Xiaomi acts to overcome supply chain woes

July 11, 2019 12:43
Xiaomi has realized the crucial importance of enhancing its supply chain management. Photo: CNSA

Xiaomi Corp. (01810.HK), which celebrated its first anniversary as a Hong Kong-listed company on Tuesday, has announced the inauguration of its Scientific and Technological Park in Beijing.

The campus is part of the company's efforts to boost growth even as its share price has tumbled by more than 40 percent from its initial offering price of HK$17.

The campus is located in the capital's Haidian district, which also hosts the head offices of other technology giants such as Lenovo and Baidu. The campus, consisting of eight buildings covering an area of 340,000 square meters, cost the company 5.2 billion yuan (US$757.73 million).

The new headquarters will house engineers focusing on the development of artificial intelligence, Internet of Things, big data and cloud technology. It will also be engaged in information support, retail, e-commerce and financial activities.

The new head office indicates that Xiaomi has big plans for its development.

This year Xiaomi has been busy launching new products from smartphones to home appliances and wearables, all of which are part of a gameplan to develop its AI and IoT capabilities.

Its decision to spin off Redmi as an independent smartphone brand has helped the company win back its market share in the 2,000-yuan, mid-range segment as it competes with local peers such as Huawei's Honor, Vivo and Oppo. At the same time, it hopes to do well in the premium market.

One of the main problems, however, is supply chain management.

In late February, Xiaomi unveiled the Mi 9 flagship, but it has failed to catch up with market demand because of problems in securing Qualcomm chips. This, in turn, prompted customers to shift to IQOO, a new brand under Vivo with similar hardware specifications.

In order to overcome this issue, Xiaomi announced the appointment of Zhang Feng, a vice president of the group, as chief of staff. Zhang will also lead the newly established group procurement committee.

The committee aims to consolidate the procurement needs of various departments, improve purchasing power, and optimize the procurement process and efficiency.

Zhang has extensive experience in supply chain management. Since joining Xiaomi, he has been the lead negotiator in talks with suppliers for the company's smartphone products. He played in a key role getting Xiaomi out of its supply chain crisis in 2015, and a year after, its global smartphone shipment surpassed 100 million units.

Earlier this year, the company had supply chain problems with the Mi 9, prompting Lei Jun to head the China market and put supply chain management under his control.

Xiaomi's decision to expand its offline retail network across the nation will inevitably put pressure on its upstream supply chain. And with the expansion of its smart hardware categories, there is a more urgent need to enhance the efficiency of its supply chain management.

In Hong Kong, for example, Mi fans had long been waiting for its latest smartphone model, which was launched in the mainland about three months earlier.

They complained that Xiaomi was treating Hong Kong as a second-tier market and they had to cross the border to be able to buy the new model.

But the company has since improved its supply chain management and ramped up production to meet both domestic and overseas demand. As a result, Xiaomi Hong Kong launched the Mi 9T smartphone just a month after it hit the streets in the mainland.

A strong and stable supply chain is a key factor for Xiaomi to win back market share from other local brands. After the Mi 9 debacle, we are sure Lei and his team have learned their lessons well.

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EJ Insight writer