B6601

Lucent Technologies:
Global Supply Chain
Management
Executive Summary
KHINE ZAR THANT, G1001357H

NTU MBA Program

Nanyang Business School
B6601
 Executive Summary

A U.S based global switch manufacturer, Lucent Technologies is experiencing increasing

growth in Asian markets as well as developing infrastructures which demand fast delivery in firm’s
performance. With growing number of competitors in these markets with low cost structures,
speedy order delivery becomes a determining factor to win over the competing firms. Before Lucent
Technologies become an independent firm and separated from its mother company, Asia market is
not that essential for its business and also in its supply chain. But after becoming an independent
firm, things change with the changing nature of global environment, especially the Asia sector.

In order to adapt to the changes and move towards Asia-based supply chain management,
Lucent Technologies redesign its supply chain in 1996. Before the redesigning, most operations and
parts outsourcing are based in U.S. Customers’ orders are forwarded to U.S from Asia-based joint
ventures or directly. Then, some parts outsourced from Asia are shipped to U.S, assemble over
there and finished products are sent back to customers in Asia. This is very time consuming as well
as incorporates high costs due to ineffective system in sending the parts and assembled parts back
and forth from Asia to U.S. Thus, Lucent Technologies decided to move most of its manufacturing
operations to Asia by outsourcing supplies from Asia vendors. A joint venture in Taiwan has high
capability in operation facilities and in quality control. Thus, Taiwanese joint venture becomes a hub
for Lucent’s operations in Asia, taking care of outsourcing parts and assembling them and shipping
out to customers in Asia regions. By this means, Lucent achieve fast delivery in order fulfillment, cost
reductions result from low labor and manufacturing costs as well as smoother flow in supply chain.

Although issues on speedy delivery and cost reductions have been solved, Lucent is currently
facing new problems where it needs to be addressed carefully. Before availability of parts is not of
concern for Lucent, but with changing business environment and growing consumers demand due to
rapid growth of Internet sector, raw materials stock out becomes a huge issue in order to meet
timely delivery. Lucent’s Taiwanese joint venture has to keep expanding its capacity to meet the
increasing demand but its vendors fail to go along with the pace. Asia vendors are reluctant to invest
more in their manufacturing facilities and to expand the capacity. This results not only in stock out
problems of the components but also increased inventories of semi-assembled parts in Lucent. Thus,
high inventory holding costs and delayed order deliveries incurred due to longer lead times in the
supply chain.

Further more, there is a risk for Lucent that its customers will move away from them and
switch to its competitors who can provide them with timely delivery. To avoid that, Lucent has to get
its missing components from the vendors at a premium price which leads to high product cost. To
overcome these problems that Lucent is facing in managing its supply chain, Lucent has to adopt
information sharing and network-lization concepts by applying technology as a tool. With growing
importance of the role of technology in information sharing, traditional supplier relationship must be
upgraded to virtually integrated relationship. To shorten the lead times of the local vendors,
production planning and scheduling of Lucent must be shared with its vendors. To address the issue
of semi-assembled inventories piling up, Lucent can apply Just-In-Time assembly in its operation
process.

Another solution that Lucent can apply in managing its supply chain problems is to apply
postponement of assembling the parts to the last minute where all the parts will be in hand. So that
Lucent can cut down the inventory of products that cannot be completed. In addition, since Lucent is
already applying “pull” manufacturing process that they make products only when customers make
orders, Lucent must make sure all of its supply chain members are responsive enough in terms of
production capabilities to meet any uprising demand. One of Lucent’s competitive advantage over
its rivals is by juggling the idle production capacity of its manufacturing facilities and keeping it as a
buffer capacity to solve the unexpected demand. But, this will not work for every supplier of Lucent
because they will have mostly one manufacturing facility or probably outsourcing from others in
return. One possible solution for its vendors to keep up with Lucent’s uprising and unusual demand
is to keep idle capacity in its production as a buffer capacity.

Furthermore, to handle the problem of paying premium price to suppliers to get

components shipped on time, Lucent can engage in contract buying with suppliers to fix the price of
the component at certain level. Since Lucent is producing in large volume, it is more likely that its
suppliers will be in agreement with Lucent to practice contract purchases. By this, risk for suppliers
of products not being sold out after producing is also reduced by sharing it with Lucent. This creates
a win-win situation for both members in the supply chain. In summary, Lucent Technologies has
already achieved managing supply chain effectively by turning its focus towards Asia and thus, to be
adaptive to changes in the environment, infrastructure and nature of the products must be put into
consideration to maintain its success.