Professional Documents
Culture Documents
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.
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.
Administrative Module
Communications Module
Switching Module
This switch was custom configured (unlimited configurations possible). Engineered-to-order product.
Asian Joint Ventures Competitive Issues: Cost & delivery time Additional Factors
Market entry vehicle, not manufacturing strategy Joint ventures with Taiwan, Indonesia, China & India Infed materials marked up for cost recovery
Multiple suppliers tremendous cost pressure Rapidly developing infrastructures tight delivery schedules Quick delivery became more important than price
Deregulation of telecommunication market Increasing capacity fast deployment became high priority Penalty clauses for late customer delivery = 30% of contract value
Production for Asian customers done in Oklahoma city. Parts & su assem lies shi ed to staging center in alifornia. Final assem ly & testing done y Asian joint ventures.
`
Asian customers away from order processing and manufacturing activities. Parts produced in Asia shipped to US long lead times & high costs.
Customer
1.Order placed with JV 7.Product shipped 2.Order placed with AT&T
Joint Venture
6.Kits exported
Parts supplier, US
Orders placed with Taiwan Custom engineering & manufacturing of Asian orders done here Infeeding to Asian JVs and technical support too.
Asian JVs did final assembly & testing using materials from Taiwan if low volume. For higher volumes level of local production more. Sourcing from local suppliers quality control essential
Customer
1.Order placed with JV 6.Product shipped 2.Order placed with Taiwan
Joint Venture
4.Parts shipped
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.
Scenario After 1996 Redesign By 199 all Asian orders rocessed in ai an. 82% y al e so rced it in Asia. sh an fact ring. Changed to ll fro Thro ghput ti e decreased for o er ee s to 1 ee . SS S itch Margins i pro ed y 1 % had greatest cost ad antage. By 2000, unprecedented gro th in cellular internet sectors. Co ponent de and outstripped supply Material shortages
Premium prices were required in order to obtain expedited shipments of missing parts
` ` `
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 todays 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?
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.
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 leadtime, 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.