Completely outsourcing manufacturing brought tremendous operational advantages, but the supply
chain was faced with a number of hurdles.
olutions from Tellabs, one of
the world’s leading providers
of telecommunications infrastructure, are deployed in 150
mobile networks worldwide—networks
that account for more than half of the
world’s mobile calls.
In 2003, when the telecommunications
industry faced a difficult market environment, Tellabs made a strategic decision to
outsource 100 percent of its manufacturing.
While this move had significant operational
benefits, it also presented challenges, particularly in the supply chain. “Outsourcing
manufacturing to contract manufacturers literally disconnects the supply chain, rendering existing business processes and the IT
systems that support them obsolete,” says
Edward Tymick, director of supply chain
operations at Tellabs, who was one of the
presenters of this case study at the CSCMP
Conference in September.
The scope of Tellabs’ challenge became
evident as the company began experiencing
problems associated with a fragmented supply chain—poor visibility into inventory at
contract manufacturers and a loss of control
over processes previously managed in-house. Planning cycles and customer
response times lagged, and additional time
spent planning and replanning meant less
time for managing and making proactive
decisions. The company fell behind on its
revenue goals and customers became dissatisfied with service levels.
Tellabs’ innovative approach to these
problems was two-pronged. First, it developed a program called Agility to shorten lead
times and reduce inventory risk. Second, it
created a Shadow Planning program, which
introduced new technology to support Agility
as well as an end-to-end process for planning
and managing the outsourced supply chain.
With Agility, Tellabs wanted to truly move
the needle on responsiveness. To do that, it
knew it had to go beyond typical vendor-managed inventory programs and reach
down to the component or sub-assembly
level, where constrained supply was often an
issue. Tellabs targeted the SKUs that account
for 80 percent of its revenue. Any component
tied to one of these products that had a lead
time greater than eight weeks was, as a general rule, put in the Agility program. For these
components, Tellabs defined future expected
demand requirements and the specific inventory quantities to be carried by the suppliers
on behalf of Tellabs. Suppliers were able to
pool this buffer to serve multiple sites and
demands in order to realize efficiencies.
Tellabs carries potential liability for some
of these components if the managed supply
of inventory is not fully consumed within a
specified time. These components are classified as Agility-with-liability and are subject
to a higher degree of monitoring by Tellabs,
which, in turn, minimizes liability exposure.
Tellabs works to make sure Agility is a
winning proposition for suppliers. With
better information from Tellabs, suppliers
now can plan more effectively. By leveraging Agility to reduce lead times, they
also can gain a competitive edge over
other vendors. Additionally, Tellabs works
with suppliers to identify and close out
issues that may prevent them from meeting supply chain performance goals.
Once Agility was established, Tellabs
set out to maximize its results with the
right processes and automation. This led
to creation of the Shadow Planning Program, which is enabled by software from
ICON-SCM. The main goal of this program
is to “reconnect” the supply chain by providing visibility into supply at contract
manufacturers, down to the component
level, essentially creating a “shadow” plan