Luscent Technolgies

7/30/2019 Luscent Technolgies

1/20

Lucent TechnologiesGlobal Supply Chain

Management

Umashankar Joshi (131)

Pravesh Kumar (184)

Satyabrath Kaushik (193)


2/20

Company Background

AT&T corporation was formed in 1885.

On Sept 20th, 1995 AT & T split into 3 public

companies, one was Bell Labs.

Bell labs became Lucent Technologies and

went public on Apr 4th, 1996.


3/20

Growth of Lucent Technologies

After becoming independent in 1996, operated in

more than 90 countries.

Network Systems unit generated 57% of revenue.

Market leader in US for switching systems.

Flagship product was 5ESS Switch.


4/20

5ESS Switch

Large-scale, software based digital switchingplatform.

This switch was custom configured (unlimitedconfigurations possible).

Engineered-to-order product.

5ESS switchoffice

AdministrativeModule

CommunicationsModule

SwitchingModule


5/20

Case Facts

Market entry vehicle, not manufacturing strategy Joint ventures with Taiwan, Indonesia, China &

India

Infed materials marked up for cost recovery

Asian JointVentures

Multiple suppliers tremendous cost pressure Rapidly developing infrastructures tight

delivery schedules

Quick delivery became more important thanprice

CompetitiveIssues: Cost &delivery time

Deregulation of telecommunication market

Increasing capacity fast deployment becamehigh priority

Penalty clauses for late customer delivery = 30%of contract value

AdditionalFactors


6/20

Scenario Before 1996 Redesign

Asian customers away from order processing andmanufacturing activities.

Parts produced in Asia shipped to US long leadtimes & high costs.

Production for Asian customers done inOklahoma city.

Parts & subassemblies shipped tostaging center in California.

Final assembly & testing done byAsian joint ventures.


7/20

Supply Chain Redesign in 1996

Changed UScentric supply

model to hub &

spoke approach.

Taiwan : hub of Asiansupply chain.

Orders placed with Taiwan Custom engineering &

manufacturing of Asian ordersdone here

Infeeding to Asian JVs andtechnical support too.

Asian JVs did finalassembly & testingusing materials fromTaiwan if low volume.

For higher volumeslevel of localproduction more.

Sourcing from localsuppliers qualitycontrol essential


8/20

Issues in 1996 Redesign

Discomfort of employees with change

Functions in US reduced

Fear of losing control & jobs

Uneconomical to assemble Asian parts in US, so Lucentconcentrated on parts that were proprietary or costly toobtain locally.

Higher mark-ups applied to such parts

JVs felt vulnerable to Lucents parts pricing & led to

animosity among partners.


9/20

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 hadgreatest cost advantage.

By 2000, unprecedented growth in cellular & internetsectors.

Component demand outstripped supply

Material shortages


10/20

5 Problem Areas

Sole sourced component leadtime more than doubled

Inventories increased by 25%,as assemblies could not be

completed

Commit to early parts deliveryto ensure availability

Product shipments tocustomers jeopardized, inability

to ship on time

Premium prices were requiredin order to obtain expeditedshipments of missing parts


11/20

Other Factors

5ESS Switch efficient for voice networks.

Current demand was for data networks

Product life cycle was shortening, and

telecommunication technology wasprogressing at an ever increasing rate

Contract manufacturers got involved in

telecommunication electronics 5ESS switch reaching mature part of its

product life cycle


12/20

Questions

Was the hub and spoke process, despite its

success, the right model for this evolving

environment?

How could they take advantage of the maturingresources within and outside lucent?

What could Lucent do to mitigate exposure to

material shortages without increasing inventory? Was todays leading edge procurement effective

for future environments?


13/20

Questions... Contd.

Should they continue to drive internal

breakthrough improvements or should they

harvest their previous supply chain

investments and direct their attention towardsoutsourcing for their future needs?


14/20

Recommended Action

Sales & Marketing

Direct customers to readily available

configurations. By steering customers to configurations

with ample parts supply on-timedelivery rates will increase.

Continue to focus bidding on projectswhere the switch has cost and featureadvantages over competing products.


15/20

Forecasting

Forecast the quantity and features required on5ESS switch orders.

Also forecast the number of parts needed, therebyreducing potential part shortages.

Forecast the need for data network products.

For existing Customers

Offer reconfiguration service for 5ESS switchesfrom landline voice networks to cellular voicenetworks.

Connect the switch to lines from new cell towers &configure s/w for cellular use.


16/20

Countering Parts Shortage

Pre-order all generic parts necessary for any 5ESS fromsuppliers and joint ventures at the time of order.

Notify the suppliers about part quantity, design, anddeadline changes, fine tuning the actual number of and typeof parts needed.

Keep suppliers informed throughout design process, this willenable them to forecast plan their production properly.

Synchronize order placement with supplier manufacturingcycles.

Although communication about forecasts and needed partshelp reduce inventory and costs, aligning part orders withmanufacturing cycles can reduce inventory levels by 14%and reduce out of stock parts to 2%.


17/20

Track the supply chain

Track all materials in the supply chain and thesupplier production capabilities.

This will reduce the lag time from waiting for thelocal supplier to fulfill its orders.

The internet and internet technologies can be usedas an inexpensive method to link in real-timesuppliers, pants, and joint ventures.

Change the interactions from a Lucent-supplier

partnership to a Lucent-vendor relationship, whichwill increase the vendors commitment to success.

Create partnerships with second tier suppliers. Thiswill reduce the probability of material shortages.


18/20

Manufacturing

Manufacturing in close proximity to customers costsaving.

Develop products using generic off-the-shelfcomponents while focusing resources on software.

Switch software can be easily implemented andupgraded, thereby generating revenue mainly byintellectual property with little influence from materialcosts, 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 mostcomplex to Taiwan, and the least profitable to Qingdao.


19/20

Other Methods

Twice per year, hold a symposium to discussand transmit information on how one factory isable to specialize in one area.

Sharing knowledge will help all factoriesimprove their production capabilities.

Build proprietary parts in wholly owned Lucentfacilities; assign the remaining production as

close to the consumer as possible. Distributed manufacturing assignments will

balance concentrated demand across a widersupply source.


20/20

THANK YOU

Luscent Technolgies

Documents

Transcript of Luscent Technolgies