Nortel Networks Global Logistics - Essay Example

Nortel Networks Global Logistics What logistical planning advantages does this approach give Nortel Networks The global logistics system of Nortel Networks is built around what it calls the Lead Logistics Supplier Strategy (LLSS) that looks at the supply chain as a global network where services to customers are provided through outsourcing to third parties. Think of the heart of this network as a 3-ring doughnut (or pastry, if you want). At the center of this network lies the customer that acts as the originator of the order. Around the customer is a second ring consisting of Nortel Network partners who supply and deliver the goods to the customers based on the orders. In the outermost ring are the multiple sources for key parts, which are assembled by contract manufacturers or original equipment manufacturers (OEM). When a customer initiates an order, it goes to one of twenty Logistics Operating Centers (LOCs) worldwide, which then determines the best combination of services that could be exchanged among the customer-centered rings. It is the LOC that is in-charge of the order that looks for the Nortel Network partners, key parts sources, and assemblers that are part of that ring around the customer and that would best meet the customer's order at the lowest cost and in the fastest possible time. This LLSS-based system differs from Nortel's old supply chain structure, which was built around an orderly sequence of activities that happened one after another. This traditional supply chain needed long lead times and higher costs. With the new global logistics system, designed around a networked framework, activities happen continually at the same time. What does this mean Rather than wait for the completion of a prior activity, say the assembly of sub-components before deliveries are made, Nortel's worldwide network of partners and suppliers are constantly on the move taking care of order fulfillment from several customers. An OEM for example can be doing production and assembly work for several clients at a time, each one with different or similar requirements, and managing various parts of the supply chain according to standards established by Nortel. In other words, by outsourcing the "lower value-added" activities like assembly to third party providers, Nortel can focus instead on the high value-added activities like the management of the global supply chain or research and development to improve existing products or come up with new ones based on more advanced technologies. This is only one among the many advantages that Nortel derives from its global logistics system. What are the others We have already discussed the customer-centered focus of the whole organization. By placing the customer at the center of the logistics network, Nortel can work at the important but very tough and challenging task of ensuring that everyone maintains that customer focus. Customers then feel special, being the center of attention of the whole global organization, knowing that its orders could be met no matter how tough its specifications and deadlines would be. Of course, it is hard work for Nortel to do the work of integrating all of its alliance partners all over the globe, but that is part of the design of the system. We can also see how the system ensures speed of delivery to meet tight customer deadlines, because the arrangement gives Nortel and its partners the flexibility it needs to get the work done on time. Instead of managing the whole supply chain, which requires coordinating several factors at the same time, Nortel's system delegates the management of portions of that supply chain by outsourcing. Rather than sweat on the large stuff, it seems that Nortel and its partners would rather sweat on the parts of that large stuff that they can manage well, and to concentrate on the "large stuff" of coordinating 20 manageable LOCs. This allows Nortel to keep its costs down, which it does in a very specific way. By keeping the suppliers of key parts in the supply chain conveniently located close to the customer, Nortel is able to keep its inventory levels down and within reach of its partners and customers. This means lower storage and transport costs for Nortel, giving it the ability to offer more competitive prices and savings to the customer that can then earn higher profits and more value for money. This helps enhance the customer's loyalty to the Nortel brand. It also builds up reliability and dependability. Keeping alliance partners busy meeting the needs of customers, assuming that order volumes are at such a level as to accomplish this, also keeps these contract manufacturers and OEMs loyal to Nortel. With the inclusion of the global payments system that allows Nortel to receive payments instantaneously, and which also allows it to pay its suppliers and subcontractors quickly and without delay, these partners are kept within the fold and away from Nortel's competitors who may think of designing a similar global logistics system. As part of the supply chain, the loyalties of these partners also benefit Nortel the more they gain in expertise and move up the learning curve. So while its competitors are scouring the world for their own set of companies with whom to partner, Nortel has developed a strategic advantage with its system by having its own set of partners that are focused not on the slow process of learning but on the more advanced stage of applying what they know to improve their operating efficiencies. Again, this would result in cost savings that Nortel could pass on to its customers, and/or to its partners or, if Nortel so desires, to its own bottom line. Either way, Nortel wins by gaining customer loyalty or improving its profits. Another advantage to Nortel is developing the ability to take on complex orders in compliance with stringent customer requirements. Included in the supply chain are technical and support workers who are close to the customer and either employed or not with the alliance partners (some may even be freelance consultants). As these workers grow their expertise, they increase the supply chain's value to the customer, who would then have a pool of technical brainpower within easy reach when trouble erupts. Again, this helps Nortel save on costs, because they need not send a team of high-priced consultants from the head office to fix problems in the countries where their customers are. They can just send one or two who can work with a bigger (cheaper) team of local experts to solve mission critical issues. This would also allow Nortel to better plan the type of projects it can take on and handle a wider range of complexity that characterize these projects. Having a map of its global technological manpower pool, the capabilities of each of its outsourcing partners, and the level of development of each of its customers, Nortel can make better quality management decisions in relation to how far it could go in becoming more competitive and developing each of its markets where there are existing customers. Probably more important than the monetary (cost savings and higher profits), speed and just-in-time capability, marketing (top-of-mind awareness by the customer of Nortel's capabilities), and customer benefits (customer-centric supply chain configuration that enhances and sustains total customer satisfaction) considerations, Nortel can do what it does best, which is to do innovative engineering work, develop new products and services, and market these products and services to its potential and existing customers. It would, of course, be easier to sell advanced models of its existing products where there are customers that are comfortable in their working relationship with Nortel. Having positively experienced the high level of service thanks to the support of an efficient supply chain management system, Nortel's existing customers would have no apprehensions about continuing their short- or medium-term relationship into one that is long-term and, therefore, more profitable. As every marketing professional knows, it costs much more (resources, investments, and costs) to win a new customer than to keep an existing one. Nortel is using its SCM to do both. Reference List Zuckerman, A. (2000). Nortel networks global logistics. World Trade, August, p. 1-5. Read More