Case Analysis:

LUCENT
TECHNOLOGIE
S
GLOBAL SUPPLY CHAIN
MANAGEMENT

By
Gaurav Kore (14026)
Kritika Lodha (14032)
Prabhu Ganesh
(14043)
Soumen Pattnayak
(14062)

LUCENT TECHNOLOGIES - HISTORY

AT&T An integrated telecommunications services & equipment

company; Incorporated in 1885 as a subsidiary of American Bell

1995 AT&T restructured into 3 separate public companies
Bell labs became Lucent Technologies and went public on 4 th

April1996
Market leader in US for switching systems
Flagship product 5ESS Switch

ASIAN JOINT VENTURES

Early 1990s Tremendous Growth opportunities in Asia
Four Joint Ventures to cater to the rising Asian Demand.
Used as a market entry vehicle

SUPPLY CHAIN BEFORE 1996 REDESIGN

Production for Asian Markets Oklahoma

City
Parts & Subassemblies shipped to staging

center in california
Final assembly & testing done by Asian joint

ventures
Reverse Logistics ; Long lead times & high cost

THE 1996 SUPPLY CHAIN REDESIGN

US centric approach Hub & spoke

approach
Prioritization of the Asian supply chain
Taiwan (Asian Hub) - Order Placement ,

custom egineering & manufacturing of

Asian orders
Asian JVs Final Assembly & testing

Increased efficiency , parts procurement,

quality control

BARRIERS TO REDESIGN

Employees resistance towards change Reduced function & hence fear of losing

jobs
Lucent Product Management organization
Cost
Resistance from sales and support organizations in Asian countries

CURRENT SCENARIO : YEAR 2000

ISSUES FACED
5ESS has reached the maturity stage of the product life cycle
5Ess challenged by alternate technologies and products based on packet switching

technologies
Supply shortage has rapidly increased majorly due to:
Sole-sourced component lead times more than doubled
Inventories increased by about 25%, as assemblies could not be completed
Taiwan factory had to commit to early parts delivery to ensure availability
Product shipments to customers were jeopardized, and orders were at risk due to an

inability to ship on time

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

CASE QUESTION - 1

Outline the factors that explain why the original supply chain network strategy used by

Lucent in Asia was adequate prior to 1996.

SOLUTION
Economies of Scale

Cost Effective
Manufacturing
Oklahoma Vs Taiwan

Additional Local
Suppliers

Prior to 1996, the demand from the Asian market was less
and the huge manufacturing unit in Oklahoma was
sufficient
AT&T had huge cash flowing from phone bills
Cost of Manufacturing was high in JV manufacturing in
Taiwan compared to Oklohamas Manufacturing in the US
Manufacturing capability was low in Taiwan

The assembly and testing lines in Taiwan never went in

short of supply due to additional local suppliers

CASE QUESTION - 2

What were the factors that drove the necessary changes in Asia in 1996? What did you see

as the benefits from those changes

SOLUTION
Factors
Cost
High costs in the contracts
with multiple suppliers

Competition
Deregulation of the
telecommunication
market gave entry to
new competitors

Penalties for Delay

30% of the contract
value for delay in delivery

Delivery Time

Boom in the Taiwan

market led to multiple
orders
Delay in the delivery
and deployment meant
loss of customer

Scale of Opportunity

Asia Fastest growing region for 5ESS switch

Huge population with small base of installed
telephones (2 phones/ 100 in China

SOLUTION (CONTD..)
Benefits
Pull manufacturing, Redesign of inventory,

consignment and vendor managed inventory

arrangements, and outsourcing production
with low outputs made the factory 3 times
productive in 1998 compared to 1995.
Product manufacturing throughput time

decreased from 5weeks in 1995 to 1 week

in 1997 helped in improving delivery
performance 80% delivered on time in
Indonesia by Nov 1997
Profit Margins rose by 10%
Inventory days sales fell by more than half

Costs per termination were cut in half

Increase in responsiveness due to cut in

distance and time difference

Bullwhip Effect Information distortion

within the supply chain mitigated

Great cost advantage providing competitive

advantage against the competitors

100% market share in the Taiwan

telecommunications market
Taiwans output nearly tripled from 1997 to

2000

CASE QUESTION - 3

What internal and external factors had changed from 1996 to 2000, which necessitated a

revisit of the supply chain strategy for Lucent? What would you recommend Lucent to
respond to the new changes?

SOLUTION FACTORS LEADING TO REVISIT OF SUPPLY

CHAIN STRATEGY
Internal Factors

External Factors

25% increase in the inventory due to increase

in production

Demand Outpaces Supply tremendously

Sole sourced components lead time has

doubled

Competition from contract manufacturers

Short Product Life Cycle
5ESS product is in the maturity stage of the
product life cycle Pressure from emerging
innovations
China emerging as the low cost production

RECOMMENDATION
Make Investment in expanding the assets of Joint ventures

for more production

Reasons: Favourable market, highly profitable company
Make Supply chain more agile:

Lean based
Supply
Chain

Agile
Supply
chain

Cost Efficient

More
Responsive

HOW TO MAKE IT AGILE?

Market Senstive: Proper Forecasting
system:
To forecast the quantity and features required

on 5ESS
To forecast the number of parts needed
To forecast the need for data network products

(competitors products)
Network Based: Implementation of
Information sharing system
Notify the suppliers about part quantity, design

and deadline changes

Implement a ERP system for better

coordination

HOW TO MAKE IT AGILE?

Process Integration
Keep suppliers informed throughout the design

process
Collaborative planning for joint product

development
Virtual
Continue Make to Order (supplier and JV

manufacturers) for better management of

inventory

FINAL SUPPLY CHAIN

Information
Sharing
System

THANK YOU!
QUESTIONS?