’s ultimate goal is to be proximate to markets and consumers in order to react swiftly to their needs. The regional locations support the company’s goal of shortening delivery times and lowering transportation expenses, capturing shifts in consumer needs early and sharing of resources at the local level, reducing the number of national warehouses, and increasing the turnover of inventory. The regional offices hire regionally in order to take advantage of the understanding of the local market.

SCC Hungary has been capable of improving the supply chain while simultaneously decreasing the entire supply chain expenses because it is an independent cost unit. Prior to the establishment of this SCC, the order fulfilment lead time was around two months, with maritime transport from China to Europe requiring at least forty days. Following the establishment of the SCC in Hungary, the average time required to complete an order has been reduced by 60 percent. “The expenses of production in Europe are greater than those in China. However, if we take into account the whole supply chain costs, as previously stated, it is still less expensive,” asserts the managing director of Huawei Hungary SCC. Processes and organizational structures in the supply chain. In accordance with the supply chain operations reference (SCOR) model, Huawei’s supply chain process can be categorized into three process phases. The first is the client order phase, which includes everything from order receipt to order process and order delivery, as well as after-sales servicing.  A local Huawei firm operates as a distributor between regional supply chain management or Huawei headquarters or the and the regional consumer once a new order has been generated.

The phase is concerned with the processes of production and distribution. The goods are produced at Huawei’s master facility in China or at a the local supply center, depending on the location. Manufacturing jobs are assigned in order to maximize the number of orders filled on time while maintaining the expenses as low as possible. The items are delivered from the plant to either the warehouse of Huawei’s local market unit for second assembling as well as further distribution notice, or they are shipped directly to the consumer site. The third process phase, procurement, comprises both centralized purchasing in China and decentralized purchasing on a regional or municipal level. In a nutshell, Huawei’s worldwide procurement approach is based on the principles of “centralized certification, scattered procurement.” Essentially, this implies that the Supplier Certification and Approval department at Huawei headquarters is in charge of supplier accreditations and authorization, while operative procurement is handled domestically. This allows for a faster and more flexible response when it comes to regional demands, as well as a decline in purchase cost and logistic expenses. Huawei has concentrated on unifying supply chain operations, resulting in the formation of what they refer to as an integrated supply chain (ISC). As an example, the corporation has formed integrated product development (IPD), which is intended to ensure that its goods maintain their competitive edge from a technological as well as R&D standpoint. Supply chain integration is considered to be among the most difficult tasks faced by supply chain executives today.  It is also emphasized by Huawei founder and CEO Ren Zhengfei, who says, “If we are successful in implementing ISC, the vast majority of our organization‘s management concerns will be eliminated.” The fact that the president of the integrated SC department is indeed a senior vice president of Huawei serves to further emphasize the company’s position.

In 2000, Huawei launched the global ISC infrastructure, which is still in use today. During that period, Huawei’s productivity was significantly inferior to that of their primary competitors. For example, Huawei’s on-time delivery percentage was only 50 percent, whereas the average level among the main telecommunication system vendors was 94 percent. When compared to the advanced stage, Huawei’s inventory turnover rate was 3.6 per year, whereas the lower level was 9.4. The order fulfilment time for Huawei was 20 to 25 days, but only 10 days for the benchmark level of service. The ISC was developed expressly for Huawei by IBM, and it is built on the broad ideas of the SCOR modelling system (Supply Chain Council, 2011). In order to optimize both internal procedures and external association with consumers and partners across the supply chain, advanced information technology solutions are being utilized to connect the activities of planning, purchasing, production, and logistics.

Sustainable Supply Chain

Many organizations are usually caught in between cost efficiency and social responsibility. However, Huawei has managed to maintain sustainability through a number of organizational commitments. As a part of its commitment to supply chain sustainability, Huawei established the following objectives in 2014: meeting consumer needs, surpassing customer expectations, pursuing continual development, promoting corporate performance, and pushing to be the world standard. The following techniques were developed to support these objectives: systematic risk prevention; proactive management; effective internal and external cooperation (with consumers, suppliers, and partner companies); as well as continual improvement. The sustainability needs were also implemented throughout the whole supply chain network, which included the supplier certification, selection, and evaluation phases as well as performance evaluation, procurement satisfaction, and supplier departure. The organization asserts that it is aware that passive sustainability is an expense, whereas active sustainability is a profit-making endeavour. To raise levels of sustainable development, the organization advocates for collaboration with consumers, suppliers, and other stakeholders throughout the value chain. Huawei’s collective efforts will allow it to build more efficient models of sustainability management and, in turn, accomplish its objectives. As part of its supply chain management initiatives in 2014, Huawei concentrated on the following aspects:

Collaborating with consumers to truly comprehend their sustainability demands and standards, and integrating these components into Huawei’s procurement, supply chain management, and supplier life – cycle management procedures; 

Increasing the performance of Huawei’s combined processes and IT systems by integrating the company’s sustainability needs and regulations; 

Collaborating with suppliers to collaboratively explore sustainability needs and standards, hence enhancing the general effectiveness of the industry;  

Working with engineers to make sure that products are designed for the circular economy (as defined by the Circular Economy Initiative).

Partnerships with Suppliers on Long-Term Sustainability Huawei has created its Supplier Sustainability Agreement in accordance with the Electronic Industry Code of Conduct (EICC). Supplier Sustainability Agreements (SSAs) are required to be signed by all Huawei suppliers as a vital stage in the qualifying process. Among the most important variables taken into consideration by Huawei during supplier inspections and performance evaluations is the degree of conformity with the contract in question. Huawei expects its suppliers to adhere to the Supplier Sustainability Agreement as well as all applicable laws, legislation, and global standards, among other requirements. A further need of the organization is that suppliers incorporate sustainability considerations into their business decisions, as well as their day-to-day operations, and that they cascade these considerations throughout their supply chains. Supplier Qualification has been updated. In order to qualify all new suppliers, Huawei has established a holistic qualification process. The Supplier Sustainability Agreement and applicable regulations are examined as part of the evaluation of suppliers’ capabilities and conformity with the Supplier Sustainability Agreement.

Screening stage: One of the bare minimum standards for potential suppliers is that they adhere to environmental and social sustainability standards. Those that perform poorly are eliminated from consideration even before selecting process starts; 

Qualification phase: On-site checks are conducted to determine whether or not a supplier satisfies the standards outlined in the sustainable procurement agreement. Among the operations conducted as part of the inspections include interviews with senior management, employee surveys, document checks, onsite checks, and third-party information queries.

Review phase: The outcomes of the supplier auditing are reviewed by an expert panel during the evaluation stage. It is necessary to comply with sustainability principles in order to be considered; any provider who does not meet the requirements is usually not be approved.

ConclusionAlthough progress has been made, the move to higher social sustainability in the smartphone industry is far from over. Even in a high-tech industry with fast innovation cycles, such as the smartphone industry, research in behavioral drivers and hurdles reveals that early niche distributors and ‘moral customers’ play an essential part in demonstrating the presence of and request for more sustainable options by demonstrating their presence and desire. Specialists, on the other hand, concur that customers cannot carry the overall accountability for driving the transformation forward since both GPNs and the difficulties associated with them are too complicated to be considered in the decision-making process of the average customer. Instead, incumbent regime actors must take social sustainability issues into serious consideration when making strategic management decisions, and they must enforce compliance throughout their entire global political network global production networks (GPN). For this to happen, the vast majority of experts think that binding due diligence requirements must be implemented that level the playing field across all players and both forces while also allowing entrenched regime players to adjust their conduct.

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