Download - Lucent Technologies SCM
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AT & T
corporation in
1885
On Sept 20th,
1995 AT & T
split into 3
public
companies,
one was Bell
Labs
Bell labs
becameLucent
Technologies
and went
public on Apr
4th, 1996.
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After becoming independent in 1996,operated in more than 90 countries.
Network Systems unit generated 57% ofrevenue.
Market leader in US for switching systems.
Flagship product was 5ESS Switch.
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Large-scale, software based digital switchingplatform.
This switch was custom configured (unlimited
configurations possible). Engineered-to-order product.
5ESS switch
office
Administrative
Module
Communications
Module
Switching
Module
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Market entry vehicle, not manufacturing strategy
Joint ventures with Taiwan, Indonesia, China & India
Infed materials marked up for cost recovery
Asian Joint
Ventures
Multiple suppliers tremendous cost pressure
Rapidly developing infrastructures tight delivery
schedules
Quick delivery became more important than price
Competitive
Issues: Cost &
delivery time
Deregulation of telecommunication market
Increasing capacity fast deployment became high
priority
Penalty clauses for late customer delivery = 30% of
contract value
Additional
Factors
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Asian customers away from order processingand manufacturing activities.
Parts produced in Asia shipped to US longlead times & high costs.
Production for Asian customers done inOklahoma city.
Parts & subassemblies shipped to
staging center in California.
Final assembly & testing done by Asian
joint ventures.
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Supply Chain Redesign in 1996
Changed US centric
supply model to
hub & spoke
approach.
Taiwan : hub of Asian
supply chain.
Orders placed with
Taiwan
Custom engineering &
manufacturing of Asian
orders done here
Infeeding to Asian JVsand technical support
too.
Asian JVs did finalassembly & testing
using materials from
Taiwan if low volume.
For higher volumes
level of local
production more.
Sourcing from local
suppliers quality
control essential
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Discomfort of employees with change
Functions in US reduced
Fear of losing control & jobs
Uneconomical to assemble Asian parts in US, so Lucent
concentrated on parts that were proprietary or costly to
obtain locally.
Higher mark-ups applied to such parts
JVs felt vulnerable to Lucents parts pricing & led to
animosity among partners.
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Scenario After 1996 Redesign
By 1998 all Asian orders processed in Taiwan.
82% by value sourced within Asia.
Changed to pull from push manufacturing.
Throughput time decreased form over 5 weeks to 1
week.
Margins improved by 10% 5ESS Switch had greatest
cost advantage.
By 2000, unprecedented growth in cellular & internet
sectors.
Component demand outstripped supply
Material shortages
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Sole sourced componentlead time more than
doubled
Inventories increased by25%, as assemblies could
not be completed
Commit to early parts
delivery to ensure
availability
Product shipments to
customers jeopardized,
inability to ship on time
Premium prices were
required in order toobtain expedited
shipments of missing
parts
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5ESS Switch efficient for voice networks. Current demand was for data networks
Product life cycle was shortening, andtelecommunication technology wasprogressing at an ever increasing rate
Contract manufacturers got involved intelecommunication electronics
5ESS switch reaching mature part of itsproduct life cycle
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Sales & Marketing
Direct customers to readily available
configurations.
By steering customers to configurations
with ample parts supply on-time
delivery rates will increase.
Continue to focus bidding on projects
where the switch has cost and feature
advantages over competing products.
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Forecasting
Forecast the quantity and features required on 5ESSswitch orders.
Also forecast the number of parts needed, thereby
reducing potential part shortages.
Forecast the need for data network products
For existing Customers
Offer reconfiguration service for 5ESS switches fromlandline voice networks to cellular voice networks.
Connect the switch to lines from new cell towers &
configure s/w for cellular use.
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Countering Parts Shortage
Pre-order all generic parts necessary for any 5ESS from
suppliers and joint ventures at the time of order.
Notify the suppliers about part quantity, design, and
deadline changes, fine tuning the actual number of and type
of parts needed.
Keep suppliers informed throughout design process, this
will enable them to forecast plan their production properly.
Synchronize order placement with supplier manufacturing
cycles.
Although communication about forecasts and needed parts
help reduce inventory and costs, aligning part orders with
manufacturing cycles can reduce inventory levels by 14%
and reduce out of stock parts to 2%.
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Track the supply chain
Track all materials in the supply chain and the supplierproduction capabilities.
This will reduce the lag time from waiting for the local
supplier to fulfill its orders.
The internet and internet technologies can be used asan inexpensive method to link in real-time suppliers,
pants, and joint ventures.
Change the interactions from a Lucent-supplier
partnership to a Lucent-vendor relationship, which willincrease the vendors commitment to success.
Create partnerships with second tier suppliers. This
will reduce the probability of material shortages.
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Manufacturing
Manufacturing in close proximity to customers costsaving.
Develop products using generic off-the-shelf
components while focusing resources on software.
Switch software can be easily implemented and upgraded,thereby generating revenue mainly by intellectual
property with little influence from material costs,
shortages, and hardware development.
Use factory expertise to reduce manufacturing lead-time,improve product quality, and reduce costs.
Send the largest orders to Oklahoma City, the most
complex to Taiwan, and the least profitable to Qingdao.
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Other Methods
Twice per year, hold a symposiumto discuss andtransmit information on how one factory is able to
specialize in one area.
Sharing knowledgewill help all factories improve
their production capabilities.
Build proprietary partsin wholly owned Lucent
facilities; assign the remaining production as close
to the consumer as possible.Distributed manufacturing assignments will
balance concentrated demand across a wider
supply source.
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