Soaring product demand and rapid advancements in manufacturing technology constantly create competition for corporate investment funds at Ericsson, Sweden's mammoth telecommunications firm. Ericsson's consumer products division, however, has managed to increase investment in its core business by freeing capital previously immured in the supply chain. The means to this end is a global vendor-managed inventory program in which Ryder Integrated Logistics monitors supply levels and feeds materials to production lines on a just-in-time basis.

	"Nor did it make good sense to dedicate that much space and capital to storing materials when we could use that same space and capital for manufacturing phones. - Lars Lindberg of Ericsson

Based in Stockholm, Ericsson is a leading supplier of telecommunications and data communications products and systems. Worldwide the company employs more than 100,000 people and is represented in 140 countries. Ericsson currently is establishing new corporate offices in London, Hong Kong, Dallas and Miami.

Among the key trends fueling rapid changes in the telecommunications market is consolidation. The telecom and data communications industries are coming together, causing a convergence of businesses, technologies and services. Similar forces are bringing together the computer and media industries. Perhaps the most important trend, however, is the increasingly mobile nature of the world's population. Internet use and wireless communications are changing the behavior of individuals and businesses alike and creating a mushrooming demand for wireless technology.

To serve this changing market, Ericsson divided its operations into three business segments: network operators and service providers, enterprise solutions, and consumer products. The dominant sector of consumer products includes mobile telephones and terminals - a market where Ericsson ranks as a leading supplier with strong brand recognition. Ericsson also brings to the market leading-edge technology in wireless application protocol (WAP) products. WAP facilitates advanced telecommunications services that make it possible to access internet pages from a mobile telephone.

Ericsson's consumer products division has key manufacturing facilities on several continents: two in China; two in Sweden, in Kumla and Linkoping; and one in each of the following cities: Sao Paulo, Brazil; Kuala Lumpur, Malaysia; Carleton, U.K.; and Lynchburg, Va.

Ericsson previously had sourced raw materials for these factories from a worldwide network of several hundred suppliers, which would route their respective materials directly to the plants. The materials would be stored in Ericsson facilities and brought to the production lines as needed.

The burden of handling these inbound shipments and storing the materials intensified, however, as sales volumes exploded, nearly doubling every year since 1994, according to Lars Lindberg, vice president of operations for the division's Americas region. Lindberg is based at the Lynchburg site.


"We were at the point where if we continued with the current strategy, we would have had to build new buildings almost every year just to handle inbound materials," he explains. "Looking at our existing capacity and projecting how much storage space we would need to build ... it simply wasn't cost-effective. Nor did it make good sense to dedicate that much space and capital to storing materials when we could use that same space and capital for manufacturing phones. Ours is a very capital intensive business, and we needed to decide whether to invest our money in warehousing operations or focus those dollars on our core business function."

Each year Ericsson invests substantial amounts of capital in production machinery, though Lindberg declines to cite numbers. As wireless phones and their internal components employ new technology and get progressively smaller, the assembly process intensifies, he explains. To manufacture on a cost-effective basis in the higher-cost countries, Ericsson has to use robotics and other forms of automation, and to stay competitive globally the company constantly needs to upgrade its surface-mounted assembly equipment and processes.

	The entire process, from the decision to evaluate changes to final recommendation, took nine months.

The decision to look at alternative sourcing and inbound procedures was made by Ericsson's operations and procurement managers. Andersen Consulting was brought on board to help identify and research viable options and Ericsson established a project steering committee that included representatives from several corporate functions. With the assistance of Andersen, the steering committee evaluated the suitability to the Ericsson operation of various supply-chain models.

In addition to examining some successful active programs, Ericsson managers spoke to their counterparts at leading high-tech firms. "We talked a lot to the leading companies in the computer business such as Dell, Compaq and Cisco that already have reengineered significant portions of their supply chains," says Lindberg, who was a member of the steering committee.

The computer firms were very open-minded and generous with their thoughts on logistics, operations and procurement, Lindberg adds. "They are a few years ahead of us, so we wanted first to examine how they made these changes, and then we wanted to take those concepts, improve on them where possible and fine-tune the process to meet the specific needs of our company."

The Ericsson managers and Andersen consultants examined several options before making their recommendations to Roger Eriksson, senior vice president and general manager of operations, who is responsible for global manufacturing. The entire process, from the decision to evaluate changes to final recommendation, took nine months.

Ericsson ultimately decided to institute a vendor-managed inventory model and selected Ryder Integrated Logistics to manage the operation. The program was first introduced at Ericsson's Carleton manufacturing site, followed by factories in Linkoping and Kumla. The next site will be Lynchburg, scheduled for rollout later this year.

"We selected Ryder as a partner because we strongly believed that they had the best network and the most experience to execute this program for us," says Lindberg. "They know that this business is about fast-moving consumer products, and their programs with Dell and Hewlett-Packard and others showed us that they can make a program like this work." Ryder's success in designing, implementing and continuing some of the earliest just-in-time inventory control programs with U.S. automakers also was a contributing factor as it demonstrated the company's staying power, he adds.

Here's how it works. Ryder establishes a supply logistics center (SLC) - essentially a vendor-managed inventory hub - adjacent to each of the Ericsson manufacturing sites. Using Ryder's web-based information systems, individual suppliers monitor inventory levels of their products and route inbound materials to the SLC according to predetermined inventory requirements.

All electronic components used in the manufacturing operation are sourced from AVNET, a global distributor.

Ryder processes all the inbound shipments - unpacking, counting, verifying, putting them away in the appropriate storage locations - and then feeds materials to the production line on a just-in-time basis. Ryder then bills the supplier and Ericsson for respective portions of the logistics cost.

In a major benefit for Ericsson, the company doesn't take actual ownership of the inbound materials until those materials cross the threshold of the manufacturing site, explains Lindberg. "From a capital resource perspective, this program enables us to more effectively use money that otherwise would be tied up in inventory stock and real estate," he says.

All communications between the parties - Ericsson, Ryder and the individual suppliers - is web-based, using Ryder's enterprise-wide deployment of Provia's FOURSITE warehouse management system, which is hosted on a server in the Raleigh, N.C., Research Triangle Park (RTP) data center managed for Ryder by IBM. Ericsson's U.K. and Sweden sites connect to RTP by a frame-relay network link provided by MCI/Worldcom. Typically used in a 3PL environment, FOURSITE also facilitates the vendor-supply programs at Dell Computer, Gateway and HP, among others.

The RTP data center concept originated in 1997, when Ryder outsourced a considerable portion of its IT back-office functions in an alliance with Andersen and IBM. That alliance continues today, and Andersen is an integral part both of the IBM data center as well as the Ryder Engineering Center in Dallas.

	"We communicate with one another on the net, and there's web visibility for Ericsson's buyer/planners and for its suppliers to monitor inventory levels in the Ryder hubs." - Derek Fain of Ryder

"It's all electronic. We communicate with one another on the net, there's web visibility for Ericsson's buyer/planners and for its suppliers to monitor inventory levels in the Ryder hubs," explains Derek Fain, who helped assemble the program from the Ryder end. Ryder similarly views Ericsson's production schedule and plans its supply operation to the production line using FOURSITE.

As with many supply-chain projects, the road for Ericsson has been a bit rougher than anticipated. "The implementation is a bit trickier than we thought it was going to be and is moving slower than we had planned," says Lindberg. He explains that there has been some minor friction between IT systems, largely attributable to Ericsson's ongoing shift from a network of in-house legacy systems to an SAP environment. The SAP rollout began with the Carleton site in the early spring of 1999, then Lynchburg was brought online last July 4, followed by Kumla and Linkoping earlier this year. The schedule continues with implementations at the Asian factories in June.

"We're continuing to work some bugs out of the interfaces," Lindberg adds. He expects to go live with the VMI program in Lynchburg in the near future. "With the volume growth we are experiencing, we need to have this in place by the third quarter," he says. "Right now, we're lining up our suppliers and getting them ready."

Lindberg says that among the approximately 75 individual suppliers that serve the Lynchburg factory, there is some apprehension about the new program. "Some of our suppliers are fearful of losing direct contact with Ericsson and being squeezed out," he explains. "But that's not going to happen. The commercial agreements with our suppliers will be made directly by Ericsson.

"There's always some resistance to change, and our business is no exception," he adds. "We're at the informational stage in Lynchburg right now and are explaining this, but some of the suppliers are still nervous." He anticipates a transition period for suppliers' participation in the new format, but expects to have all suppliers on board within 12 months.

Ryder Launches e-Channels Solutions

The implosions of certain high-profile e-business fulfillment processes during the 1999 holiday season - the most notable being that of Toys 'R' Us - created compelling opportunities for logistics management companies to step into the breach with new solutions. Among the third-party logistics providers responding to that challenge is Ryder Integrated Logistics, which this month announces the launch of its new e-business venture, e-Channels Solutions (ECS). The first phase of the program is scheduled to become operational July 1. According to Mike Shelton, senior vice president of sales, marketing and e-commerce for Ryder, the fulfillment snarls that afflicted many e-businesses in 1999 served to accelerate the company's e-commerce strategy. "A lot of compelling opportunities arose due to fulfillment challenges during the holiday season," he explains. Ryder already had been on the move, however. Nearly 18 months ago the company had assembled a team headed by Sandy Orr, group director of e-commerce, to perform due diligence with the assistance of Forrester Research and determine how Ryder's supply-chain expertise could be fine-tuned and positioned for the e-commerce market. "We saw the environment as a huge opportunity; we just wanted to ensure we could find the right solution," says Shelton. Orr and her team identified it not only as a powerful opportunity today, but one that clearly fit with Ryder's long-term strategy of launching value-add solutions to meet changing market needs. "A lot of e-commerce companies are great at marketing - they just haven't focused on the logistics end of the transaction," says Orr. "We realized there are a lot of market opportunities in the last mile of the delivery process as well as in handling product returns," she explains. "Forrester found that 80 percent of the U.S. population isn't home between 9 a.m. and 5 p.m., when the majority of deliveries occur, so our challenge was to find a way to leverage our competencies and bring flexibility to the final delivery. By giving the consumer delivery options, we can get that package to the end consumer when they want it." Another critical finding by Forrester was that nearly 40 percent of products ordered from e-tailers are returned. The ECS game plan calls for Ryder to manage dedicated e-commerce DCs. Ryder will launch the service with three such facilities, which will allow ECS to reach 80 percent of the U.S. population within 72 hours using over-the-road transport. The facilities include a 176,000-square-foot DC in Alliance, Tex.; an 80,000-square-foot facility in Cucamonga, Calif.; and a 104,000-square-foot center in Odenton, Md., near Baltimore. The Odenton DC is adjacent to an existing 142,000-square-foot facility that Ryder already uses for multi-client services, and the company could take advantage of that capacity as it grows. "Part of our strategy from a DC perspective is to create campus environments so we can flex up as we need to and leverage our supervision within one major campus environment," says Shelton. ECS will focus solutions on both the business-to-business and business-to-consumer markets. "We think that's a critical component both from a seasonality issue as well as from being able to leverage our resources," says Shelton. "Our clients will always be business customers, not end customers, but we have clients who deliver both to businesses and to consumers." ECS also intends to focus on the brick-and-mortar companies that are starting an internet presence. "Within the four walls of a distribution center, an e-commerce venture constitutes a markedly different operation - it's a piece-pick environment that involves different material handling equipment and systems and requires different sortation procedures compared to many traditional DC environments," he explains. "There are clear advantages to performing this function in a more specialized DC." ECS's solution for providing delivery flexibility centers on establishing a network of "neighborhood depots" where parcels could be held temporarily for customer pickup or until the customer returns home, at which point couriers could deliver the package to the customer's door. "Our plan is to set up a static network of partners that have retail storefronts, and align with those partners to provide neighborhood locations where we can send the shipments," explains Ray Greer, executive vice president and general manager of global markets and solutions for Ryder. "Customers then have the choice of coming over to the neighborhood location at their convenience and picking up their shipments, or we can arrange attended deliveries from that neighborhood depot with our network of couriers." Ryder already has integrated its transportation management system with select couriers as well as the U.S. Postal Service. By tying together the warehouse management and transportation management systems and linking the couriers and neighborhood depots to the network, ECS customer service managers will have complete visibility throughout the pipeline and will be able to re-route shipments in transit to accommodate changes in customer schedules and preferences, says Greer. Initially, the three DCs will use the Delfour program for transportation visibility, but as volumes increase the intent is to shift to the TMS system of i2 Technologies, which already serves as the IT backbone for much of Ryder's transportation operations. Ryder purchased Viewlocity's Amtrix messaging software specifically for the ECS venture. "The Viewlocity program provides us with a messaging system that has been proven globally and already was live at several enterprises so we could see exactly how it worked," says Shelton. "It gives us the flexibility to use multiple WMS programs and integrate with the legacy systems of our clients." What really set Viewlocity apart was their recent merger with NextStep, which specializes in e-fulfillment functions, says Shelton. "The company now has a tighter focus on synchronizing inventory as well as multi-leg visibility. For us, it was an attractive fringe benefit to get some of those capabilities very quickly." Operationally, freight shipments will be routed either to one of the neighborhood depots or to one of the courier's hubs for direct home delivery. The Viewlocity system enables real-time messages to flow between the i2 TMS, the couriers' systems and the computers ECS installs at each depot. ECS intends initially to test this concept in pilot programs targeted for Dallas, Baltimore, Los Angeles and Atlanta and is evaluating potential partners in those markets. Ideally, they are looking for partners that have multiple spread across the metro area. "We will have the processes in place and will help train their people to do the receipt of shipments and perform the customer service as the consumer comes in to pick up their parcels," says Greer. Eventually, the company plans to expand this strategy globally. "Our global network is not yet complete, either physically or informationally," says Greer. "You'll hear a lot more from Ryder on both of those fronts within the next 60 days, as we have acquisitions underway and are looking at other options throughout the world to enlarge and strengthen our network."