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Lucent Technologies: Global Supply Chain


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1885 1984 Late 1980’s 1995 1996

At&T It became AT&T splits in 8 AT&T divests Bell AT&T becomes AT&T wireless split
Lucent goes
after DOJ in 3 entities in
incorporated as partner of the system operating an integrated public in 1996
September, one of
subsidiary of Bell system for agreement in companies telco and Which is Bell
American Bell US antitrust case services and
company equipment

1996-97 Late 1998-2000

Lucent organized Lucent achieves SSG is part of Lucent’s

All Asian orders Taiwan JV
in 4 segment, 13% Revenue Network Systems operations
processed in Taiwan manufactures data
CAGR supported by
post Hub and Spoke access and wireless
Bell Lab
model products for other
Largest segment is Manufactures 5ESS
switch implementation business units
network Systems Becomes market
leader in Telco infra
Research capabilities in 82% parts by value
13 countries sourced from Taiwan
5ESS Switch office
• custom configured (unlimited
configurations possible).
• Engineered-to-order.
Administrative Module Switching Module Communications Module
• Large-scale, software based digital
switching platform.

Asian Joint ventures Cost and time issues

• Primary role was Market access, not building • Multiplicity of suppliers raised costs
manufacturing capability • Rapid infra building made on time delivery critical
• Happened in Taiwan, Indonesia, China & India • Taiwan stock market boom in 90’s raised demand for
• Oklahoma Infed materials to Asia for assembly and fast delivery of Switching systems
testing • Penalty for late delivery

Pre 1996 scenario

• Asian customers production in Oklahoma
• Parts & subassemblies shipped to staging center in California.
• Final assembly & testing done by Asian joint ventures.
• Asian customers away from order processing and manufacturing activities.
• Parts produced in Asia shipped to US- long lead times & high costs.
• Asian JVs did final assembly & testing using
materials from Taiwan for low volume orders
• For higher volumes level of local production more.
• Sourcing from local suppliers – quality control

Supply chain redesign in 1996 Barriers to redesign

• Changed US centric supply model to “hub & spoke” • US Employees afraid of losing jobs and degree of
• All Asian orders processed in Taiwan post Hub and control
Spoke model implementation • Lucent Product Management believed transfer of
• 82% parts by value sourced from Taiwan production to JV’s would lower company profits
• Taiwan JV manufactures data access and wireless which would have to be compensated for with
products for other business units higher volume
• Asset management, product lead time and supply
chain efficiency took on new importance
Effect of 1996 Redesign The Situation in 2000
• By late 1998 all Asian orders were processed in • In 2000, Lucent faced imbalance in supply like
Taiwan many other electronics manufacturers
• Supply of parts for Asian Joint Venture came • Biggest challenge: Supply issue
from Taiwan • Shortening of product life cycles
• All direct shipments to customers were made • 5ESS switch reaching mature part of product life
from Taiwan cycle
• 82% of parts were being sourced within Asia • 5 key areas of concern:
• Lucent switched from Push to Pull  Sole sourced component lead times more
manufacturing, shop floor was reorganized for than doubled
better material flow  25% increase in the inventory as assemblies
• Factory was almost three times as productive in could not be completed
1998 as compared to 1995  Commitment of early parts delivery to ensure
• Product Manufacturing throughput time reduced availability
from over 5 weeks(1995) to 1 week(1997)  Product shipments to customers were in
• 10% increase in the margin danger and others were also at risk due to
• 5ESS Switch had greatest cost advantage inability to ship on time
compared with competitors’ products  Premium prices required to obtain expedited
• Shipments doubled in Indonesia in 1997 shipments of missing parts
• 100% Taiwan telecommunications switch market
captured by Lucent