Xerox 2005 Annual Report Download - page 32

DESCRIPTION OF BUSINESS
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In January 2006, Xerox Limited entered into a five-year
distribution agreement with an unaffiliated third party covering
distribution of our products in Libya. Libya is also designated
as a state sponsor of terrorism by the U.S. Department of State.
The decision to enter into this distribution agreement was made
in light of recent U.S. federal government actions that have
lifted the country-wide embargo previously imposed on Libya.
Our sales in Libya through this distribution agreement will be
subject to our export and sanctions compliance program and
will be in accordance with applicable U.S. laws and government
regulations as they relate to Libya.
We are increasing our use of partners to improve our market
coverage. Through alliances with Premier Partners and Fuji
Ennovation, we expanded coverage to market our DocuColor
series to commercial printers. Our alliance with Electronic
Data Systems ("EDS") is designed to integrate EDS' information
technology ("IT") services with our document management
systems and services to provide customers with full IT
infrastructuresupport.
Our brand is a valuable resource and continues to be recognized
in the top ten percent of all U.S. brands.
Service
As of December 31, 2005, we had a worldwide service force
of approximately 13,000 employees and an extensive network
of independent service agents. Weareexpanding our use of
cost-effective remote service technology for basic product
offerings while utilizing our direct service force and a variable
contract service force to address customers’ more advanced
technology requirements. The increasing use of a variable
contract service force is consistent with our strategy to reduce
service costs while maintaining high-quality levels of service. We
believe that our service force represents a significant competitive
advantage in that the service force is continually trained on our
products and their diagnostic equipment is state-of-the-art.
Twenty-four-hours-a-day, seven-days-a-week service is available
in major metropolitan areas around the world. As a result,
we areable to provide a consistent and superior level of
service worldwide.
Manufacturing Outsourcing
In the fourth quarter of 2001, we outsourced certain manufac-
turing activities for the Office segment to Flextronics, a global
electronics manufacturing services company. Our inventory
purchases from Flextronics currently represent approximately
25% of our overall worldwide inventory procurement. The initial
term of the Flextronics supply agreement is five years through
November 2006, and is subject to our right to extend for two
years. Thereafter, it will automatically be renewed for one-year
periods, unless either party elects to terminate the agreement.
We have agreed to purchase from Flextronics most of our
requirements for certain products in specified product families.
Flextronics must acquire inventory in anticipation of meeting our
forecasted requirements and must maintain sufficient manufac-
turing capacity to satisfy such forecasted requirements. Under
certain circumstances, we may become obligated to repurchase
inventory that remains unused for more than 180 days, becomes
obsolete or upon termination of the supply agreement.
In addition, Xerox sources certain other Office products from
various third parties, to maximize breadth of its product portfolio
and to meet channel requirements. Xerox also has arrangements
with Fuji Xerox whereby it purchases products from and sells
products to Fuji Xerox. Certain of these purchases and sales are
the result of mutual research and development arrangements.
Our remaining manufacturing operations areprimarily located
in Rochester,New York, and Dundalk, Ireland, for our high-end
production products and consumables and Wilsonville, Oregon,
for solid ink products, consumable supplies and components
for our Office segment products.
Xerox Annual Report 2005