Lucent Technologies Case a6e5q

Case: Lucent Technologies: Global Supply Chain Management

Group – 8 Anupama Prakash – PGP17/009 Anuradha Dhote - PGP17/010 Aparna Goswami - PGP17/011 Monisha Mehrotra - PGP17/026 Sarika Chauhan - PGP17/044

Outline the factors that explain why the original supply chain network strategy used by Lucent in Asia was adequate prior to 1996 Prior to 1996: US centric Supply Chain Model Customer

1. Order placed with JV

2. Order placed with AT&T Order Processing New Jersey

t Venture Staging Center, California

6. Kits exported

Asi a Parts

4.Parts Shipped

5. Subassemblies Shipped US Factory, Oklahama City 4. Parts Shipped

US Parts Supplier

Factors Behind the original supply chain strategy Prior to 1996, Asian demand was driven mainly driven by governmentowned 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 t 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

Markets

Environment and Economy

• 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

• Increased strategic importance of Asian market • High economic growth, great need for telephone infrastructure

• 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 t 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

for Asian t ventures & customers improved Information distortion in supply chain mitigated Increased enthusiasm amongst sales team Improved competitiveness of Lucent’s 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

•Fundamental changes in business models and customer-supplier relationships due to internet and improving IT

Sole sourced component lead times more than doubled

prices for expedited shipments of missing parts

Products shipments to customers were jeopardized

Supply was Lucent’s biggest challenge

Inventories – 25% increase, assemblies could not be completed

Taiwan Factory – commit to early parts delivery to ensure availability

•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

Recommendations Countering parts shortage • 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 Track the supply chain • Track materials going through the supply chain • Leverage IT to link suppliers with Lucent JVs and manufacturing facilities • Create a level of second-tier suppliers are back-up in case of shortages For Existing scenario: short term • 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 Shifting focus to R&D: Long term • Forecast the need for data network products • Outsource the activities a.k.a. non-value added functions to focus more on R&D in telecom technologies • Share knowledge and hold discussion forums to focus on new technologies

Thank You