As one of the world's leading providers of telecommunications infrastructure, Tellabs' solutions 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 re-planning 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 "re-connect" the supply chain by providing visibility into supply at contract manufacturers, down to the component level, essentially creating a "shadow" plan for the entire supply chain.
Now Tellabs can internally plan a response to demand changes or customer requests based on bottoms-up visibility from the components to the SKU demand. Using 'what if" analysis, it can take into consideration the additional flexibility of the Agility supply agreements as an alternate supply at the component level. As a result, Tellabs is able to commit to customers and plan an immediate response that considers real component inventory at the contract manufacturer and vendors' Agility supply.
With the visibility and data integration enabled by these programs and ICON-SCM, Tellabs is able to plan 70,000 components across its outsourced supply chain in less than five minutes.
Another key aspect of Shadow Planning is the ability to better monitor and manage liability. With Shadow Planning, Tellabs can now track component liability at the contract manufacturer, based on agreement terms, and monitor consumption of Agility supply and potential Agility-with-liability.
The software solution includes real-time alerting if a contract manufacturer places an order against a component supplier in excess of the current forecast. This mitigates potential excess and overage by stopping excess orders within the supplier's cancellation window.
Conversely, by calculating future demand on a claimed excess part, the company in one instance avoided $206,000 in statutory inventory costs.
Shadow Planning visibility enhances inventory management in several ways. It enables Tellabs to re-balance inventory between facilities of a single contract manufacturer or between different contract manufacturers. And it helps optimize the results of the Agility program by enabling Tellabs to track consumption of the flexibility agreements, recommend when to consume them and measure the positive impact of that consumption on delivery dates.
Measurable results came quickly. At the end of the first quarter after Tellabs implemented the program, a supply chain manager used it for 'what-if' analysis and within minutes was able to pull in 22 percent additional revenue into the quarter from a single product. This was 2.5 times the total revenue amount anticipated for all pull-ins each quarter before the program was begun. Moreover, lead times dropped from a worst case of 24 weeks to a maximum of 8 weeks.
Overall Tellabs is more responsive to its customers and has reduced operational costs and risk. By introducing new processes and technology, the company was able to not only surmount the inherent challenges of an outsourced manufacturing model, but turn those challenges into a business advantage.
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