Nortel evaluates its outsourcing strategy
By James Carbone -- Purchasing, 12/10/1998
While PC companies and high-tech start-ups have embraced outsourcing with the fervor of a newly ordained minister, telecommunications OEMs have taken a more cautious approach. Case in point: Nortel, the Canadian-based designer and manufacturer of public carrier networks, cellular, data communications, and Internet equipment.While Nortel outsources nearly $1 billion worth of manufacturing, that is only a small percentage of its manufacturing. Most of the equipment is built in house, says Jose Mejia, vice president of supply and external manufacturers. Mejia says Nortel is evaluating its contract manufacturing strategy. "We are looking at what makes sense in contract manufacturing," he says.
Nortel and other telecommunications companies like Ericssen, Alcatel, and Lucent are circumspect about outsourcing because of the breadth of products they make, the many technologies involved, and the need for high quality and high reliability.
"If you pick up a phone your expectations are that you will get a clear dial tone and you can make a call. If you can't, you're angry," says Mejia.
Contract manufacturers' (CMs) biggest customers to date have been PC-related companies. "Now CMs are going into other industries such as telecom and are finding a different challenge--they have to learn how to truly be best in class in manufacturing," says Mejia. "Up to this time they did not have to prove that they were best in class."
Before Nortel turns over its manufacturing, it needs to make sure that its external manufacturers can produce the same level of reliability as Nortel can.
"Nortel has been manufacturing for a long time. We have a lot of expertise and have learned a lot about the art of manufacturing quality, reliable product," he says. He adds that if Nortel decides to outsource it has to figure a way to keep that expertise within its new supply chain. "If we outsource, we want to make sure customers don't feel any pain."
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