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Nokia happier to live on the edge when buying components

The Finnish phone maker, trying to recover its former mobile-phone influence, is willing to take on more risk for the key business of buying electronics to become more competitive.

Kari Kulojarvi, Nokia's senior vice president for smart devices supply chain
Kari Kulojarvi, Nokia's senior vice president for smart devices supply chain.
Stephen Shankland/CNET

PARIS -- Overhauling Nokia hasn't just been a matter of slapping a new operating system on older mobile phone hardware.

In reality, the company had to rebuild its entire supply chain -- the vast network of business partners that build everything that makes up a phone. And a big part of the change: accepting more risk as the company tries to move back to the cutting edge of mobile phone technology.

"For us as a company, our risk appetite has increased a lot in the way we work," said Kari Kulojarvi, Nokia's senior vice president for smart devices supply chain, in a speech here at IHS's Technology, Media and Telecommunications (TMT) Summit.

One risk is relying more on a single supplier of a particular component, he said. Another is designing products with the latest technology rather than using lower-cost components that are more reliably available.

"Time to market is much more important than it used to be," Kulojarvi said. "That's a major decision point when selecting the companies we work with."

The Finnish company, now more than a year into the overhaul of its mobile-phone business, has changed its approach to buying ingredients such as screens, processors, camera sensors, and memory that are essential in a modern smartphone.

One example is the shift with its Windows Phone products to Qualcomm processors.

"We had traditionally very strong key strategic supplier base with our legacy platform, Symbian. The Windows Phone introduction changed a lot of that. We changed our chipset. Today we work very closely with Qualcomm, and it's our sole supplier for the Windows phones we're producing," Kulojarvi said. "The decision here was time to market and find companies that can help us with their R&D."

In the past, the company basically had one big supply chain. But its new two-pronged approach to mobile phones -- higher-end models running Microsoft's Windows Phone and lower-end models for "the other billion" phone customers -- has meant the company now has two separate networks.

For the premium products, the priority is on fast delivery, customization, responsiveness to market changes, and innovation that customers will desire. For the other line, the priority is on high volume, low cost, and reliable delivery.

"The challenge for us is to tackle both -- how to be responsive, how to optimize costs," Kulojarvi said. It's all necessary, though. "In all my years at Nokia, the competition hasn't been as fierce as it has been today."

Some seemingly risky choices actually can be a safe bet, he added. For example, dual sourcing, in which a company buys components from two suppliers to guard against problems with one or the other, actually isn't as risk-averse a practice as it might seem.

That's because a supplier, when times get tough, might favor deliveries to a company for which it's a sole supplier, he said. The company with the dual-source arrangements gets the short end of the stick.

"It's sometimes counterintuitive to think the single-source policy is the best risk-management policy," he said.