Chinese computer maker Lenovo Group Ltd. announced it will lay off about 1,000 employees, or 5% of its global workforce, and integrate its global sales and back-office support as part of a restructuring plan, which will cost it $100 million in charges but save it about $250 million annually from next year. Other components of the plan include moving the global supply chain closer to the manufacturing and suppliers, and moving its corporate headquarters from Purchase, N.Y., to Raleigh, N.C. Lenovo also said its desktop computer operations would be centralized in China.
Profit in the electronics manufacturing industry is becoming more marginal. Lenovo faces challenges to the costs and flexibility of its global supply chain. Cost and service quality determines the future development of Lenovo. Analysys International says centralizing desktop computer operations in China is, on the one hand, helpful for reducing manufacturing costs; on the other hand, it is helpful to improve the entire supply chain performance.
China is one the fastest growing PC markets in the world. Lenovo's integrating supply chain in China will have great benefits in the near future. However, in a long-term point of view, Lenovo has to take into consideration improving its global coordinated manufacturing capability and utilizing its global supply chain resources to expand its PC market share in the world.
Centralization of manufacturing reduces manufacturing costs, however, it is very likely the distribution channel and terminal retail sales costs will rise sharply. Lenovo must pay attention to its global cost control to avoid the counteraction.
As China's economy further opens up, Chinese electronics manufacturing industry faces pressure from international players both at home and abroad. The market has higher demand for cost control and supply chain flexibility. The electronics manufacturing industry should strengthen the supply chain management.
Analysys International's Position
In a short-term point of view, Lenovo's layoff plan reduces costs and improves operation efficiency, which shows Lenovo's consolidation of IBM PC unit has entered the practical stage. In a long-term point of view, this adjustment brings new challenges to Lenovo's global manufacturing capability of desktop PC business.
Analysys International will hold the First China Supply Chain Management Summit Forum in Beijing on May 17th and 18th, 2006. The forum will focus on topics of reducing total costs, improving supply chain flexibility, and global supply chain operation.
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