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9/8/2006
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Rick Whiting
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Sun Takes Built-To-Order To The Next Level

Under One Touch effort, Sun products ship to customers directly from contract manufacturers, cutting logistics costs by 20%.

As Sun Microsystems ramps up the number of low-priced x86 servers it sells, it finds itself increasingly competing against Dell and its vaunted product assembly and shipping operations. Executives like Eugene McCabe, Sun's executive VP of worldwide operations, knew that Sun's practice of taking unfinished products from contract manufacturers, storing them in warehouses, and configuring them in its own facilities before shipping them to customers just wouldn't cut it. "We knew we had to make some changes," McCabe says.

Supply Chain Innovation -- Illustration by Carl Weins

Illustration by Carl Weins
Under Sun's One Touch Supply Chain effort, launched in early 2004, products are sent directly from contract manufacturers to customers, cutting in half the amount of time between when a customer orders a Sun computer and when he or she receives it. Initially, the effort covered products in the $2,000-to-$4,000 range, but today systems with price tags of up to $200,000 are shipping directly to customers. The initiative has reduced Sun's logistics expenses by more than $20 million, or 20%--no small amount for a company that's been struggling to cut costs and right itself financially.

"We live and die by the supply chain and the demand cycle," says Robert Worrall, a 16-year Sun veteran who took over the CIO post last month. He estimates that a fifth of the company's IT staff is in some way devoted to demand planning and supply chain systems.

Speed And Simplicity

The One Touch program is part of a larger effort at Sun, the No. 6 company on the InformationWeek 500 list , to overhaul its IT systems. Until a few years ago, the company ran multiple instances of its operational applications around the world. Today it operates a single global instance of its ERP applications from Oracle, supply chain management software from Manugistics, and demand planning applications from i2 Technologies. That, Worrall says, has simplified Sun's IT architecture on the back end, giving the company the flexibility to undertake efforts like One Touch. "Speed and simplicity," the CIO says, citing the project's goals. "You have to have something that separates you from the competition."

One Touch was conceived by Hugh Aitken, Sun's VP of worldwide customer fulfillment, as part of the vendor's ongoing cost-control efforts. Sun hasn't earned an annual profit since fiscal 2001, and it recently reported a loss of $864 million for fiscal 2006, ended June 30.

Under Sun's old way of manufacturing products and shipping them to customers, the company received purchase orders and forwarded them to one of five contract manufacturers, including Celestica, Flextronics, and Solectron, which have manufacturing plants in Asia and final assembly facilities around the world. Sun then took possession of the products and either stored them in a warehouse or configured them for shipment to customers. "What we wanted to do is take that step out of the supply chain," McCabe says.

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These days, Sun's order-processing system determines which contractor can best fulfill a purchase order and forwards the order information to that company. Contract manufacturers have access to Sun's order-processing systems through a portal and function as if they were a Sun operation, McCabe says. Contractors assemble systems, then configure and test them in regional facilities to match customer requirements. Through their link to Sun's IT system, contract manufacturers generate customer invoices and shipping orders for Sun's shipping company, which McCabe declined to name. "As far as customers are concerned, orders look like they came directly from Sun," McCabe says.

The process becomes more complex when a purchase order includes a package of products, such as a server, storage system, and moni- tors, from multiple manufacturers. In what Sun calls "in-process merger," its order-processing system coordinates the process so the products don't ship until all components of the order are ready, ensuring that they all arrive at the customer site at the same time.

Because products are configured for each order, rather than filling orders using preconfigured products that may or may not be in Sun's warehouses, Sun's ability to ship products to customers in the promised time has increased from 85% to 95%, McCabe says. A chief benefit for Sun was the ability to close distribution centers in Asia, Europe, and the United States, and cut inventory-handling costs.

All this has improved the profit margins Sun earns on its server products. "It allows us to compete in price-sensitive markets with low-end servers, but compete profitably," McCabe says.

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