How Hadco Became a Problem-Solving Supplier

Every action has an equal and opposite reaction. We can apply this Newtonian principle to the vertical supply chain: for every part outsourced by an original equipment manufacturer (OEM), there is an equal and opposite opportunity for a parts supplier to furnish that part. While many parts or products have been outsourced to non-U.S. suppliers during the past twenty years in an intensely competitive environment, some U.S. parts suppliers have successfully expanded their share of the business by developing more effective methods to compete against the low labor-cost advantage many offshore suppliers enjoy.

Although no two success stories are exactly alike, there are some general patterns emerging in global competitive markets. We chronicle one company’s efforts to develop successfully a new set of core competencies that give OEM customers what they want, when they want it. The transformation of a manufacturing company from underachiever to a thriving world-class competitor illustrates the more general results we obtained in surveys of small and medium-size manufacturers (SMMs).1 We use a case study of one company, Hadco Corporation, to illustrate specific practices.

First, we discuss the strategic supplier typology we developed using survey data. In the following section, we introduce Hadco and discuss the business and competitive reasons for Hadco’s choice to compete in the printed circuit board (PCB) industry during the 1980s. Next we detail how Hadco changed to take advantage of opportunities in strategic outsourcing. Finally, we synthesize the coarse detail of the survey data with the fine detail of the case data to build a more complete picture of the role of SMMs in the U.S. economy. The lessons we learned from the typology and the Hadco case give clear prescriptions to companies that compete in global markets.

Classifying SMMs

We began our study of SMMs by dividing suppliers into two types: problem solvers and commodity suppliers. We define problem solvers as suppliers that compete primarily on their ability to solve process and product problems for their OEM customers. These suppliers compete in dense vertical and horizontal learning networks, which enhance their ability to absorb and transfer knowledge.2 In contrast to spot-market or commodity suppliers, problem solvers share these characteristics:

  1. They earn many different certifications from their customers, which usually involve documentation of quality processes and practices (including delivery and service), long-term contracts, and target pricing.
  2. They engage in early design work with customers, requiring close communications.

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References

1. M. Merenda, A. Kaufman, and C. Wood, “Collaboration and Technology Linkages: A Strategic Typology” and “Empirical Evidence on Problem-Solving Suppliers” (Durham, New Hampshire: University of New Hampshire, Whittemore School of Business and Economics, New Hampshire Industry Group Working Papers, 1994).

2. N. Rosenberg, “Technological Change in the Machine Tool Industry, 1840–1910,” Journal of Economic History 23 (1963): 413–443;

S. Helper, “Strategy and Irreversibility in Supplier Relations: The Case of the U.S. Auto Industry,” Business History Review 65 (1991): 781–824; and

J.F. Quinn and F.G. Hilmer, “Strategic Outsourcing,” Sloan Management Review, Summer 1994, pp. 43–55.

3. M. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1985).

4. Our survey utilized a questionnaire developed by the Northeast Manufacturing Technology Center. See:

National Institute of Standards and Technology/Northeast Manufacturing Technology Center and New York State Department of Economic Development, “Quick View: Manufacturing Intake Questionnaire” (Troy, New York: NEMTC/RPI, 1992).

5. A. Kaufman, R. Gittell, M. Merenda, W. Naumes, and C. Wood, “Porter’s Model for Geographical Competitive Advantage: The Case of New Hampshire,” Economic Development Quarterly 8 (1994): 43–66.

6. Merenda et al. (1994).

7. K.B. Clark and T. Fujimoto, Product Development Performance: Strategy, Organization, and Management in the World Auto Industry (Boston: Harvard Business School Press, 1991).

8. T. Nishiguchi, Strategic Industrial Sourcing: The Japanese Advantage (New York: Oxford University Press, 1994).

9. R. Howard, “Can Small Business Help Countries Compete?,” Harvard Business Review, November–December 1990, pp. 88–103; and

Clark and Fujimoto (1991).

10. E. von Hippel, The Sources of Innovation (New York: Oxford University Press, 1988).

11. S.J. Balog and H.G. Macnguyen, “Hadco” (New York: Shearson Lehman Hutton, 21 November 1989), p. 3.

12. Throughout this case study, we used Hadco annual reports, forms 10-K, and internal documents for much of our information about Hadco.

13. Balog and Macnguyen (1989).

14. Von Hippel (1988), pp. 4, 19–24.

15. R.A. Rasmussen, “Hadco: The Change,” CircuiTree, October 1992, p. 28.

16. B.R. Watts and M.M. Pompian, “Hadco Corporation” (New York: Needham & Co. Investment Analysis, 30 June 1988), p. 5.

17. Von Hippel (1988), pp. 20–21.

18. Balog and Macnguyen (1989), p. 14.

19. Watts and Pompian (1988), p. 3.

20. Balog and Macnguyen (1989), p. 3.

21. Watts and Pompian (1988), pp. 1, 5.

22. C.C. Kenney, Riding the Runaway Horse: The Rise and Decline of Wang Laboratories (Boston: Little, Brown, 1992), pp. 69–70, 94–105.

23. C.H. Ferguson and C.R. Morris, Computer Wars (New York: Times Books, 1994), p. 138; and

Kenney (1992), pp. 166–169.

24. Ferguson and Morris (1994), chapter 2; and

Kenney (1992), chapter 10.

25. Rasmussen (1992), p. 28.

On the importance of capital investments in this industry, see:

N. Rosenberg, Inside the Black Box: Technology and Economics (Cambridge: Cambridge University Press, 1987), pp. 180–183.

26. Rasmussen (1992), pp. 25–26.

27. P.M. Senge, The Fifth Discipline: The Art and Practice of the Learning Organization (New York: Doubleday Currency, 1990).

28. “The Hadco Vision,” New Hampshire High Tech News, June 1992, p. 1.

29. For a more complete discussion of the competitive advantage provided by supplier certification, see:

G. Walker, A. Kaufman, M. Merenda, and C. Wood, “The Transmission of an Interfirm Innovation” (Dallas, Texas: Academy of Management Proceedings, 1994).

30. Rasmussen (1992), pp. 31–32.

31. G. Strout, “Identifying the Building Blocks in Leading-Edge PCBs,” Electronic Packaging & Production, May 1993, pp. 17–19.