Piecing together the Foxconn supply chain

Manufacturing & Logistics

Rockwell Automation president and CEO Blake Moret (second from left) signing a memorandum of understanding with Foxconn officials and Gov. Scott Walker. Credit Arthur Thomas

Last updated on July 2nd, 2019 at 09:12 pm

Foxconn Technology Group plans to make approximately $1.4 billion in supply purchases in Wisconsin annually once its LCD panel campus is fully operational, a figure more than three times the combined in-state supply purchases made by Marinette Marine Corp., Quad/Graphics Inc. and Oshkosh Corp.

With company estimates putting more than $1 billion in revenue up for grabs, it is no wonder roughly 200 companies have listed their information on the Foxconn supplier directory, an online tool offered by northeastern Wisconsin economic development organization The New North with support from the Wisconsin Economic Development Corp.

Rockwell Automation president and CEO Blake Moret (second from left) signing a memorandum of understanding with Foxconn officials and Gov. Scott Walker. Credit Arthur Thomas

Foxconn’s planned $10 billion campus is projected to create more than 11,400 jobs at suppliers, according to a company-commissioned report. Those jobs would generate roughly $41 million in tax revenue for the state annually and would be a key part of Wisconsin getting a return on its $3 billion investment.

The companies that have posted their information on The New North website come from a range of industries, from manufacturing to logistics, construction to business services, real estate to research and development.

Beyond the Wisconsin companies, Foxconn will likely draw new suppliers to the state. Metropolitan Milwaukee Association of Commerce president Tim Sheehy has talked about Corning Inc. building a $1 billion glass plant adjacent to the LCD plant. During his recent trade mission to Japan and South Korea, Gov. Scott Walker met with Foxconn officials and suppliers and said companies were “excited to try to figure out ways they can establish businesses in the state.”

Walker didn’t explicitly rule out offering incentives to those companies to lure them to Wisconsin, but said “it’s pretty clear” the suppliers need to be in close proximity to the Foxconn campus.

“This whole series of suppliers that we met with will be overall a net gain to the state of Wisconsin because they’ll be coming in and investing and employing people,” Walker said. “We presume the biggest incentive we’ll be providing is the fact that Foxconn will be there.”

When Foxconn chairman Terry Gou announced the new facility in July, he pointed out the U.S. didn’t have any LCD factories to produce the 8K screens Foxconn plans to make. For supporters of the project, the opportunity to bring a new industry to “the Western hemisphere,” as state Rep. Dale Kooyenga (R-Brookfield) put it, was a major draw.

Foxconn products on display at Waukesha County Technical College. Courtesy WCTC

Since Foxconn is bringing a product that has primarily been manufactured in Asia to Wisconsin, it shouldn’t be a surprise some of the suppliers the company needs don’t have operations here, especially given the planned size and scale.

“It sounds like a totally vertically integrated facility,” said Bob O’Brien, president of Display Supply Chain Consultants.

Whether Corning or another manufacturer provides glass for the facility, locating essentially on the same site as the main plant is an expectation.

“(The glass is) basically too big to ship, or too big to ship economically,” said O’Brien, who spent 11 years at Corning, primarily as director of marketing intelligence and strategy for display technologies.

Beyond glass, the Foxconn supply chain will also include liquid crystals. German company Merck KGaA, which is not affiliated with pharmaceutical giant Merck & Co., has more than half of the market for liquid crystals, although the company noted in a recent investor presentation it faces increasing competition in China and customers are using multiple supplier strategies.

Merck KGaA already has a presence in Wisconsin through MilliporeSigma, its U.S. and Canada life sciences brand, which just announced a $64 million expansion of its flavors and fragrances business in Sheboygan County. At an event announcing the expansion in August, Walker said company officials encouraged him to get the Foxconn legislation done because they were eager to be a Foxconn supplier.

O’Brien said liquid crystal production is highly specialized and Merck does most of its production in Germany, with some mixing operations closer to localized display facilities.

“I would expect that they would do the same thing for Foxconn,” he said.

The main mechanism for lighting up the liquid crystals is LEDs, which O’Brien said he expects to be an imported element of production.

“You could pack a lot of LEDs in a shipping container,” he said.

North Carolina-based Cree Inc. does make LED chips that can be used to create the white LEDs needed for LCD backlighting. Those products are currently made in China. The company’s Racine plant makes products for Cree’s lighting products segment, which includes lighting systems used in commercial, industrial and consumer settings.

The backlighting also includes optical films for polarizing, diffusion and enhancement. O’Brien said manufacturing the films is not capital intensive, but the finished product comes on rolls that can be fairly bulky.

“Those are things I would expect companies would set up a U.S. operation to do,” he said.

O’Brien said he expects the same to be true for many of the mechanical and other electrical components for TVs, like the frame, base, stand, circuit boards and power supply. Wisconsin companies could be well-positioned for some of those products, especially plastics.

The equipment inside Foxconn’s factory also provides an opportunity. Milwaukee-based Rockwell Automation Inc. already signed a memorandum of understanding to implement its Connected Enterprise at the campus, and the parent company of Yaskawa America Inc., which has operations in Oak Creek, has equipment in a similar LCD factory in Japan.

Establishing a supply chain that can fulfill Foxconn’s projected $4.26 billion in total annual purchases will likely be an important part of the company’s success. Other efforts to bring primarily Asian manufactured electronics products to the U.S. struggled in part because of a hollowed-out supply chain, Harvard Business School professor Willy Shih wrote in a 2014 MIT Sloan Management Review article.

Building the ecosystem Walker and others envision will require going even farther. Marquette University president Michael Lovell noted at a recent Wisconsin Technology Council event that Foxconn’s presence is drawing interest from venture capitalists and could draw other companies both large and small in the future.

“Foxconn could be our opportunity to transform ourselves and create an infrastructure and an ecosystem that will allow this region to transform in ways we may not even really imagine today,” Lovell said.

He said realizing that transformation will take collaboration and new thinking at a scale and speed “which we’ve never done before.”

“We need to think about what the next generation of LCD technology is going to look like,” Lovell said. “We better create a research center of excellence … that creates an ecosystem that allows the universities, the industry (and) the state to work together to really ultimately attract suppliers to the state.”

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Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He also spent five years covering manufacturing at BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.

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