THE GREAT INVENTORY CORRECTION

GROUP 2AVANIKA BABELASHOK MSTUTI BARUAHPRAKASH TIWARI

OVERVIEW:High-tech companies are still loaded with rapidly depreciating goods.

AT ONE

END

•Cyclical semiconductor industry is suffering through its deepest trough in demand.

MIDDLE

•Electronics contract manufacturers and their suppliers, customers, and distributors are trying to figure out who owns which surplus components.

OTHER END

• PC makers are waging price wars

So technology companies are taking steps to limit their exposure

Altra Logic

Altra designs programmable logic devices (PLDs). Outsourcing manufacturer: Taiwan.

Push strategy i.e. the finished goods were stockpiled in Asian facilities in anticipation of customer demand It build new products based on specs beyond what customer needed for prototyping

The benefit of this model was to provide cost advantage to customers by holding the inventory stock in the supply chain

Cont…….Continue to produce stock but in die banks i.e. to keep inventory in flexible form

Implement “build-to-order” strategy

New order will be built on customer order

Altera Built to order strategy effects:

Increased lead time for customers

Protect company against unexpected market condition

Avoiding past mistake

IMPROVEMENTS

Die bank inventory

Introduced software system (SCM i2 Tech.)

Altra collaborated with Nortel & Motorola on

product development

Advantage

Reduction: In

inventory costs

Risk is low High Profit

Matching demand

and supply

DISADVANTAGE

Lead time may be long

in case of sudden

increase in demand

Dependence on SCM tools

Longer lead time may be unsatisfactory for some customers

RESULT:

Reduced cycle time from ten to one day

Long term cycle time from four weeks to one week.

United Microelectronics Corps customer can forecast

collaboratively using UMC’s web portal

Problem:

Even after using SCM

software , it couldn’t prevent

inventory glut.

Growth changed

from 40 % to negative

10%

Reasons

New technology

creates constraints in supply.

Ordering overly

creates glut on the

manufacturer’s side

IBM STRATEGY :PULL STRATEGY

Pull strategies IBM applies in order to make it effective are:

Commonality across platforms & products

The number of suppliers kept small

Electronic purchase transaction to have faster collaboration with suppliers

Rationally exuberant sales force who knows their customers in and out, the main strategy for their forecast, meet frequently to discuss & anticipate demand

Check on Business History:

Flextronics an EMS company had unusually high inventory glut because they wanted to obtain better understanding of customers, product life cycle & maintain supplier managed inventory

The company wanted to create material hub but there was some disputes with the distributors who complained of surplus inventory.

The case was opposite in the year 2000 when there was a shortage and the distributors made good margin.

Use IBM strategy

COMPETETIVE ADVANTAGES OF DELLDell is having one of the best SCM in the world.

90% supplies ordered online using integrated websites of supplier and Dell (B2B).

95% of suppliers situated very close to assembly plant hence coordination is easier.

Dell’s factories have only 7 hrs worth of inventory for most items whereas industry wise it is around 10 days.

15 suppliers provide almost 85% of all supplies.

Dell gets paid by customers and then pays to its suppliers.

DEMAND FORECASTING

Has credible and direct real-time info of what customers are really buying.

Sales people can lead the customers to buy a particular configuration depending on the inventory

Orders then are directly updated with the suppliers who in turn produce what is DEMANDED.