Lucent Technologies is a multinational telecommunication company which was spun off from AT&T in 1996. Before restructure, as an integrated telecommunications services and equipment company, AT&T had been primarily U. S. -centric market and more than half of income was generated by services in U. S. However, the restructure made Lucent focused on communications equipment globally. When Lucent expand into global market, its flagship product, the5ESS® digital switch, was a market leader in worldwide telecommunication infrastructure equipment.
While the 5ESS® digital switch provided the company’s more competitive edge in global market. This custom configured, engineered-to-order product made only a portion of its assemblies could be built to stock. Moreover, 5ESS® digital switch orders from Asian market had continued to grow rapidly, and Asia became an important part of Lucent’s business. U. S. -centric Supply Model Before Lucent’s independence from AT&T, it established some joint ventures in four Asian countries to meet the increasing telecommunication equipment demand in Asian market.
But this marketing entry mode just provided access to these markets. Most manufacturing continued to be done in Oklahoma City. The Asian joint ventures only performed final assembly and testing. It was believed that Lucent would benefit from the cost saving from economies of scale in manufacturing in US. However, as tremendous demand growth and intense competition arose from these countries, the delivery costs and lead time became two critical issues in this industry. The long distance inhibited the instant response.
Delay means market losing. What’s more, increasing local content by having locally purchased parts would lower the costs and made product more locally attractive. Asian-centric Supply Model After 1996, asset management, product lead time and supply chain efficiency became more and more important for this new independent manufacturing firm. The primary market shifted from U. S to Asian market required a redesign of the Asian supply chain. First of all, it took a “hub-and spoke” model. Taiwan was the hub of the Asian supply chain.
Custom engineering and manufacturing of Asian orders would be manufactured in Taiwan rather than Oklahoma City, and Asian orders were placed with Taiwan rather than U. S. Low volume assemblies remained in U. S. Secondly, different supply modes (inshore or outsource) were decided by different product volumes. And then it used local components (direct procurement) and local suppliers (local procurement). Last but not least, it insisted a strict quality control. Products manufactured by Asian joint ventures had the same quality standards.
There were also some barriers for the redesign of supply chain. For example, the new manufacturing center in Asian mean losing job in U. S. The transfer of production to joint venture may reduce Lucent’s profits. And also the sales organization worried about the sales decreased because of losing “Made in USA” label. All of these barriers were addressed when the benefits of redesigning outweighed the costs. The redesign decreased the lead time, and customer satisfactions had improved a lot. Meanwhile, Taiwan joint venture reengineered its factory to improve the productivity.
The increasing productivity and decreasing costs means the firm became more profitable. Also, support of Asian joint ventures helped Lucent win more business in Asia, and the huge capacity of Asian joint ventures can support Lucent’ global customer demand. So the all improvement by redesigning the supply chain made Lucent more competitive in global market. Summary and Recommendations Despite its success in the later 1990s, new challenges have arisen. How to response the changing demand in this complex business environment and how to expand its capacity in other emerging markets?
The internet and IT tools caused fundamental changes in business models and traditional customer-supplier relationships. Contract manufacturing company in Asian provides new opportunity for the firm to outsourcing its manufacturing and logistics responsibility. In my view, outsourcing its assembly and component is a better way for Lucent to cope with new challenge. Because 5ESS® digital switch was reaching its mature period in the product life cycle, and the intensive competition and changing environment forced telecommunication industry to devoted more time to new product research and marketing strategy.
In its initial stage, the core product is the key to success and the supply chain redesign facilitate its further success. But nowadays, the product life cycle is shortening and the industry is changing at ever-increasing rate. Lucent has to improve researching, marketing strategy and supply chain management at the same rate to cope with the changing market. In addition, Lucent can use merging and acquisition strategy to integrate available resources to expand its business. Questions for group As Lucent shift its main supply chain from U.
S to Asian market, how to compete with domestic rivalry Cisco? As more and more local telecommunication company grew up, how to cope with fierce industry competition with local firms, and some multinational telecommunication firms now target at Asian market, how to compete with them in global market? Should Lucent insist its in-source strategy or use outsourcing for the future supply chain management? Because its flagship products had reached its mature period, is it necessary for Lucent to build a main R&D center in the emerging market like Cisco did?