lucent technologies scm

8/10/2019 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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