1. 1GSCM – Group 3
The Great Inventory Correction
2001
Edward Teach
Group member:
Huynh Quang Vu
Le Huu Dien
Le Thi Phuong Tu
Pham Duc Hai
Tran Ho Thanh Dong
2. 2GSCM – Group 3
Outline
• Summary
• Answers to case questions
• Conclusion
• Q&A
3. 3GSCM – Group 3
Case summary I
• the remedy = rethinking of supply chain management
at large networking, telecom equipment, PC and chipmakers
• Consequences: huge amount of write-off or write-down of
inventory
+ at Cisco : 2.25 billion dollar
+ at Altera : 115 million dollar
• the problem cause
• communication gaps among partners of the supply chain
• volatile demand forecast uncertainty
inventory glut = mountains of unsalable inventory
4. 4GSCM – Group 3
Case summary II
ALTERA
• California-based
chipmaker
(Programmable Logic
Devices)
• Supply to a giant
Taiwanese company
• Chute in revenue due
to declining customer
demand
• Write-down 115 mio.
worth of inventory
FLEXTRONICS
• One of world’s
largest EMS
(electronics
manufacturing
services)
• Makes everything :
from printed circuit
boards to cell phone
• Customers: Cisco,
Lucent, Ericsson
• Inventory growth
2000: from 470 mio.
to 1.7 bil. dollars
IBM
• Giant, diversified
risk
• no exception in the
dotcom crash
• Flat sales
5. 5GSCM – Group 3
Questions on Altera I
1. How has Altera modified its strategy? Why?
BEFORE
• build-on-spec(ulation)
build finished products
stock inventory
at distributors,
sub-contract manufacturers
• PUSH strategy
? to have product available for delivery upon order
6. 6GSCM – Group 3
Questions on ALTERA II
1. How has Altera modified its strategy? Why?
AFTER THE BUST
A. postpone adding value to die bank inventory
• build-on-order
• PUSH-PULL strategy
push to die bank inventory (stores of chips before packaging & testing)
pull to customer specific order
B. requiring more customer’s input regarding their inventories
to build Altera’s plans
C. applying SCM software i2 85% automatically production scheduling to
shrink planning cycle time from 4 to 1 week.
7. 7GSCM – Group 3
Questions on ALTERA III
2. Do you think Altera’s new strategy will be successful?
Advantages and disadvantages of this new strategy.
• a good strategy
the exchange of information between Altera and its
customers
• if Altera is able to build a trustful collaboration with
partners
8. 8GSCM – Group 3
Questions on ALTERA IV
Advantages
• reduction of inventory cost
reduction of COGS improve
bottom-line
• increase of customer value:
+ optimal match product-customer’s
requirement
• well-matching supply-demand
• reducing risk of huge obsolete
inventory
Disadvantages
• lead time – long in case of sudden
increasing demand
• customer’s readiness and ability
(organisation, finance)
• how well does such strategy reflect
adversity?
• dependence of the chain on such
software as i2 what is plan B if
this fails?
9. 9GSCM – Group 3
Questions on ALTERA V
3. Altera’s customer reaction to this new strategy. Pros and
cons for the customer.
Reluctance at first
Advantages
• close-tie collaboration
mutual benefits
• ability to get better customised
products to the new trend in market
• in a well-informed lead time to
better plan their own production and
time-to-market
Disadvantages
• Disclosure of strategic information
esp. big important customers
• Lock-in with Altera
• Limited ability (finance, organisation)
and interest
10. 10GSCM – Group 3
Question on FLEXTRONICS
4. What information does Flextronics have that its clients do not?
• good track of historical data, business cycle and product life cycles
• good record of demand via aggregated supply that Flextronics and
other EMScs were producing
benefit both their suppliers (for Vender – Managed Inventory)
and their clients (for better knowledge of market demand)
11. 11GSCM – Group 3
Question on IBM I
5. How does it manage suppliers and make its pull strategy better?
• Strategy : it builds fast on pull or just-in-time basis
• Managing of suppliers
- material hub = located close to suppliers’ facilities
- provide visibility of inventory level of IBM
- limit number of suppliers
- enabling e-business and EDI save time and better collaboration
with suppliers
12. 12GSCM – Group 3
Question on IBM II
• Make it strategy better
- forecast at different level of details
very detailed for shorter period: 90-day forecast update weekly
fairly detailed for 90-day to 1-year forecast
strategic for longer periods
- with involvement of all suppliers
to cope with the unexpected change in demand
• other practices simultaneously to work down inventories: focus on
sharing parts
• crystal ball = the energetic salespeople
13. 13GSCM – Group 3
Conclusion
• inventory correction: supply network management
• Technology in forecasting demand
- helpful but still a “guesswork” uncertainty
- need input from close interactive market monitoring
• other practices to keep lean inventory
• Question:
- pushing inventory upstream of the chain how should we
understand “collaboration” in supply network?
