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April 3, 2000

Supply Chains Go Global
Tighter Supply Chain Helps Lucent Speed Deliveries

Illustration by Kitty Meeks ot only is the speed of business getting faster, the scope is getting wider. Customers want products delivered yesterday--and it doesn't matter where in the world those products are produced.

That's why manufacturers and suppliers are looking for innovative logistical systems. For instance, Lucent Technologies Microelectronics Group, a $3 billion unit of Lucent Technologies Inc., teamed with DHL Airways Inc. in Redwood City, Calif., to develop a supply system that can deliver silicon chips halfway around the world in a matter of days.

Lucent begins manufacturing the chips in plants in eastern Pennsylvania, Orlando, Fla., and Madrid, Spain. It then ships silicon wafers to assembly and test centers in Bangkok, Thailand; Singapore; and Pennsylvania, where the semiconductors are assembled and tested. From there, Lucent ships the integrated circuits to international customers such as telecom equipment maker L.M. Ericsson in Stockholm, Sweden.

The demand by Lucent customers--about half in North America, 30% in Europe, and 20% in the Far East--for just-in-time delivery of the chips has allowed the microelectronics group to abandon its warehousing facilities. Until recently, Lucent had used 51 distribution companies to transport its chips to customers around the world. Because Lucent had problems tracking packages from different suppliers, it now uses only one: DHL. Deliveries that once took seven days now take about two days.

Lucent's microelectronics group invested more than $100 million in an Oracle enterprise resource planning system, which gives employees a global view of its supply chain within three minutes of any transaction. Every time a product moves from one workstation to the next, it's logged into the system. Such up-to-the-minute details help Lucent identify when products will be able to be shipped.

Ericsson, for example, wants Lucent to deliver chips it uses to power its mobile telephones within 48 hours of an order. The clock starts ticking when Ericsson's electronic data interchange purchase order enters Lucent's Oracle system gateway. The system verifies customer data and checks to see if the product is available. If it is, the system triggers a module in the ERP system--Stockmaster from HK Systems Inc.--that instructs the factories in Bangkok, Singapore, or Pennsylvania to pick and pack the chips and hand them over to DHL.

Simultaneously, the system sends an EDI confirmation to Ericsson. The connection between Lucent and Ericsson is over a value-added network, but is expected to migrate to the Internet by next year. On average, DHL delivers the chip shipments to an Ericsson plant in Sweden about 56 hours after Lucent receives its order. To meet the 48-hour goal, says David Wilson, VP of operations at Lucent Technologies Microelectronics Group in Allentown, Pa., "we still need to trim a few hours off."

Why the rush? Companies often find that forecasts predicting when they will need a specific part are unreliable. Parts shipped too early sit in warehouses, adding cost to the final product and possibly losing value if they become obsolete.

The quick turnaround in product also eliminates the need for warehouses. "We can substitute information for inventory," Wilson says. That means Lucent offsets the higher transport costs by lowering warehousing expenses. A few years ago, Lucent's logistics costs--personnel, stocking, transportation, and warehousing--equaled 1.5% of revenue; today, those costs are less than 1%.

Illustration by Kitty Meeks

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