Case Study: Customer Success: Significant Reduction In Inventory Liability
Alcatel e-Business Networking Division Achieves 50% Inventory Reduction in a Declining Revenue Environment by Changing to Direct Order Fulfillment Business Model
"Because of the visibility we now have across our virtual supply chain, we have been able to significantly reduce inventory liability. Instantly sharing information about changes in demand or supply with our outsourcing partners gives us all the most precise view of where bottlenecks may occur. To me, this is a real competitive advantage."
-- Gary Schliekelman, Director of Planning, Alcatel e-Business Networking Division
Gaining Agility Through Outsourcing
Alcatel e-Business Networking Division (Alcatel eND) delivers standards-based IP communications solutions to a global customer base of over 500,000 companies. Its award-winning Omni family of IP communications solutions consists of an extensive portfolio of network switching infrastructure products and IP telephony products.
Alcatel eND faced an increasingly competitive business environment that required the company to transform its business model from traditional manufacturing to pure outsourcing. Alcatel eND had been doing in-house assembly and testing, but determined that a model based on outsourcing production and logistics services would give it the agility it needed. As it switched from a build-to-forecast approach to a more flexible, demand-sensitive model, the company also wanted complete visibility into all supply chain activities. To manage the high level of complexity and enable electronic communication with outsourcing partners, Alcatel eND chose to leverage its existing Oracle applications by upgrading to Oracle E-Business Suite 11i.
High-Level Project Goals
- Transform business from traditional manufacturing model to pure outsourcing
- Gain a complete, real-time view of the virtual supply chain
- Enable flexible, demand-sensitive planning
Alcatel eND's launch of a new line of switches drove the company to adopt a new direct order fulfillment model. Alcatel eND spent several months evaluating other companies' solutions but found that by going to Oracle E-Business Suite 11i and by adding the Oracle Advanced Planning and Collaborative Planning modules it could very quickly and inexpensively support its business model. "We evaluated point solutions from other companies but that would have been very expensive to implement and maintain in the long run," said Gary Schliekelman, director of planning at Alcatel eND. "We chose to upgrade to Oracle 11i as the foundation, then implement the Oracle Advanced Planning solution as well as the new Oracle Collaborative Planning module to take advantage of the rich features and integrated capabilities that it offered right out-of-the-box."
In addition, the company already had a number of Oracle E-Business Suite modules in place, including Oracle Order Management, Financials, Manufacturing, Costing, and Quality, and wanted to take advantage of the suite's integration by adding more modules. Alcatel eND was confident that with the Oracle E-Business Suite approach it could easily take advantage of upgrades and new functionality and could count on a productive long-term relationship with Oracle.
Implementation On-Time and Under Budget
During its Oracle Advanced Planning implementation, Alcatel eND engaged Oracle Consulting for technical guidance while its internal IT staff handled project management. "The approach worked out very well for us," said Allen Fox, director of applications at Alcatel eND. "Our partnership with Oracle Consulting 'jumpstarted us' and allowed us to quickly take ownership." The implementation began in April 2002 and went live just three months later, on time and under budget. The move to a direct fulfillment model cost less than $500,000.
Although the launch of the new line of switches provided the deadline for the project's completion, Alcatel eND has decided to continue expanding its new process to include all of its 1,000 products. "The strength of this approach is with the reduced amount of time for collaborating with contract manufacturers and the different divisions within our company," explained Schliekelman. "Reducing cycle time means saving our company millions of dollars." In fact, Alcatel eND has reduced its break-even structure by more than 40%.
Creating a Global View and Reducing Inventory Liability
The complexity of demand planning in an outsourced model was a natural fit for moving some of the spreadsheet activity to the Oracle Demand Planning module. The prior process created many delays and became increasingly cumbersome for building and managing the complex planning and production schedules needed in the outsourced business model. Using the multi-organization functionality of Oracle E-Business Suite, Alcatel eND has created a supply chain system that accounts for all the activities of its outsourcing partners. "We have set up our contract manufacturers and our third party logistics providers as organizations under Oracle, and we track everything that goes in and everything that goes out," said Fox. "The multiorg functionality allows us to mirror exactly what is happening outside of Alcatel eND."
Alcatel eND also benefits from improved communication with outsourcing partners. "We now have electronic communication and commerce with both outsourced manufacturers and third party logistics providers," said Saeed Hosseiniyar, VP of information technology. "We have all of our core back office activities directly linked to the front-end systems that support our new direct order fulfillment model."
Alcatel eND has reduced its inventory by 50%. "Because of the visibility we now have across our virtual supply chain, we have been able to significantly reduce inventory liability," said Schliekelman. "Instantly sharing information about changes in demand or supply with our outsourcing partners gives us all the most precise view of where bottlenecks may occur. To me, that is a real competitive advantage."
Planning Cycle Time Reduced by 75%
Alcatel eND's planning cycle time has dropped by 75% compared with its previous partially manual system. Previously, the company had to run a separate plan for each organization, which took 40 minutes for each plan and could not be consolidated. Now, a single plan is easily generated for all organizations in under 20 minutes.
Forecasting capabilities have also improved. Alcatel eND master planners combine monthly forecast information from the company's sales and marketing divisions to build a master demand plan. Planners forecast monthly, but Oracle saves the staff time by automatically allocating the forecast into weekly allotments. "Using Oracle Demand Planning and Oracle Advanced Supply Chain Planning, forecasting is now done by categories rather than by items, which is more accurate and saves time, allowing us to focus on exceptions," said Schliekelman. "We now look at our global inventory at an aggregated catagory level and identify the materials needed based on real-time demand."
Flexibility Leads to Success
According to Schliekelman, Alcatel eND's operations are now much more flexible. "As a division, we've gone to a complete direct order fulfillment model. At the same time, operationally we've gone to a demand-to-fulfill or 'just-in-time' lean flow manufacturing process model. We've changed from a push model to a pull model, where we carry only a prescribed amount of inventory."
The company expects to reduce inventory, using its more flexible model. "Conservatively, we estimate this will translate to about $15 million in annual savings," said Fox. In addition, the company has reduced time-to-market for new products and thanks to its improved view of supply chain activity and enhanced communication with outsourcing partners, the company has also dramatically cut carrying costs, including freight charges. "Being able to do everything in real time or near real time is a quite a competitive advantage for us," said Fox.
Future Plans
Moving forward, Alcatel eND will continue to refine its forecasting process to create even greater precision in its virtual supply chain. It has also joined the early adopter program for Oracle Collaborative Planning to further improve its business processes with suppliers and customers. Collaboration Planning is a new Web-based application bringing easy-to-use capabilities for collaboration on demand planning, supply planning, event management, and vendor managed inventory. Alcatel eND expects Oracle Collaborative Planning to significantly improve communications and performance with its suppliers.