Supply Chain Design

YP60

Aditia Pramagista 29118417

Naufal Mohammad Efendi Putra 29118421
Arifa Amalina Izni 29118303

Great Inventory Correction

1. How has Altera modified its strategy? Why?

General Issue:
a. Asian crisis in 1998
b. Evaporation of technology demand began in the latter part of 2000
c. Chipmakers and PC companies suddenly found themselves with a glut of
inventory and capacity - PC makers’ price war
d. Tech companies are trying to make their supply chains shorter, transparent and
as short as possible
By the issue, each party on this supply chain activities face a different problem and
Altera face several issues that impact to their activities:
a. Communication gaps among partners of the supply chain
b. Volatile demand and forecast uncertainty
c. Inventory glut led to Altera having lots of unsalable inventory
d. Altera was eventually forced to write down $115 worth of inventory
So, in short, there are some differences in Altera activities and strategies in order to face
new problems and conditions;
Before:
a. Building on speculation
b. Building finished products
c. Stocking inventory at distributors
d. Subcontracting manufacturer
e. Employing a push strategy
After:
a. Build to order
b. Implement a push-pull strategy (push chip to die bank inventory & pull to
customer-specific order)
c. Inventory is in its more flexible form
d. Minimum of value-added
e. Requiring more customer input regarding their inventories - to build Altera’s plan
f. Applying supply chain management software i2
g. 85% automatic production scheduling: shrink planning cycle time from 4 weeks to
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2. Do you think Altera’s new strategy will be successful? What are some advantages
and disadvantages of the new strategy?
a. Advantage :
i. Reducing planning cycle time to be shorter when weekly cycle time
reduced tenfold from 10 days to 1 day and long term cycle time reduced
fourfold from four weeks to one week due to automatic scheduling
ii. Altera’s new strategy increases in customer value
iii. The new strategy improve supply and demand forecasting
iv. The mainstream products have a decreasing lead time
v. The new strategy has improved communication in a better mutual
understanding because of transparency and visibility processes with
suppliers
b. Disadvantages :
i. According to AMR Research, it just only about 20% of companies with
more than $500 million in annual revenues have installed SCM tools
ii. The software can not eliminate the problem of garbage in and garbage
out, because the algorithms to crunch a mix of historical data and
production numbers
iii. Some data cannot be predetermined, forecasting cannot be accurate
because the tech industry which is volatile makes accurate forecasting
difficult

3. How do you anticipate Altera’s customers will react to this new strategy? What are
the advantages and disadvantages for Altera’s customers?
a. Altera’s customers give a positive reaction
b. Advantages for Altera’s customers :
i. Mutual benefits
ii. The ability to have a better customize products to the new market trend
iii. Lead time is known to get better plan of production levels
iv. For the mainstream products, the identified lead times just being shorter
v. The supply chains being shorter, transparent, and as flexible as possible
c. Disadvantages for Altera’s customers:
i. Strategic information disclosure
ii. Limited organizational and financial abilities and interest
iii. For a mature and custom product, the identified lead times just being
longer

4. What information does Flextronics have that its clients do not? How can
Flextronics leverage this information?
Flextronics has the information of the magnitude of the aggregate supply they were
producing. When the magnitude is high, this can be a problem for Flextronics and its
clients. Flextronics’ inventories ballooned from $470 million in the beginning of 2000 to
$1.7 billion at year’s end. From the clients’ perspective, if Flextronics doesn’t warn them
then it will cause confusion and disagreement on how many products that should be sent
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YP60
from Flextronics. By sharing this information to its clients, Flextronics can get the
feedback from the clients if the magnitude of supply is too high or too low for the real
end-customer demand.

Other information that Flextronics has are business cycles & history, consumer demand
and product life cycles. By knowing the business cycles and history, Flextronics can
analyze and predict the market trend of the business scope in the future and learn from
the history of there are successes and failures so they can bring a new strategy or/and
product based on them. Consumer demand and product life cycles are important in the
R&D and production side to know better on which product that will be on-demand and
how long our customer will use our product until they need a new one.

In the end, all of that information used to make a better forecast for the company.

5. How does IBM manage its suppliers in order to make its pull strategy more
effective?
First, IBM let its suppliers have visibility to how much inventory IBM has. Here supplier
can monitor stock level of IBM so when there are stock out, supplier can immediately
replenish the stock

Second, IBM uses SAP system that provides crucial automation and also promotes
smaller inventories. IBM has reduced the the number of different parts by emphasizing
commonality across platforms and products.

Third, IBM keeps a small number of suppliers. IBM buys all of its production parts via the
internet and EDI. That means IBM can have much faster transactions, moving to much
faster collaboration with suppliers and with lower cost.