Celestica CEO talks internal changes, acquisitions, EMS

VentureOutsource.com speaks with Craig H. Muhlhauser, president and CEO with global EMS provider Celestica. (www.celestica.com)

Celestica has not made any major acquisitions since Muhlhauser took over as CEO in 2006. Things are much different today. Muhlhauser and his team did a good job of managing profitability during this last downturn. However, more revenue is needed to drive profitability higher and acquisitions that properly fit Celestica’s roadmap just might be the answer.

As a former executive at Ford and Visteon Automotive Systems, plus having worked in a number of industries ranging from automotive; consumer, industrial, utility, and aerospace and defense, Muhlhauser brings to Celestica a strong dose of both business scope and depth when it comes to establishing and managing successful corporate environments with global footprints.

In this exclusive interview, Muhlhauser talks about his leadership style; EMS industry value propositions, acquisitions and strategic partnerships, competing with industry rivals, changes he’d like to see at Celestica, and more.

Transcripts from that discussion follow.

VentureOutsource.com: What important leadership lessons have you learned?
Muhlhauser: Talents. The emphasis on talent. And, talent development. The responsibility of a leadership position is to unleash the talent in an organization.

To develop a framework to allow people to work together is a major value, obviously underpinned by integrity and, finally, to empower the individuals in the organization to have the accountability and authority to deliver on their commitments.

VentureOutsource.com: What’s the basic message you have for all of your employees?
Muhlhauser: I would say connect so that no individual in this organization can get everything they need done for our customers on their own.

Communicate effectively, which means both speaking and listening; and collaborate to achieve the full potential of what each and every one of us has to offer, but more importantly — what we can do together.

VentureOutsource.com: How has your leadership style changed?
Muhlhauser: Over the many, many years I’ve been working, certainly I started off thinking that much of what I needed to accomplish I could achieve on my own.

I was also more judgmental of individuals that were not as much like me or my approach.

I’ve become much more open to new ideas and certainly I’ve placed much more recognition on the importance of the values and the culture and the behaviors that drive the results rather than the specific individuals. So it’s less about “I” and more about “we”.

 

Celestica CEO Craig H. Muhlhauser

 

VentureOutsource.com: You’ve said Celestica is focusing on higher margin business. Can you discuss the type of programs Celestica is targeting for higher margins?
Muhlhauser: We are moving from a contract manufacturing role to a supply chain solutions company.

The engagements we have range from design collaboration and the development of solution accelerators at the beginning of the product introduction process all the way through the value stream to service and support of customer’s products, not only with the objective of fixing the breaks but also understanding why it breaks and to recommend design improvements and supply chain alternatives to prevent that from happening in the future.

VentureOutsource.com: What impact will this higher margin requirement have on Celestica’s ability to attract new program wins?
Muhlhauser: Well, we are trading off what we call the value that we deliver versus the risk that a customer is prepared to assume in the selection of a supplier…the development of the supplier relationship.

So, the risk is that we don’t focus on the areas of the market that make those tradeoffs, and we do get involved in businesses or in markets where there is little or no value based on the services that a company provides, and therefore it’s viewed as purely a price decision.

VentureOutsource.com: What is Celestica doing to look for stronger top-line growth in the face of more challenging incremental margin improvements?
Muhlhauser: We’re investing in resources in the market. We are significantly increasing our investment in sales coverage, globally. We are hiring new leadership in the areas of sales and solution development. We are expanding our application engineering, or solution architects, throughout the world in support of our sales team and our customers.

We’re also strengthening our relationships at all levels of the customers’ organization and dramatically improving the execution of our base business. We are also investing in a significant amount of corporate development activity to identify competencies or capabilities that we would need to acquire to continue to build a stronger value proposition.

VentureOutsource.com: Better focus on inventory management and other cost controls seem to be the norm these days for most EMS providers in this recovery. What’s different in the way Celestica is competing against other EMS companies in this economic environment?
Muhlhauser: Well, we’re leading the industry in inventory performance, so we have recognized the opportunity at least for the past two or three years. We’re investing in information technology; tools that allow us to connect with our supply base on a real-time basis, so we can place, change, or cancel orders on a real-time basis.

We are also increasing our investments in inventory management tools that we’re using to provision inventory throughout the supply chain.

We are hiring new expertise in the area of business analytics to leverage information more effectively in making decisions on inventory purchases; and we are improving our quality and reducing our lead times to minimize the amount of working capital we need in process, along with reducing scrap associated with the products we produce.

VentureOutsource.com: We speak with a lot of OEM executives. Many OEMs still subscribe to the thinking that the lowest cost EMS provider is the best choice. What are your thoughts on the EMS industry’s current value proposition regarding how EMS companies market themselves to OEMs?
Muhlhauser: Well, I think it’s important that we all understand what customers want and what customers are prepared to pay for.

Then, it’s separating the conversation from low price to low cost, and using this information to get into a conversation about cost, or price, in the case of the customer versus risk to help obtain a better understanding in our mind, and in the customer’s mind, what are the important criteria they’re using to make these determinations.

So, for example, a large part of the cost of a product could be hidden to the customer if it’s going to appear in service and in warranty.

We’ve seen a number of our large customers take major provisions due to epidemic failures in the field after the product was produced, largely based on the fact that much of the design of the product did not involve companies like ourselves up front.

 

EMS provider Celestica megasite in Monterrey, Mexico.

 

For instance, when a customer that is not a typical hardware company produced a product, the lead-free qualification did not uncover all of the issues, and therefore resulted in the substantial downstream warranty cost. So it’s this type of total cost of ownership. Complexity drives cost.

We have eight mega-sites. Other EMS companies have ten, 12, 60 facilities. If we have a simpler network, if we have fewer…less complexity with the products we produce, by and large we can offer a more cost-effective solution.

The question becomes, does the pricing a customer is prepared to pay reflect the total cost we believe represents that which they should take into consideration?


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