Drivers of supply chain collaboration in hypercompetitive markets



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DRIVERS OF SUPPLY CHAIN COLLABORATION IN HYPERCOMPETITIVE MARKETS
Norma J Harrison

Macquarie Graduate School of Management, NSW 2006, Australia

Norma.Harrison@mgsm.edu.au

Abstract

Collaboration in supply chains is becoming inevitable in hypercompetitive and innovative markets such as the information communications and technology (ICT) industry. These companies are aware of the increasing pressure to move away from cost reduction as the primary driver of collaborative undertakings to strategic alliance across the supply chain to ensure quality services and customization which offer profit-making opportunities. To be able to survive, these organizations are transforming from self-focused organizations to becoming true collaborators. This is allowing organizations to specialize in their core capabilities, while collaborating with other organizations (outsourcing) to carry out their supporting activities.


In this paper, the strategic supply chain implementation of the two most recognized ICT companies, Lucent Technology and Cisco Systems, are compared, with special mention of their supply chain collaboration (SCC) approaches in the Asia Pacific region. For both companies, their supply chain strategy for the Asia Pacific is part of their global realisation. The report will examine the collaboration efforts of these two companies historically before the technology crush in 1999/00 and their current SCC approaches.

Introduction

As in any industry, the advancement in technology and improvement of communication poses increasing challenges to industry, in particular, the Information and Communication Technology (ICT) sector. The challenges that arise more so in the ICT industry include the following:



  • Time-to-market pressures,


  • Accelerated cycle of component and introductions and obsolescence,

  • Fluctuation of market demand, and

  • Competition within the industry, between large corporations and contract manufactures (e.g., the low cost manufacturers from Southeast Asia).

AMR Research, an independent technology and software research consultant based in Boston quoted that average electronics original equipment manufacturer (OEM) introduces more than 1,000 new products annually with an average life span of only 18 months. As a result, design engineers and procurement managers can never be sure whether their bills of materials will be viable by the time they hit the factory floor.1


Timely and accurately communicating market and manufacturing information between all parties within the supply chain is essential in the ICT industry, and this is a powerful protection against the pressures of today’s high-tech market. The right information at the right time is what allows agile, strategic decision-making and management control of processes and supply chains.2
Even when companies have efficient and accurate information, a physically long and complex supply chain will waste resources as well as delay reaction to the market. Companies are therefore focusing on four major areas to improve their supply chain:


  1. Develop efficient information flow from end to end of the supply chain (SC)

  2. Shorten the length and simplify the process within the SC

  3. Focus on high quality and low cost resources regionally while applying global SC strategies

  4. Create alliances with major suppliers/customers and reduce the potential risk of competition.


Overview: Supply Chain Management & Supply Chain Collaboration

Supply Chain Management

According to the Supply Chain Council, USA, supply chain management (SCM) is “a network of connecting and interdependent organizations mutually and cooperatively working together to control, manage and improve the flow of materials and information from suppliers to end customers”.3 Therefore, internally, SCM involves the management of material flows through purchasing, receiving and warehousing to manufacturing, marketing and distribution to ensure coordinated flows of materials and information within the organization. It also involves the management of external parties such as suppliers, customers, logistics partners and other related parties to ensure increase in efficiency and effectiveness.


Supply Chain Collaboration

The term SCC refers to the committed partnership between organizations in the sale, production and delivery of products or services. This displays characteristics such as mutual benefits, rewards and risk through sharing of information and common understanding of issues as well as contributing towards an efficient and effective supply network.


SCC is more often required now due to:


  • Changes in organization strategy from mass production to a more customer satisfaction focus. Therefore the collaboration effort enables an integrated SCM to meet the customer needs;

  • The advancement and increasing affordability of information technology, allowing organizations to devise more sophisticated supply chain systems in order to deliver better products and services to their customers.



Where can we collaborate in supply chain?

Collaboration could be done internally or externally and through vertical collaboration or horizontal collaboration (Barratt, 2004). Internal collaboration emphasizes the collaborative effort among different functional areas within the organization. External vertical collaboration includes the joint effort with customers (downstream) and suppliers (upstream). Through horizontal collaboration, an organization can enter into an arrangement with either competitors or other organizations, e.g., in sharing logistic arrangements, production effort or industrial lobbying.

Internal collaboration needs to develop a closer relationship within operational levels such as collaboration between different functional area through a closer information exchange, and integrating supply chain functions such as purchasing, marketing, research and development, production and logistics. It also needs a collaborative effort to implement tactical and strategic plans across the organisation supply chain in order to ensure maximum benefits to the organization. Externally, an emphasis should be placed on selected strategic partners (both customers and suppliers) to ensure an effective collaboration.


Understanding the elements of collaboration

According to Barratt (2004), the elements needed to implement a successful SCC include a collaborative culture, trust, mutuality, effective information exchange within the supply chain, communication and understanding, and openness and honesty. To adapt to a collaborative culture, an organization must be able to manage change, have cross functional activities and joint decision making across functional areas, and be able to align processes to ensure improved business processes to meet the demands of collaborative initiatives.


Figure 1 illustrates the key elements required to maintain sustainable SCC, i.e.,


  1. Resources and commitment - parties in the supply chain must commit sufficient resources and effort to implement collaborative effort;

  2. Intra-organizational support;

  3. Corporate focus - long term focus is required to ensure a successful collaborative effort;

  4. Demonstrate a business case to implement SCC;

  5. Role of technology - technology is the major enabler of SCC especially in information flows, however, it is not the critical factor to ensure a successful SCC.




Figure 1: Elements of Supply Chain Collaboration 4

SCC of Cisco Systems Inc. and Lucent Technologies

The strategic supply chain implementation of the two most recognized ICT companies, Lucent Technologies and Cisco Systems, can now be compared, in particular, their SCC approaches in the Asia Pacific region.

Cisco System Inc. is a worldwide leader as a networking equipment provider. The company started in 1984 by a small group of computer scientists from Stanford University. Over the past 20 years, Cisco has added switches and hubs, gateways and firewalls, telephones and wireless cards into its product scope.5 Cisco’s products have been widely used by business, education, government and households. Cisco has pioneered the use of the Internet in its own business practice and offers consulting services based on its own experience to help other organizations around the world.6

Lucent Technologies has a much longer history; it went back to the 1875 invention of the telephone by Alexander Graham Bell. In 1885 AT&T was incorporated as a subsidiary of Bell’s original company. AT&T was the biggest telecommunication company recording the highest annual revenue in the world at one time. On September 1995, AT&T started its restructuring into three separate companies, one of which became Lucent.7 8 Lucent was market leader for switching systems and worldwide telecommunications infrastructure equipment. It became famous for its “hub-and spoke” supply chain model after the company expanded its Taiwan operations.

Lucent and Cisco’s Supply Chain Evolution History

The following section will examine Lucent’s and Cisco’s approaches in forming their SCC and the difficulty they experienced.


Lucent Technologies

For our business, traditional manufacturing is not strategic, but world-class supply and demand chain management and product reliability, are.’

-George Foo, International Manufacturing Vice president, Lucent Technologies, 1999
By 2000, Lucent has four joint ventures in Asia, viz., Taiwan, Indonesia, China and India.
Lucent’s Supply Chain before 1996:

Before 1996, Lucent’s Asia business operation was final product assembly and sales. Parts suppliers around the world shipped components to its US factory in Oklahoma City, where the majority of assembly took place. The Asia factory performed only the final assembly. The whole process was highly centralised. The orders from Asia were first placed at the Asia offices and communicated to AT&T office in New Jersey. The semi-finished goods were shipped to Asia, which were then delivered to the customer. 1


Figure 2: Asia Supply Chain, 19952

In this case, information originated from Asia and processed in US, parts were shipped from Asia to US, but finished goods shipped back to Asia. Resources were wasted in the two cycles between Asia and US. The delay on delivery and misunderstanding in communications lead to a large amount of working capital held up in the supply chain pipeline. Management recognised this problem and redesigned their supply chain in 1996.


Lucent Supply Chain After 1996:
The 1996 supply chain model was called the ‘hub-and-spoke’ approach. As Taiwan had advanced infrastructure, technologies and skilled labour, it was selected as the hub of the Asian supply chain. The basic concept of the new supply chain was that the parts from Asia were shipped to Taiwan joint venture. Orders were placed directly with the Taiwan joint venture.3
The short-term improvement was significant when the hub-and-spoke model was implemented in late 1998. By 1999, 82 percent of the parts, by value, were being sourced within Asia and had achieved 80 percent on time delivery by the end of the year.

Figure 3: Asia Supply Chain, 1996 Redesigns4

This model took into account the increasing competitive advantage of cheap resources in Asia as well as the demand boom in this area. Major players focused on dealing with material shortage, cutting cost, expanding manufacturing while achieving on-time delivery, and customer satisfaction. This increased Asia operation and geographical relocation of Lucent’s supply chain created short-term benefits.

Challenges from the year 2000 market crash:
While Lucent was celebrating its achievements on increased revenue, capital investment, employee increases and overall company value, demand began to diminish at the same time when many contract manufacturing companies also became networking equipment vendors. The long and sophisticated supply chain decreased Lucent’s ability to reduce its cost and quickly respond to market changes. Lucent’s supply chain was not adaptive and its reaction to meet market demand was costly.
Lucent’s redesign of its supply chain on geographical bases proved to be insufficient to address its operational problems. In contrast with its growing revenue, Lucent had a negative cash flow of $2.2 billion in year 2001.

Lucent’s collaboration with the customers was insufficient to provide the information to make accurate forecasts or to detect market changes. Market pressures forced Lucent to consider outsourcing its manufacturing worldwide. Also, to avoid competition from its partners, Lucent needed to enhance its upstream collaboration.


Cisco Systems

Even though our analyses focuses on Asia Pacific operation, most of Cisco’s products apply across its global operation.


During 1995-96 while Lucent was struggling with its geographical supply chain redesign, to respond to the same market pressure, Cisco developed its Internet Business Solution model.5 This model focused on communications and collaboration, and characteristics included the following:


  • Extended ERP systems to suppliers

  • Automated routing data transfer through electronic data interchange (EDI)

  • Eliminated need for purchase orders and invoices

  • Developed partnership with suppliers and created test cells on supplier line
  • Test procedures automatically downloaded on order configuration


  • Suppliers test using Cisco methodology

  • Automated data gathering

  • Engineers’ aggregate design information at the touch of a button

  • All companies in supply chain work off same demand forecast reducing inventory costs

  • Suppliers ship directly to customer and do not require Cisco interface

Similarly to Lucent’s example, Cisco’s model obtained good results in the short term. It achieved 50 percent of units directly shipped to the customer; new product introduction time to volume accelerated by a quarter; lead times reduced from 6-8 weeks to 1-2 weeks; engineering change notice time down from 25 days to 10 days; and annual operating costs reduced by $75 million.6


Cisco experienced rapid growth in a relatively short time, and to manage its vast product marketing and distribution, it developed its Strategic Alliance program, where Cisco would work with industry leaders to drive technology growth, and to deliver value to Cisco via incremental revenue, over time allowing Cisco to strengthen its position as a market leader. To create this kind of value chain required many resources to build and maintain long-term relationships, thus a separate organization was developed to foster and monitor the growth of these relationships within Cisco.

Cisco launched various online tools with different designs and functionalities during this period, aimed for catering to the needs of various partners and suppliers. In addition, Cisco planned to integrate these tools with its internal IT systems, thus allowing greater visibility and transparency of information to flow through the supply chain. Cisco Connection Online (CCO) provides its suppliers and contract manufacturers with a central focal point, a one-stop-shop for customer demand information and removing the redundancy of overlapped responsibilities. Also Cisco started building management teams to specifically address the needs and monitor the performance of its suppliers and partners, providing constant feedback to its supply chain, and revaluating the alliance against constant changing market conditions.

The IT solution system was efficient. It covered most functional areas within the company from purchasing to customer care, and extended to suppliers. It has also included other functional departments such as Finance, HR and Marketing. However, it had its inadequacy.
In the year 2000, Cisco took a $2.2 billion inventory write down with a realized gain of only $187 million. The problem was not with Cisco’s supply chain mechanism but with the forecasts and orders it was getting from start-up telecom companies and Internet businesses. Many of those companies went out of business, leaving the market flooded with almost-new Cisco routers and other networking equipment.7 Cisco was unable to make an accurate forecast in the weakening economy. Without sufficient information from first and second tier customers, Cisco could not achieve an accurate forecast. Also analysts observed deficiency with Cisco’s supply chain when forecast market growth slowed, resulting with Cisco having its inventory built up from 54 days to 88 days over the years. Some other limitations were that actual customer usage and contracted service level were not considered; its inability to manually intervene the quantities of equipment to keep as spares; and there were ineffective diagnosis and expertise from its engineers. In addition, similar to Lucent, Cisco was facing the challenges from smaller rivals including Enterays, Extrem, and Foundry,8 whom were able to meet customer demands and expectations in shorter turn around time. Cisco was desperately looking for a solution.

To address some of the issues above, Cisco developed another online tool, called eHub, where it eliminated bidding wars of scarce resources from different factions of the supply chain. Furthermore, it provided a new mechanism for the firm to provide end-to-end supply chain visibility, foster collaborative planning, supply demand alignment, and encouraged inventory optimization.

Analysis of Lucent and Cisco’s Current SCM

Cisco and Lucent faced the same market challenges. Both of them realized the importance of downstream collaboration with the customer. However, two companies had very different approaches. Lucent decided to selective outsource its manufacturing while Cisco decided to retain its original model and then expand its capability to cover customers’ supply chains, increasing the visibility into the end market.


Lucent Technologies

So we have this belief that supply chain is actually a way of understanding the marketplace. It’s a way of understanding customer behaviour. It’s the way of understanding, given the changes that are taking place in the marketplace, what it will take for us to compete a year from now.’

  • Jose Mejia the president of the Supply Chain Networks group of Lucent, 2005

Learning from previous experience, Lucent realized that purely relying on geographical design of the supply chain could not meet the requirements of the fast changing market. Based on the strength in Asia that Lucent had already built up, Lucent changed its purchasing and supply chain strategies in 1999 and reformed its supply chain from vertical to virtual. Similar to Dell’s virtual supply chain model, Lucent developed its own partnership with EMS. Lucent set up 6 groups in the supply organization to handle various responsibilities as seen below1:




  • Product development and realization

  • Supplier component management

  • Virtual manufacturing

  • Customer facing

  • Electronics systems and strategies
  • Indirect service.

This reform enabled Lucent to focus on its key competency as a leader of communication technologies and shorten the reaction time to market changes. The reduction of cost over the last several years was significant.


Lucent focused on several issues, including the following:
The customer speaks:
Lucent intended to build up a long-term relationship with the customers and look into what the customer’s supply chain requires, providing end-to-end solutions.2 In order to ensure customer requirements (both routine needs – such as demand forecasting and demand planning - and unique needs such as packaging) are well defined and being met, Lucent developed the positions of customer general managers, who report to the SCN (Supply Chain Network). A large customer would get one dedicated team whereas smaller customers would share one team.
Leveraging the Buy and Attitude Building:
Lucent worked on reducing the number of supplies. Lucent reduced its supplier base from 3,266 in 2000 to around 900 in 2005. At the same time, Lucent built up a collaborative attitude. Lucent arranged supplier partnership workshops which focused on how Lucent was interacting with the suppliers. On time delivery reached 95 percent in 2002.3
Lucent chose suppliers with the best technologies, price and willingness to jointly develop new products and the delivery system. Companies included AVX Corp, FCI, JDS Uniphase, and Texas Instruments. In return Lucent gave them early access to advanced technologies.4 The company also set up the Golden Link Awards to honour top suppliers.5
The outsourcing journey:

Since 2003, Lucent decided manufacturing was not a core competency and decided to further outsource its manufacturing. It sold a number of facilities to contract manufacturers. Solectrom, Jabil and Celestica now manufacture about 80 percent of Lucent’s products. As a result, Lucent has moved $1.2 billion of fixed costs to variable cost, reduced its operation from 157,000 employees to 31,000 and reduced its inventory from 7 billions (2000) to 700 million (2005).6

Information Technology Utilized:
Lucent officially announced the company would apply global e-business process standards and included RosettaNet as a member. RosettaNet is an independent, self-funded, non-profit consortium dedicated to the development and deployment of standard electronic business interfaces to align the processes between supply chain partners on a global basis.7 Lucent implemented its Partner Interface Processes (PIPS) from that time.
In 2003, Lucent launched the One Manufacturing Execution Global Application (OMEGA) project. The project applied a software called Datasweep’s Advantage developed by Datasweep Inc. This software connected some of Lucent’s internal systems with EMS partners on a manufacturing level.8
Currently, the Lucent Supply Chain Portal is in use for its business unit and supply chain partners to access real-time information and gain global visibilities on the virtual supply chain.9
Culture and Value development:
Lucent’s Values were known as GROWS: G, Global growth; R, Result; O, Obsession with customers and competitors; W, Workforce that is open, supportive and diverse; and S, Speed to market.10 These values support the company’s internal and external collaborations. Lucent developed its vision to support the values.
Business Result:
Because of our crisis, we have moved faster than any other company…The supply chain needs to continuously adapt to its surroundings. Anyone who doesn’t see that will fail.’11

-Mejia, 2001

A virtual supply chain tends to result in cost cutting, less working capital and faster turnover, resulting in a quicker response to the market. With the efforts Lucent has put into its downstream collaborations, the company has managed its turnaround its overall performance. In year 2004 Lucent has achieved its first sales gain in five years.


Cisco Systems

Cisco did not make substantial change to its supply chain. It refined and extended the supply chain functions, and kept its leadership of virtual manufacturing. Its goal was to deliver a superior and consistent supply chain capability to maintain its strong and competitive edge in the market place, thus it revaluated its objectives to include the following:




  1. Customer Satisfaction

  2. Revenue Growth

  3. Profitability

  4. Productivity

  5. Linearity

  6. Continuity of Supply

Cisco implemented the following structure to define the linkages of its internal business units to the overall supply chain function:






Figure 4: Gaining Competitive Advantage: Cisco’s Collaborative Supply Chain, 2003
To deliver these outcomes, Cisco evaluated various delivery methods, included prescriptive outsourced manufacturing and collaborative approaches.
Cisco Global Manufacturing
Cisco’s manufacturing organisation had its ambition to be the industry leader in SCM using collaborative and integrated information systems, thus its emphasis was on the use of IT to streamline its output. Its goals was to improve the performance of the entire supply chain and contribute to the company’s savings, as well as to outperform its competitors in their deployment of supply chain solutions. The goals provided a focal point for its manufacturing team for areas of improvement, and the focus of performance was more directed to where it was needed. It also aimed to become the recognised partner for other business functions in Cisco to collaborate with.

Figure 5: CISCO Manufacturing Focus: Processes

The implementation of the above objectives was done in several ways, firstly to radically simplify and use pull manufacturing methods to reduce inventories. Secondly, by using processes and metrics to drive decisions, there was better collaboration within manufacturing and a reduction in costs. Cisco also sponsored corporate quality initiatives to raise the awareness of quality delivery throughout the organisation. Other external initiatives were to reduce the environmental impacts of the manufacturing processes.
Cisco Asia Pacific operation
Since the start of the company, Cisco had continuously expanded its operation throughout the globe. In 1994, Cisco first established operations centres in Sydney, Beijing, Hong Kong, Seoul and Singapore, where most of these centres were sales and support offices for Cisco customers in the region. From 1998 to 2000, Cisco established spares facilities and logistics centres in the region to shorten the turnaround time for customers who required assistance. In 2001, Cisco opened its manufacturing centre for the region in Penang, Malaysia. This facility is part of its regional operation based in Singapore. The manufacturing centre manages Cisco contracts, logistics, and relationships with its contract manufacturing partners in China, Malaysia, Singapore, Taiwan and Thailand.
Global equipment depots and Repair centre

With its customers spread throughout the world with different demand and expectations, Cisco has equipment depots and repair centres in each continent. The depots are located at San Jose, Texas, Canada, Mexico, Japan, Amsterdam and China, while repair centres are located in San Jose, Texas, Canada, Dublin, Japan, Asia Pacific and France. Each of these locations was strategically chosen to give the best coverage of delivery time to customers and to minimize the cost of warehousing and transportation.

Global and collaboration network:
Since 2001, Cisco established a central repository to streamline supply chain information. It was used by its partners, including Flextronics, Altera, Motorola, IBM and Arrow. It is called eHub, a facility to integrate suppliers, contract manufacturers and distributors into a single virtual enterprise. eHub focused on the flexibility and scalability of the supply chain. Its end-to-end visibility and transparency provides Cisco with a better view of the supply chain allowing the company to identify and plan for problems before they occur. eHub creates a more efficient system for securing supply availability and on-time shipments to customers, cut down the cost and inventory level while increasing supply chain productivity. Through this tool, it provides the central point for all supply chain information, such as sales forecast, existing demand, supply, and inventory level and other information.12
Emphasis on Advanced Warning:
eHub has the ability to alert Cisco and its supply chain partners of delivery date difference, sales order changes, late purchase orders, aggregate demand, allocated part detail, supply and demand mismatches and late trigger starts. This enables Cisco to make a well informed forecast.
Alliance Dashboard approach:

Cisco established another online tool to help manage its alliance with different organizations. It is called Alliance Dashboard, where Cisco suppliers and partners can share the expectations of the alliance, the goals and projected process. There are various levels of dashboard to allow tracking, compare and access the performance of the company’s alliance process with number of supply chain partners and strategic alliance. The type of partnership the firm has with Cisco determines the different levels of access to this web-based tool, and different types of partnership would allow Dashboard to provide different information to suppliers and partners. This allows greater discretion from Cisco to provide only the information needed by the suppliers.

Business result
Through the use of technology and innovation, Cisco was able to achieve the overall savings of $2.1mill in 2002 through its supply chain. This was achieved via better supplier sourcing, better managed price variance, inventory balancing and supply constraint resolution. However, due to its overall strategic implementation both within its organization and its supply chain, the productivity increases from 1998 to 2002 were actually $200mill.

Compare and Contrast Cisco & Lucent

The following table compared and contrasted the key collaboration elements using Barratt‘s model categories (2004):











Cisco System





Lucent Technology

Cultural

Collaborative Culture

Partner: Competency and expertise that are complementary to those of Cisco, collaboration on requirements

Accountable to customers and the communities where they live and work; communicate and share knowledge.

Mutual trust

Cisco partners and suppliers access to CCO for instantaneous company information

Conduct business with integrity; treat each other with respect


Mutuality (risks & benefits)

Cisco Strategic Alliance with critical partners to grow overall market for product and services

Lucent set up alliances with supplier; Golden Link Awards for successful partners

Information exchange

Creation and extended eHUB to allow end-to-end supply chain visibility

Communicate and share knowledge

Communications & understanding

Joint business planning with partners at regular intervals, establish formal alliance governance models

The role of customer GM and supplier relationship manager; supplier partnership workshops

Openness & honesty

Collaborative business planning

Workforce that is open, supportive and diverse











Cisco System





Lucent Technology

Key sustainability

Resources & commitment

Continuous improvement and expansion of IT systems to provide greater visibility


The investment in IT systems, delegation to customer/supplier managers and teams

Organizational support

Specific organization structure to manage Strategic Alliance, each alliance is given a charter to follow through

6 specialist SC groups to manage SC functions

Corporate focus

Become a leader in virtual SCM utilizing collaborative processes and integrated IT systems

Designated senior executive to manage SC functions, also designated team to manage SC initiatives

Strong business case

To achieve ROI of greater than 30% and best practice sharing, and regain customer confidence and reduce inventory level

To avoid past financial debacles resulted from SC failure

Internal factors

Change manager

Process delivery through phases, give adequate training to all employees and partners to work through the change

Designated team to implement new SC initiatives

Cross functionality

The management of Strategic Alliance has good representation in the organization

The function of Product development and realization groups overlook product life cycle

Process alignment

Different online tools with specific functionalities are deployed for different types of partners


Not available in this study

Joint decision making

Major business planning with strategic alliance partners involved

Suppliers’ workshop program

Approach

IT Platform /technology usage

Linearity: daily production rate, days sales outstanding, forecast to orders

Member of RosettaNet; OMEGA project; Supply Chain Portal

Outsourcing

Continuity of supply: supplier performance, shortages forecast

Strong emphasis on outsourcing

Customer/ market focus

Customer Satisfaction: On time shipments, shorten customer lead times

Designated Customer GM and customer relationship teams

Delivery method

e.g. advance warning

Lucent transformed to virtual manufacturing (Outsourced 80%)

Collaboration Network

Strong external collaboration supported by web-based system to facilitate collaborative efforts

Strong evidence of internal collaboration, less evidence of external collaboration except for emphasis on outsourcing.

Lucent and Cisco have chosen different approaches to achieve the supply chain collaboration. However there are some areas that both companies share the same focus.

Global sourcing and marketing vs. Asia based manufacturing:

The market forces both companies to deliver high quality, low cost and on time IT solutions to their customers, therefore requiring them to choose their suppliers with the same criteria. Today’s technology allows purchasing and manufacturing to be done globally and the companies’ supply chains have become global to meet such demands. There is no optimal geographical design of a supply chain.
However, for cost advantages, Asia Pacific remains the area attracting the world’s most capital investment in manufacturing. Improvements in the quality of production and labour education level are now attracting more global organizations which are moving their manufacturing to that area. Lucent kept a large part of its manufacturing capacity in Asia while outsourcing. Cisco also has targeted the Asian market and tries to increase its Asian operations, although its current profitability in this region is not strong. Both companies have the similar focus geographically.
Different ways of market focus:

Strategic re-design vs. system improvement

Effective globalization in supply chains requires more communication, data exchange and trust between partners. Although both Cisco and Lucent operates in similar market segments (both companies building and sell ing networking equipment), their approaches to SCM are very different. From the literature available, Cisco invested large resources on IT systems implementation, such that its online systems are now more integrated than its competitors. Cisco’s ehub covered most functional areas. The integrated business model and system built up collaboration culture and trust with partners, which benefit the system itself in collecting accurate information. Cisco’s reaction against year 2000 crisis appears to be a system improvement. It saw immediate saving and financial improvement, however, there were evidence that Cisco expects its supplier and partners to be as IT savvy as Cisco does, any companies that are not able to keep up with the system update would be left behind. Such constant systems update required the suppliers and partners to invest in IT system integrations and staff training, which can be costly. Also Cisco has the expectation of its customers would all be happy to go online for purchasing and accessing support, while this might be acceptable for some customers, others might find the service level below its expectation.

Lucent, on the other hand, has spent its effort on its organisation to understand its suppliers, partners, and customer better, building relationships that would prove fruitful over the many years to come. Although Lucent also had several improvements on the system, but as the benefit was covered by the restructuring and outsourcing. The system is more likely work as individual interfaces rather than an integrated system. Its IT infrastructure is not as mature as Cisco’s. However, Lucent has a better understanding of its customer’s requirement, thereby over the longer term it will be able to deliver better-tailored solution than Cisco. This approach also delivered a favourable result. Its virtual supply chain was the major driver of Lucent’s turn back to profit.
The effect of human elements and system integration:
As mentioned before, Cisco’s SCM has automated and integrated most of its IT systems, achieving transparency and visibility of data for the end-to-end supply chain. This greatly reduces the “middleman” that would otherwise have been required to handle the processes and information, eliminate delays and biases that can slow the supply chain efficiency. However, this can also be a disadvantage. As with most on-line portals, the interfaces available are fixed and only what was designed would be displayed. This reduces opportunities for Cisco to gain extra market intelligence from customers and partners if the web interfaces did not allow an additional information input channel. Further, many business leads come from informal discussions between sales representatives and customers. By being “out of the loop”, Cisco has to rely more on its partners to provide feedback into the systems. Cisco would therefore need to invest more in building and strengthening relationships within its supply chain.

Lucent has established a long term understanding with its suppliers, customers and other partners. This allows Lucent to track the market from the customers’ end. However, since staff-customers relationships are relied on in an account management system, Lucent is vulnerable if it experiences a high staff turnover. It therefore has to invest continuously in employee development and retain a certain level of staff to maintain these close relationships, thereby working off a higher cost structure. Lucent can improve data transparency and staff utilisation by better integrating its existing supply chain IT systems.



Conclusion

With the increase in competition and rapid advancement in technology, supply chain management has become an integrated component for an organization to gain a competitive edge over its competitors. In the height of the 2000 technology crash, even global market leaders such as Cisco Systems and Lucent Technologies are not immune from the consequences of huge financial losses due to lack of collaboration within its supply chain network. Both companies have learned from the 2000 disaster debacle and have since implemented a more comprehensive collaborative framework. The approach towards supply chain collaboration seems to be different for Lucent and Cisco, although both companies’ approaches appear to produce positive outcomes and benefits.

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3 www.supply-chain.org 23/5/2005

4 Barratt M (2004), “Understanding the meaning of collaboration in the supply chain”, Supply Chain Management: An International Journal, Volume 9 . Number 1, p 36

5 Annual Report, Cisco System Inc 2004

6 Source Cisco: Cisco Company Profile

7 Lucent Technologies: Global Supply Chain Management GS-01 Stanford University, 2001

8 http://www.lucent.com/corpinfo/history.html

1 & 13 Lucent Technologies: Global Supply Chain Management GS-01 Stanford University, 2001

2


3 & 15 Op cit

4

5 Gaining Competitive Advantage Through Internet Business Solutions, Cisco System 1999 presentation.


6 Op cit.

7 & 19 Ojo, Bolaji (2001), Getting its house in order after gross miscalculation, CMP Media LLC

8


1 Lucent Supply Strategies Evolve, Jim Carbone, Purchasing, 33004448, 12/22/2000 Vol 129 Issue 11

2,22 & 25 1. Carbone, J (2002)Lucent’s supply chain focus fattens margins, Purchasing, Sept;

2. Bernstein, Mark (2005) Lucent Counts on Re-Designed Supply Chain to Drive its Turnaround



3


423 Mawhorr, S A (2001), Lucent forms alliancds to boost supply chain, Daily Business, 19 Dec

524 Source Lucent: www.Lucent.com

626 Lucent Technologies supports implementation of industry standards for electronic supply chain transactions, M2 Presswire, 11 Oct 2000

7


8 Baljko Jennifer (2003), Lucent using more software tools to get kinks our of supply chain, ,CMP Media

9 Source Lucent: www.Lucent.com

10 http://www.innoversity.org/lucent_technologies.asp; Innovation at Lucent Technology, by Carol M. Stephson

11 Ojo, Bolaji (2001), Change Sweeps Lucent’s Procurement Operations—New Division Granted Broad Oversight of Supply Chain,

12 Cisco Extends Virtual Manufacturing Process With New Supply Chain Infrastructure: eHub, Feb 2001






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