Outline the factors that explain why the original supply chain network strategy used by Lucent in Asia was adequate prior to 1996
US Factory, Oklahama City Staging Center, California Joint Venture Order Processing New Jersey Customer Asi a US Parts Supplier Parts Supplier 4.Parts Shipped 4. Parts Shipped 5. Sub- assemblies Shipped 1. Order placed with JV 2. Order placed with AT&T 6. Kits exported Prior to 1996: US centric Supply Chain Model Factors Behind the original supply chain strategy Prior to 1996, Asian demand was driven mainly driven by government- owned telephone operating companies Rate of capacity addition was low due to regulated telecommunication market and hence low bargaining power of buyers There was no pressure for lower cost, fast delivery and quick response Since Lucent was producing in high volume at Oklahoma city, it was able to realize low production cost due to economies of scale Joint Ventures were lacking in manufacturing capabilities What were the factors that drove the necessary changes in Asia in 1996? What did you see as the benefit of those changes?
Organizational Lucent became independent and lost deep pockets of AT&T. It was no longer insulated from consequences of inefficient asset management and long delivery times Long lead times, high cost associated with maintenance of part pipeline existing between Asia & United States Markets Increased strategic importance of Asian market High economic growth, great need for telephone infrastructure Environment and Economy Structural changes needed to succeed in Asian environment Significant price erosion for equipment, parts sourcing & manufacturing capabilities What were the factors that drove the necessary changes in Asia in 1996? What did you see as the benefit of those changes?
US centric SCM model changed to Hub and Spoke approach Taiwan became hub of Asian supply chain All Asian orders processed in Taiwan Supply of Asian joint ventures came from Taiwan Lucent switched from push to pull manufacturing, reorganized shop floor, attacked bottlenecks Outsourced production processes company did not do well Served as contract manufacturer for companies in processes they did well What were the factors that drove the necessary changes in Asia in 1996? What did you see as the benefit of those changes?
Product manufacturing time decreased from over five weeks by 1997 Orders were delivered on time Improvements in profitability and asset management measures Support for Asian joint ventures & customers improved Information distortion in supply chain mitigated Increased enthusiasm amongst sales team Improved competitiveness of Lucents Asian operations Captured complete Switch market in Taiwan What internal and external factors had changed from 1996 to 2000, which necessitated the revisit to the supply chain strategy for Lucent? What would you recommend Lucent to respond to the new challenges?
FIVE PROBLEM AREAS Sole sourced component lead times more than doubled Inventories 25% increase, assemblies could not be completed Taiwan Factory commit to early parts delivery to ensure availability Products shipments to customers were jeopardized Premium prices for expedited shipments of missing parts Supply was Lucents biggest challenge Fundamental changes in business models and customer-supplier relationships due to internet and improving IT
Shortening product cycles
Telecom industry progressing at an ever increasing rate placing higher value on growth and ability to respond to opportunities
Contract manufacturers became a major force - Lucent was questioning whether invest in its own manufacturing assets or depend on supplier Recommendations Use forecasting to get an estimate on the number of parts Keep supplier informed about deadline changes, design, fluctuations and synchronize order placement Pre-order generic parts Countering parts shortage Track materials going through the supply chain Leverage upcoming IT to link suppliers with Lucent JVs and manufacturing facilities Create a level of second-tier suppliers are back-up in case of shortages Track the supply chain Continue to focus on projects where switch has feature/cost advantage over competing products Use manufacturing expertise to reduce lead time, costs and improve quality For Existing scenario: short term Forecast the need for upcoming data network products Outsource the support activities a.k.a. non-value added functions to focus more on R&D in upcoming telecom technologies Share knowledge and hold discussion forums to focus on new technologies Shifting focus to R&D: Long term Thank You