The Telecommunication Industry: Cisco and Lucent's Supply Chains
Total Page:16
File Type:pdf, Size:1020Kb
The Telecommunication Industry: Cisco and Lucent’s Supply Chains by Yishai Boasson M.Eng. Massachusetts Institute of Technology © 2005 Yishai Boasson All rights reserved The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part. The Telecommunications Industry: Cisco and Lucent’s Supply Chains by Yishai Boasson Abstract This work aims at describing the current trends in supply chain management prevalent in the telecommunications industry. This is done through looking at the telecommunications industry (telephony and data communications), its history and the factors shaping what it currently is. In addition, two companies – Cisco Systems Inc. and Lucent Technologies Inc. are used as two case studies. Looking at these two companies enables us to dive deeper into actual supply chain practices, trying to understand current best practices. As we analyzed these two companies’ supply chains, we used a framework delineated by the belief that excellent supply chain management is a collection of business processes supporting operational goals, which in turn should enable an overall business strategy. Our initial perception of current supply chain practices was shaped by available literature as well as by the image projected by telecommunications companies in forums and publications concerning their supply chain management practices. However, the opportunity to look closely and intimately at one of Cisco’s supply chains has revealed a slightly different picture, where supply chains are not necessarily used as a means to gain sustained competitive advantage. In addition, marked differences in the two companies’ 2 practices might be attributed not only to differing strategies, but also do differing histories. 3 Acknowledgements The author would like to thank Prof. Yossi Sheffi, Prof. Charles Fine and Dr. Larry Lapide for their invaluable guidance, as well the great people of Cisco Systems Inc., for contributing of their valuable time and insights. Thank you Randy Pond, Jim Miller, Matt McCombs, Rachel Peterson, Frank Kull, Gene Brock, John McCool and Stacey Olson; for your generous help and candid cooperation. 4 Table of Contents Abstract ......................................................................................................................... 2 Acknowledgements ...................................................................................................... 4 Table of Contents .......................................................................................................... 5 List of Tables ................................................................................................................. 7 List of Figures ............................................................................................................... 7 1 Introduction ............................................................................................................ 8 2 Literature Review ................................................................................................. 10 2.1 Industry level views .............................................................................. 10 2.2 Company level views ............................................................................ 15 2.2.1 Cisco ............................................................................................. 15 2.2.2 Lucent ............................................................................................ 21 3 The Telecom business – an overview ................................................................ 23 3.1 History of the telecommunications industry .......................................... 23 3.2 Telecommunications Regulation ........................................................... 24 3.3 Bubble years ......................................................................................... 26 3.4 Drastic change 2000 ............................................................................. 28 3.5 Equipment manufactured ...................................................................... 31 4 The history of Cisco ............................................................................................ 34 5 Cisco strategy ...................................................................................................... 42 5.1 The move to Software........................................................................... 43 5.2 Platform Leadership ............................................................................. 46 5.3 Mergers and Acquisitions (M&A) .......................................................... 50 6 The Catalyst4000 (C4K) Supply Chain ............................................................... 52 6.1 Supply Processes ................................................................................. 54 6.2 Customer Processes ............................................................................ 56 6.3 Production Management ....................................................................... 58 5 7 The history of Lucent .......................................................................................... 63 8 Lucent Supply Chain Strategy – pre 2001 ......................................................... 68 8.1 The Design Process ............................................................................. 70 8.2 Purchasing and Supplier Base ............................................................. 71 8.3 Operations and Manufacturing ............................................................. 72 8.4 The Virtual Manufacturing Strategy ...................................................... 73 9 Lucent’s post-2001 supply chain: Supply Chain Networks ............................. 75 9.1 SCN Units – Customer Delivery Organization ...................................... 78 9.2 SCN Units – SCO: SCN’s manufacturing facing function ..................... 81 9.3 SCN Units – Product planning, engineering and supplier management practices .......................................................................................................... 82 9.4 SCN Units – Margin modeling and target costing ................................. 84 9.5 Results Delivered ................................................................................. 85 10 Summary and Discussion ................................................................................... 87 10.1 Cisco’s Case ......................................................................................... 88 10.2 Lucent’s Case ....................................................................................... 91 Bibliography ................................................................................................................ 94 6 List of Tables Table 1: Worldwide Telecommunications Market Revenue by Region, 2002-2008 ..................................................................................................................... 25 Table 2- Some Facts and Figures ....................................................................... 41 Table 3 - Lucent's SCN Results (Selected Metrics) ............................................ 86 Table 4 - Cisco and Lucent Compared ............................................................... 93 List of Figures Figure 1 - US Carrier Capex pre-Bubble Burst ................................................... 27 Figure 2 - the Catalyst4000 ................................................................................. 53 Figure 3 - Cisco's Information Flow ..................................................................... 57 Figure 4 - Cisco's Material Flow .......................................................................... 59 Figure 5 - Simplified C4K Supply Network (Goods & Information) ...................... 60 Figure 6 - Cisco Organizational Chart ................................................................. 61 Figure 7 - Mid-Range Plant Organizational Chart ............................................... 62 Figure 8 - CDO's Responsibilities ....................................................................... 79 Figure 9 - Lucent's Supplier Management Model ................................................ 84 7 1 Introduction The following work takes a look at the telecommunications and data- communications equipment manufacturing industry as embodied by two companies: Cisco Systems, Inc. and Lucent Technologies Inc. The motivation for doing so is the Supply Chain 2020 Project, undertaken by the Center for Transportation and Logistics at the MIT Engineering Systems Division. The Supply Chain 2020 (SC2020) Project is a multiyear research effort to identify and analyze the factors that are critical to the success of future supply chains. This pioneering project will map out innovations that underpin successful supply chains as far into the future as the year 2020. The first phase of research focuses on understanding excellent supply chains. It involves identifying and researching the organizations that drive today’s successful supply chains in a broad range of industries, with the aim of understanding the evolving business strategies, operating models, practices and principles that are responsible for driving improved performance.1 There are a few reasons for choosing to look at Cisco and Lucent, and through that trying to understand a segment of the telecom business. For one, this industry is not only large, complex and generating huge amounts