Four years ago, Lucent Technologies was bleeding red ink, due in part to huge inventories of unsold parts that were hard to move because of complex product design. Lucent went through a dramatic transformation that included a new approach to design engineering.
How is design engineering at Lucent done today versus five years ago? First of all, we have a lot more consistency in how design is done across the corporation. We have rationalized and brought together all of the sourcing strategies that really define how technology choices are made. That is such a critical place to start because those early technology decisions then determine which design partners—which suppliers—you use. That then defines so much of the follow-on architecture and cost. So we first start with a set of well-defined sourcing strategies in components, operating system software, and mechanical design that help to define a set of guidelines that our design engineers would then leverage. Five years ago there were multiple business units and multiple factories with multiple design sourcing strategies. That didn't give us the same kind of advantage of consistency in design.
What other specific steps are you taking to reduce complexity? We have put more emphasis on re-use of components and platforms. I don't think that five years ago, as an industry, we even measured re-use very much because the focus was solely on growth. Now the focus is on efficient growth and cost-effective growth. We embed component and software re-use right at the beginning of product development.
Where do you stand now? We are at about 95 percent compliance on adhering to a sourcing strategy. This really means that when we pick a new component or technology, it's really aligned into that strategy. I think that's about the right amount because things change over time. Some new opportunities will come in and they may be new to the sourcing strategy. And there may be some rationale to have some uniqueness in a part of the product.
What are the economic implications of the new approach? Inventory costs go down. Your pricing is improved because you have more volume. You have fewer of those one-time component shortages, which prevent you from meeting some target in the quarter. We're also trying to get some of those less tangible benefits that are important to the business. This approach is helping us keep our on-time deliveries for installed systems up in the high 90s. It's also helping us on our product quality.
What's the downside? Have you lost some ability to innovate? Have you lost some distinctiveness in your product technology? It's a great question because there is always a healthy debate when we're making that choice in our teams. I'm of the opinion that in a majority of the cases, it's better to standardize and then innovate around the standard building blocks. That's true far more than one could expect. And I think the technology trends are making this easier in a way. Those common building blocks often have so much flexibility in them. You can pretty well define a core set of suppliers and building blocks that give you a degree of flexibility and programmability that provides that balance.
David Ayers is Vice President of Platforms and Quality Engineering at Lucent Technologies.