Build Quality

European IT powerhouse Fujitsu Siemens has so far resisted the growing trend for vendors to shift the vast bulk of their manufacturing operations to the Far East. Fujitsu Siemens admits that manufacturing in Germany is much more expensive, but remains steadfast in its belief that the benefits in terms of quality, reliability and physical proximity to its customer and partner base more than make up for the additional operating costs incurred.

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By  Stuart Wilson Published  November 26, 2005

Constant innovation|~|fscbischoff200.jpg|~|Bernd Bischoff, CEO at Fujitsu Siemens|~|European IT powerhouse Fujitsu Siemens has so far resisted the growing trend for vendors to shift the vast bulk of their manufacturing operations to the Far East. Fujitsu Siemens admits that manufacturing in Germany is much more expensive, but remains steadfast in its belief that the benefits in terms of quality, reliability and physical proximity to its customer and partner base more than make up for the additional operating costs incurred. There is much more to Fujitsu Siemens than meets the eye. In the Middle East and Africa region, the vendor is often perceived as nothing more than a desktop and notebook vendor. In reality, Fujitsu Siemens has a much more expansive product portfolio and is already well established as an enterprise IT infrastructure provider in Western Europe. At its recent Visit conference held in Augsburg, Germany, thousands of Fujitsu Siemens partners and customers witnessed firsthand the breadth of the vendor’s product portfolio and also toured the company’s cutting-edge manufacturing operation. Digital home technologies, mobility and dynamic datacentre solutions took centre stage as Fujitsu Siemens showcased its full range of products, demonstrated the breadth of its portfolio and its ability to meet the IT needs of consumers and large enterprises alike. As well as promoting the quality of its products and its ability to innovate, the challenge for Fujitsu Siemens now is to replicate its European enterprise success in the Middle East and build up the channels-to-market capable of taking these products and solutions into the enterprise IT market in the region. “Fujitsu Siemens is constantly innovating and we have a very close relationship with our customers,” said Bernd Bischoff, CEO at Fujitsu Siemens. “We are listening to customers and developing solutions that fit with their requirements. Advances in technology are not just coming out of the US and Asia. We are able to keep pace with that innovation manufacturing in Europe.” “Average selling prices will decline further because of technology developments and cost reductions. In the large enterprise space, Fujitsu Siemens looks to differentiate its offering from rival vendors allowing us to achieve better margins,” he added. ||**||Operating costs|~|fsccullinane200.jpg|~|Dave Cullinane, executive VP sales EMEA at Fujitsu Siemens|~|During the first half of its fiscal year ending September 2005, Fujitsu Siemens’ revenues climbed 12% while unit shipments rose 21%, indicating a further decline in average selling prices. The Middle East and Africa and Eastern Europe stood out as star regions in terms of growth and Bischoff reckons that the potential exists for sales to accelerate even more in these regions, predicting that Middle East and Africa revenues could triple within the next two years. Plans for a local assembly facility in the Middle East are still under consideration, but even before any such move is finalised, Fujitsu Siemens reckons that its current supply chain and manufacturing operations offer a vast range of value-adds to customers and partners. Fujitsu Siemens remains committed to manufacturing in Germany — despite the costs involved — and reckons that this decision provides a range of benefits. “A worker in Shanghai costs US$90 per month,” said Peter Esser, executive VP volume products and supply operations at Fujitsu Siemens. “In Augsburg, Germany, we are looking at in excess of US$3,000 per month. It is a big difference and one of the main reasons why many manufacturers closed plants in Germany and moved to the Far East.” “However, what you need to look at is the end-to-end transportation costs at every level of the supply chain. The cost of actually building a PC — the assembly process — is just US$10. That’s a small percentage of the actual cost of the PC. You have to look at the end-to-end costs and not just look at the bit where the factory actually operates. You need to look at suppliers and partners as well,” continued Esser. The proximity of Fujitsu Siemens’ manufacturing operation to its partners has allowed the vendor to create innovative configuration schemes such as value4you, built4you and made4you to address different sectors of the market. ||**||Time to market|~|fscesser200.jpg|~|Peter Esser, executive VP volume products and supply operations at Fujitsu Siemens|~|“These schemes mean that customers and partners can have specific hardware solutions manufactured to their precise needs,” continued Esser. “You cannot do this with a distant factory in China because customers want these products delivered fast — one week from order to delivery.” Fujitsu Siemens claims that the time between taking an order for a specifically configured PC and the finished unit rolling off the assembly line can be as little as ten hours. In the notebook space, however, Fujitsu Siemens is sourcing barebones from the Far East before undertaking the final configuration and localisation in Augsburg. Another reason for keeping its production facility in Germany is the quality of the finished goods. According to Esser, Fujitsu Siemens has just 9,800 defects per million units produced compared to figures as high as 16,300 per million for vendors manufacturing in the Far East. Educating customers and key partners about the quality of its products, and the advantages this offers in terms of uptime and total cost of ownership is high on Fujitsu Siemens’ agenda. The vendor remains wholly committed to the channel and has also developed a range of powerful vendor alliances to create complete IT solutions. “Our channel strategy is very consistent,” said Dave Cullinane, executive VP sales EMEA at Fujitsu Siemens. “We are a partner-centric company and want to drive as much business as possible through our partners and this is the case across all geographies.” Cullinane reckons that significant margin opportunities exist for partners prepared to commit to Fujitsu Siemens. “I see a continued trend of commoditisation in the market and I’m also seeing increased use of e-auctions in Europe when it comes to customers procuring IT equipment. We’re also seeing average selling prices decline but at the same time there is massive potential for sales growth in fast-growing regions such as the Middle East,” said Cullinane. “It is easier for Fujitsu Siemens and its partners to fight commoditisation once the customers have experience of our products. Once that first sale has happened they realise that they like our product and they like the people selling Fujitsu Siemens.” To take its entire product portfolio to market in an effective manner in the Middle East, Fujitsu Siemens will need to expand its channel partner base. The route-to-market for servers or dynamic data centre solutions is very different to the channel used for selling notebooks into the consumer market. At the enterprise level, Fujitsu Siemens continues to make strong inroads into the datacentre market with new offerings such as FlexFrame for Oracle now ready to make an impact. With the right partners on board, Fujitsu Siemens has the opportunity to not only grow its Middle East business, but also to push deeper into the enterprise arena. ||**||

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