Bino Joseph

Kishore Thomas John

Saranya M
Vygha N K
 Bell labs
became Lucent
Technologies
On Sept
and went
20th, 1995 AT &
public on Apr
T split into 3
4th, 1996.
public
AT & T companies, one
corporation in was Bell Labs
1885
 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.

 Large-scale, software based digital switching
platform.
5ESS® switch
office

Administrative Communications Switching

Module Module Module

 This switch was custom configured (unlimited

configurations possible).
 Engineered-to-order product.
 Asian Joint •Market entry vehicle, not manufacturing strategy
•Joint ventures with Taiwan, Indonesia, China & India
Ventures •Infed materials marked up for cost recovery

Competitive •Multiple suppliers – tremendous cost pressure

•Rapidly developing infrastructures  tight delivery
Issues: Cost & schedules

delivery time •Quick delivery became more important than price

•Deregulation of telecommunication market

Additional •Increasing capacity  fast deployment became high
priority
Factors •Penalty clauses for late customer delivery = 30% of
contract value
 Production for Asian customers done in
Oklahoma city.

Parts & subassemblies shipped to

staging center in California.

Final assembly & testing done by Asian

joint ventures.

 Asian customers away from order processing

and manufacturing activities.
 Parts produced in Asia shipped to US  long
lead times & high costs.
Supply Chain Redesign in 1996
Taiwan : hub of Asian
supply chain.
• Asian JVs did final
• Orders placed with assembly & testing
Changed US centric Taiwan using materials from
• Custom engineering & Taiwan if low volume.
supply model to
manufacturing of Asian
• For higher volumes
“hub & spoke” orders done here
level of local
approach. • Infeeding to Asian JVs
production more.
and technical support
too. • Sourcing from local
suppliers – quality
control essential
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 Lucent’s parts pricing & led to

animosity among partners.
 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
 Sole sourced component
lead time more than
doubled

Premium prices were

required in order to Inventories increased by
obtain expedited 25%, as assemblies could
shipments of missing not be completed
parts

Product shipments to Commit to early parts

customers jeopardized, delivery to ensure
inability to ship on time availability
 5ESS® Switch efficient for voice networks.
 Current demand was for data networks
 Product life cycle was shortening, and
telecommunication technology was
progressing at an ever increasing rate
 Contract manufacturers got involved in
telecommunication electronics
 5ESS® switch reaching mature part of its
product life cycle
 Was the hub and spoke process, despite its
success, the right model for this evolving
environment?
 How could they take advantage of the
maturing resources within and outside
lucent?
 What could Lucent do to mitigate exposure to
material shortages without increasing
inventory?
 Was today’s leading edge procurement
effective for future environments?
 Should they continue to drive internal
breakthrough improvements or should they
harvest their previous supply chain
investments and direct their attention
towards outsourcing for their future needs?
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.
Forecasting
• Forecast the quantity and features required on 5ESS®
switch 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 from
landline voice networks to cellular voice networks.
• Connect the switch to lines from new cell towers &
configure s/w for cellular use.
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%.
Track the supply chain
• Track all materials in the supply chain and the supplier
production 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 as
an 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 will
increase the vendor’s commitment to success.
• Create partnerships with second tier suppliers. This
will reduce the probability of material shortages.
Manufacturing
• Manufacturing in close proximity to customers  cost
saving.
• 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.
Other Methods
• Twice per year, hold a symposium to discuss and
transmit information on how one factory is able to
specialize in one area.
• Sharing knowledge will help all factories improve
their production capabilities.
• Build proprietary parts in 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.