Group 10 Yogesh Bagle Yogesh Kumar Harish Thakur Vikram Virkar Sachin Kumar

AT & T corporation 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.

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 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.
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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

Staging Center, California

5.Subassemblies shipped

Order processing, New Jersey

3.Manufacturing order placed with factory

6.Kits exported

Parts supplier, Asia 4.Parts shipped

US factory, Oklahoma City

4.Parts shipped

Parts supplier, US

Supply Chain Redesign in 1996

Taiwan : hub of Asian supply chain.

Changed US centric supply model to hub & spoke approach.

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

Taiwan Joint Venture

US Factory, Oklahoma City

3.Parts Order

5.Kits exported 4.Parts shipped 4.Parts shipped

4.Parts shipped

Parts supplier, Asia Parts supplier, US

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.

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

Sole sourced component lead time more than doubled

Premium prices were required in order to obtain expedited shipments of missing parts

Inventories increased by 25%, as assemblies could not be completed

Product shipments to customers jeopardized, inability to ship on time

Commit to early parts delivery to ensure availability

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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?

Sales & Marketing

ire t ust ers t rea ily a aila le nfigurati ns. By steering ust ers t nfigurati ns ith a ple parts supply n-ti e eli ery rates ill in rease. Continue to focus i ing on projects here the s itch has cost an feature a antages 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 and 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 and reduce out of stock parts

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, and joint ventures. Change the interactions from a Lucent-supplier partnership to a Lucent-vendor relationship, which will increase the vendors 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 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.