In 1947, Bell Labs invented the transistor, a seminal development in the digital revolution. In 2001, some wondered if its successor company, Lucent Technologies, could even survive. Devastated by a collapse in telecommunications, Lucent was experiencing a negative cash flow of $2.2 billion and was buried in useless inventories. It was a supply chain implosion.

Early last year, Lucent re-invented itself and created a striking new definition of supply chain management. The Lucent Supply Chain Network brings together all the resources used in manufacturing, engineering, R&D, distribution, logistics, installation and supply chain management into a single supplier- and customer-facing group. Accomplishments include:

• Reduction of inventory by more than $5 billion,
• Savings of $1.7 billion in non-production (indirect) costs through e-procurement, outsourcing and other strategies,
• Focus on strategic supplier partnerships that has resulted in year-to-year, price-over-price savings of 19.5% on negotiated contracts. Supplier partnership workshops (a process like value analysis) created an additional savings in excess of 3%.
• Slashed North American warehouses by 85% and improved logistics quote-to-cash cycle time by 49%, and
• Significantly expanded manufacturing outsourcing.

"What's important is not so much the creation of the Supply Chain Network organization, but the impact it has had," Lucent Chief Operating Officer Bob Holder said when he sat down recently with myself and Electronics Executive Editor Jim Carbone. Example: Three years ago the chief of procurement was a junior corporate role at Lucent. Today, the president of the SCN group, Jose Mejia, is one of four key operational leaders at Lucent.

The most dramatic change is the role of Mejia's group in margin forecasting. Holder says: "We used to have a very decentralized approach to projecting profitability from our sales teams. They didn't have the necessary visibility into product costs." The supply team could factor in inventory, new product, distribution and other costs. SCN developed a cost and profit model that predicts gross margin performance for six quarters forward. The model now serves as the basis for all product unit financial and portfolio planning and is used to prioritize projects. Mejia's group shows gross margins at Lucent are improving even though telecom sales continue to tank.

Lucent Technologies wins the 2002 PURCHASING magazine Medal of Professional Excellence for its bold new vision of the supply chain.