Lucent TechnologiesGlobal Supply Chain

Management

Bino JosephKishore Thomas John

Saranya MVygha N K

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.

Company Background

Growth of Lucent Technologies 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.

This switch was custom configured (unlimited configurations possible).

Engineered-to-order product.

5ESS® Switch

5ESS® switch office

Administrative Module

Communications Module

Switching Module

•Market entry vehicle, not manufacturing strategy•Joint ventures with Tiawan, Indonesia, China & India•Infed materials marked up for cost recovery

Asian Joint Ventures

•Multiple suppliers – tremendous cost pressure•Rapidly developing infrastructures tight delivery schedules•Quick delivery became more important than price

Competitive Issues: Cost & delivery time

•Deregulation of telecommunication market•Increasing capacity fast deployment became high priority•Penalty clauses for late customer delivery = 30% of contract value

Additional Factors

Case Facts

Scenario Before 1996 Redesign

Asian customers away from order processing and manufacturing activities.

Parts produced in Asia shipped to US long lead times & high costs.

Parts & subassemblies shipped to staging center in California.

Final assembly & testing done by Asian joint ventures.

Changed US centric supply model to “hub & spoke” approach.

Taiwan : hub of Asian supply chain.◦ 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.

Supply Chain Redesign in 1996

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.

Issues in 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

Scenario After 1996 Redesign

5ESS® Switch efficient for voice networks. Current demand was for data networks

Contd…