Supply Chain Dynamics, 3-DCE

Value Chain Strategy: Clockspeed & 3-D Concurrent Engineering Value Chain Strategy: Clockspeed & 3-D Concurrent Engineering 1. Introduction 2. Fruit Flies & Value Chain Evolution 3. Value Chain Design & 3-DCE 4. Value Chain Roadmapping & Strategy Making 3-D Concurrent Engineering & the imperative of concurrency Product Process Detailed Design Product Architecture Unit Production Processes System Specs Materials Functions Modular/ Integral Life Cycles Technology Equipment Fulfillment Objectives Systems People Capacity Architecture Supply Chain Logistics Supply & Coord Chain Architecture System Sourcing Selection Relationship Information Inventory Integration Technology Fulfillment Supply Chain Supply Chain Technology SC Principles to Understand Supply Chain Focus Decision Scope Fulfillment Supply Chain Tactical Costs, Cycle Times, Inventories Strategic Bullwhip Revenue Management IT System Design Order Fulfill. Process Logistics System Design Supply-Demand balance Relationship Design Flexibility Technology Supply Chain Collaborative Prod Devel Clockspeed Double Helix Supply Chain Architecture Value Migration 3-DCE Supply Chain Business Issues Continuous Improvement Operational Objectives/ Customer Requirements -cost -quality -speed (flexibility, responsiveness) -improvement (learning/knowledge) -serviceability Solution Approaches and Procedures Fulfillment -postponement/pooling -quick response -strategic buffers (inv/cap) -demand mgmt -outsource capacity -information quality Capabilities/Technology -common parts/platforms -process standardization -collaborative design -engineering & economic contracts Outcome/ Performance Metrics -benchmark comparison -cost savings analysis -service level Strategic Objectives System Design/Capabilities Product Fulfillment Process Architecture Supply Chain Technology Fulfillment Objectives -logistics efficiency -supply/demand risk mitigation Technology/Design Objectives -design for mfg -design risk mitigation -align sourcing strategy -strategic capabilities External Influences more new products/short life cycles product risk bullwhip competition/customers Value Chain Strategy: Clockspeed & 3-D Concurrent Engineering 1. Introduction 2. Fruit Flies & Value Chain Evolution 3. Value Chain Design & 3-DCE 4. Value Chain Roadmapping & Strategy Making Supply Chain Design in a Fast-Clockspeed World: Study the Industry Fruitflies Evolution in the natural world: Evolution in the industrial world: FRUITFLIES evolve faster than MAMMALS evolve faster than REPTILES INFOTAINMENT is faster than MICROCHIPS is faster than AUTOS evolve faster than AIRCRAFT evolve faster than MINERAL EXTRACTION THE KEY TOOL: THE KEY TOOL: Cross-SPECIES Benchmarking of Dynamic Forces Cross-INDUSTRY Benchmarking of Dynamic Forces Cisco’s End-to-End Integration for its Fulfillment Supply Chain • New product development on-line with supply base • Technology Supply Chain Design: Innovation through Acquisition Customers Order info flows direct to Cisco and suppliers Cisco Finished Product flows direct to customer via logistics supplier Contract Manufacturers • Single enterprise information system • Dynamic replenishment, direct fulfillment, merge in transit • Customer orders through Cisco Connection online Component Suppliers & Distributors Basic Design Principle: Arm’s length Relationship with Fulfillment Chain Partners Cisco’s Strategy for Technology Supply Chain Design 1.Integrate technology around the router to be a communications network provider. 2. Leverage acquired technology with - sales muscle and reach - end-to-end IT - outsourced manufacturing - market growth 3. Leverage venture capital to supply R&D Basic Design Principle: Acquisition Relationship with Technology Chain Partners Volatility Amplification in the Supply Chain: “The Bullwhip Effect” Customer Retailer Distributor Information lags Delivery lags Over- and underordering Misperceptions of feedback Lumpiness in ordering Chain accumulations Factory Tier 1 Supplier Equipment SOLUTIONS: Countercyclical Markets Countercyclical Technologies Collaborative channel mgmt. (Cincinnati Milacron & Boeing) LESSONS FROM A FRUIT FLY: CISCO SYSTEMS 1. KNOW YOUR LOCATION IN THE VALUE CHAIN 2. UNDERSTAND THE DYNAMICS OF VALUE CHAIN FLUCTUATIONS 3. THINK CAREFULLY ABOUT THE ROLE OF VERTICAL COLLABORATIVE RELATIONSHIPS 4. INFORMATION AND LOGISTICS SPEED DO NOT REPEAL BUSINESS CYCLES OR THE BULLWHIP. Bonus Question: How does clockspeed impact volatility? INDUSTRY CLOCKSPEED IS A COMPOSITE: OF PRODUCT, PROCESS, AND ORGANIZATIONAL CLOCKSPEEDS Mobile Phone INDUSTRY CLOCKSPEED THE Mobile Phone product technology THE Mobile Phone PRODUCTION PROCESS process technology THE Mobile Phone MANUFACTURING COMPANY organization Mobile Phone System CLOCKSPEED is a mix of Transmission Standards, Software and Handsets Mobile Phone System TRANSMISSION STANDARD slow clockspeed SOFTWARE APPLICATIONS HAND SET medium clockspeed OPERATING SYSTEM slow clockspeed SERVICES fast clockspeed fast clockspeed ISSUE: THE FIRMS THAT ARE FORCED TO RUN AT THE FASTEST CLOCKSPEED ARE THE MOST LIKELY TO STAY AHEAD OF THE GAME. Automobile CLOCKSPEED IS A MIX OF ENGINE, BODY & ELECTRONICS Automobile ENGINE slow clockspeed BODY ELECTRONICS medium clockspeed fast clockspeed ISSUE: MOST AUTO FIRMS OPERATE AT ENGINE OR BODY CLOCKSPEEDS; IN THE FUTURE THEY WILL NEED TO RUN AT ELECTRONICS CLOCKSPEED. Clockspeed drives Business Strategy Cadence Dynamics between New Projects and Core Capability Development: PROJECTS MUST MAKE MONEY AND BUILD CAPABILITIES CORE CAPABILITIES NEW PROJECTS (New products, new processes, new suppliers) Projects Serve Three Masters: Capabilities, Customers, & Corporate Profit CORE CAPABILITIES PROJECT DESIGN R E OM T S E CU ALU TION V SI O OP R P (New products, new processes, new suppliers) COR POR VALU ATE E PRO POS ITION The Strategic Leverage of Value Chain Design: Who let Intel Inside? 1980: IBM designs a product, a process, & a value chain Customers Intel IBM Intel Inside Microsoft The Outcome: A phenomenonally successful product design A disastrous value chain design (for IBM) LESSONS FROM A FRUIT FLY: THE PERSONAL COMPUTER 1. BEWARE OF INTEL INSIDE (Regardless of your industry) 2. MAKE/BUY IS NOT ABOUT WHETHER IT IS TWO CENTS CHEAPER OR TWO DAYS FASTER TO OUTSOURCE VERSUS INSOURCE. 3. DEVELOPMENT PARTNERSHIP DESIGN CAN DETERMINE THE FATE OF COMPANIES AND INDUSTRIES, AND OF PROFIT AND POWER 4. THE LOCUS OF VALUE CHAIN CONTROL CAN SHIFT IN UNPREDICTABLE WAYS Vertical Industry Structure with Integral Product Architecture Computer Industry Structure, 1975-85 IBM DEC BUNCH All Products All Products All Products Microprocessors Operating Systems Peripherals Applications Software Network Services Assembled Hardware Horizontal Industry Structure with Modular Product Architecture Computer Industry Structure, 1985-95 Intel Intel Microprocessors Operating Systems Peripherals Applications Software Network Services Assembled Hardware Mac Moto Microsoft HP IntelEpson Microsoft Mac Mac Seagate Lotus Novell AOL/Netscape Microsoft HP Compaq IBM Dell TI etc etc AMD Unix TIetc etcetc etc EDS etc etc etc etc THE DOUBLE HELIX IN OTHER INDUSTRIES • TELECOMMUNICATIONS-- – “MA BELL” was Vertical /Integral – BABY BELLS & LONG LINES & CELLULAR are Horizontal/Modular – Today’s Verizon is going back to Vertical /Integral • AUTOMOTI VE-- – Detroit in the 1890’s was Horizontal/Modular – Ford & GM in the mid 1900’s were Vertical /Integral – Today’s Auto Industry is going back to Horizontal/Modular • TELEVISION-- – RCA was Vertical /Integral – 1970’S THROUGH 1990’S were Horizontal/Modular – Today’s media giants are going back to Vertical /Integral • BICYCLES-- – Safety Bikes to 1890’s boom to Schwinn to Shimano Inside Controlling the Chain Through Distribution: The End of P&G Inside ? • • Controlling the Channel Through Closeness to Customers: consumer research, pricing, promotion, product development Customers Retailer Retailer Retailer P&G Controlling the Chain Through Distribution: Beware of Walmart Outside Controlling the Channel Through Closeness to Customers: Chain Proximity Customers WalMart Retailer Retailer P&G Retailer WalMart Private Label Vertical Growth on the Double Helix Clockspeeds accelerate as you head downstream, closer to the final customer ; Clockspeed = f(technology push, customer pull, system complexity) New Phone Applications Web Site Developer In-Vehicle Services Handset Platforms PC Maker Automobile Telecom Equipment Optical Components Chip maker Semiconductor Equipment Maker Telematics System Vehicle Electronics Architecture Media Supply Chains: An Industry at Lightspeed Customers The box Wired Phone Wireless phone PC/laptop PDA Television VCR Page r The Content The Pipe (Access, Metro, Backbone) Land-basedTelco: -copper POTS -fiber -DSL Cable Networks Wireless: -broadcast TV -CDMA, TDMA, GSM -satellite/microwave Retail Outlets -Borders: -Blockbuster -Seven-Eleven Delivery (e.g., Fedex) Video/Audio: Movies & Art & News & Sports News/articles/books (newspapers & magazines) Communication: voice & video & email Banking Education Shopping Internet, et al ALL COMPETITIVE ADVANTAGE IS TEMPORARY Autos: Ford in 1920, GM in 1955, Toyota in 1990 Computing: IBM in 1970, DEC in 1980, Wintel in 1990 World Dominion: Greece in 500 BC, Rome in 100AD, G.B. in 1800 Sports: Bruins in 1971, Celtics in 1986, Yankees no end The faster the clockspeed, the shorter the reign Value Chain Strategy: Clockspeed & 3-D Concurrent Engineering 1. Introduction 2. Fruit Flies & Value Chain Evolution 3. Value Chain Design & 3-DCE 4. Value Chain Roadmapping & Strategy Making VALUE CHAIN DESIGN: Three Components 1. Insourcing/OutSourcing (The Make/Buy or Vertical Integration Decision) 2. Partner Selection (Choice of suppliers and partners for the chain) 3. The Contractual Relationship (Arm’s length, joint venture, long-term contract, strategic alliance, equity participation, etc.) IMPLEMENTATION OF VALUE CHAIN DESIGN: EMBED IT IN 3-D CONCURRENT ENGINEERING PRODUCT Performance Specifications Recipe, Unit Process PROCESS Technology, & Process Planning Details, Strategy Product Architecture, Make/Buy components Time, Space, Availability Manufacturing System, Make/Buy processes VALUE CHAIN Projects Serve Three Masters: Capabilities, Customers, & Corporate Profit CORE CAPABILITIES PROJECT DESIGN R E OM T S E CU ALU TION V SI O OP R P (New products, new processes, new suppliers) COR POR VALU ATE E PRO POS ITION IMPLEMENTATION OF PROJECT DESIGN: FRAME IT AS 3-D CONCURRENT ENGINEERING PRODUCT Performance Specifications Recipe, Unit Process PROCESS Technology, & Process Planning Details, Strategy Product Architecture, Make/Buy components Time, Space, Availability Manufacturing System, Make/Buy processes VALUE CHAIN ARCHITECTURES IN 3-D INTEGRALITY VS. MODULARITY Integral product architectures feature close coupling among the elements - Elements perform many functions - Elements are in close spacial proximity - Elements are tightly synchronized - Ex: jet engine, airplane wing, microprocessor Modular product architectures feature separation among the elements - Elements are interchangeable - Elements are individually upgradeable - Element interfaces are standardized - System failures can be localized Ex: stereo system, desktop PC, bicycle - VALUE CHAIN ARCHITECTURE Integral value-chain architecture features close proximity among its elements - Proximity metrics: Geographic, Organizational Cultural, Electronic - Example: Toyota city - Example: Ma Bell (AT&T in New Jersey) - Example: IBM mainframes & Hudson River Valley Modular value-chain architecture features multiple, interchangeable supplier and standard interfaces - Example: Garment industry - Example: PC industry - Example: General Motors’ global sourcing - Example: Telephones and telephone service ALIGNING ARCHITECTURES: BUSINESS SYSTEMS & TECHNOLOGICAL SYSTEMS TECHNOLOGY/PRODUCT ARCHITECTURE BUSINESS SYSTEM/SUPPLY CHAIN ARCHITECTURE (Geog., Organ., Cultural, Elec.) INTEGRAL IN TE GR AL Microprocessors Mercedes & BMW vehicles MSFT Windows MO D UL AR Digital Rights/ Music Distribution MODULAR Lucent Nortel Chrysler vehicles Polaroid Cisco Dell PC’S Bicycles ALIGNING ARCHITECTURES: BUSINESS SYSTEMS & TECHNOLOGICAL SYSTEMS BUSINESS SYSTEM ARCHITECTURE (Geog., Organ., Cultural, Elec.) INTEGRAL TECHNOLOGICAL SYSTEM ARCHITECTURE INTEGRAL Jet engines Microprocessors Mercedes vehicles Automotive Supplier Parks MODULAR MODULAR Polaroid Lucent, Nortel Personal Computers Bicycles Chrysler Vehicles Cisco Demand-Supply Chain Management @ Dell ƒ ƒ ƒ Demand Management: Forecast = Buy = Sell Buy to Plan, but Build to Order • Inventory Velocity is a wonderful thing … • Customers have immediate access to the latest technology. • Suppliers get their products to market quickly • Quality is improved with fewer touches. • Cash is generated through negative cash cycle. • Model efficiencies drive Market Share gain. Dell Supply Chain Global \ Regional Procurement Continuity Continuity of of Supply Supply Demand/ Supply Management Demand Demand Management Management Sales Build Build to to customer customer specifications specifications Supplier Dell SLC I Customer I Supplier Materials ordering cycle 10-180+ days Customer fulfillment 2-5 days Modular Product Architecture enables Modular Supply Chain The Dell Model: Simple, Focused, Efficient Keep It Simple…Direct Suppliers Dell Execute Operational Efficiency Customer Quality Speed Dell Cost Competitive Advantages Availability Best Customer Experience Measure What Matters Dell Low Cost Efficiency Liquidity Virtual Integration Growth Dell Profitability Dynamics of Dell Success Pass cost savings on to customer Industry's most efficient procurement, manufacturin g and distribution process Efficient Model with Lowest Cost Structure Competitive Pricing Dell Competitive pricing ignites demand Drives Market Share Help Drive Supplier Business Lower cost drives Increased demand LESSON: SYSTEM SPEED FROM MODULAR PRODUCT Can “Dell Direct” Work for Autos? • Appealing to OEM’s on Many Dimensions –Satisfy customer need for Speed –Reduce Supply Line Inventories –Reduce mismatches and discounting –Direct OEM-Customer Relationships (& Data!) –Information Transparency BUT, A Car is not a Computer!! • Personal Computer • ~50 components • 8-10 key parts • 40 key suppliers • 24 hour burn-in • 100 design • variations • Modular • Architecture • Car • • • • • • • • ~ 4000 components 100 key subsystems 300 key suppliers 12 month validation 1,000,000 variations Integral Architecture DESIGNING ARCHITECTURES FOR PRODUCTS & VALUE CHAINS: MODULARITY VS. OPENNESS ARCHITECTURAL PROPRIETARINESS CLOSED ARCHITECTURAL STRUCTURE Pentium Chip INTEGRAL MODULAR Mercedes Vehicles SAP ERP IBM Mainframes Microsoft Windows Chrysler Vehicles OPEN Linux Palm Pilot software & accessories Phones & service Web-based ERP INFORMATION ARCHITECTURE MUST REFLECT BUSINESS MODEL In/Outsourcing: Sowing the Seeds of Competence Development to develop dependence for knowledge or dependence for capacity Independence Dependence + Amount of Work Outsourced knowledge +/or supply Supplier Capability + Amount of Supplier Learning + Amount of Work Done In-house + knowledge +/or supply Internal Capability + + Amount of Internal Learning Technology Dynamics in the Aircraft Industry: LEARNING FROM THE DINOSAURS + Japanese appeal as subcontractors U.S. firms’ appeal as subcontractors + + Boeing outsources Japanese Industry Autonomy to Japan (Mitsubishi Inside?) + Japanese industry size & capability + - U.S. industry size & capability SOURCEABLE ELEMENTS PROCESS ELEMENTS ENGINEERING CONTROLLER ASSY VALVETRAIN TEST BLOCK SUBSYSTEMS I4 V6 V8 PRODUCTS ITEM IS INTEGRAL ITEM IS MODULAR Strategic Make/Buy Decisions: Assess Critical Knowledge & Product Architecture DEPENDENT FOR KNOWLEDGE & CAPACITY A POTENTIAL OUTSOURCING TRAP WORST OUTSOURCING SITUATION INDEPENDENT FOR KNOWLEDGE & DEPENDENT FOR CAPACITY BEST OUTSOURCING OPPORTUNITY CAN LIVE WITH OUTSOURCING INDEPENDENT FOR KNOWLEDGE & CAPACITY OVERKILL IN VERTICAL INTEGRATION BEST INSOURCING SITUATION Adapted from Fine & Whitney, “Is the Make/Buy Decision Process a Core Competence?” Strategic Make/Buy Decisions: Also consider Clockspeed & Supply Base Capability Fast Slow Clockspeed Clockspeed Fast Slow Clockspeed Fast Slow Few Many Clockspeed Suppliers or Few Many W Suppliers INTEGRAL st Watch it! Be st O O Few Many ut Few Many K OK Fast Slow Suppliers Fast Slow Clockspeed Suppliers Tr ap Few Many Suppliers DECOMPOSABLE (Modular) Clockspeed INDEPENDENT FOR KNOWLEDGE & CAPACITY Be Suppliers Ove st Few Many k rIn ill DEPENDENT FOR CAPACITY ONLY DEPENDENT FOR KNOWLEDGE & CAPACITY Fast Slow Qualitative analysis of strategic importance uses five key criteria Value chain elements with high customer importance and fast clockspeed are generally strategic (unless there are many capable suppliers) ‹ Competitive position is seldom the primary consideration for strategic importance, rather it serves as a “tie-breaker” when other criteria are in conflict Competitive ‹ Customer Importance: • High • Medium • Low Technology Clockspeed: • Fast • Medium • Slow ‹ ‹ When many capable suppliers exist, knowledge may be considered commodity and development should be outsourced Position: • Advantage • Parity • Disadvantage Architecture is considered a constraint for the sourcing decision model, controls the level of engineering that must be kept in house for integration purposes Capable Suppliers: • None • Few • Many Architecture: • Integral • Modular Possible Decisions (Knowledge & Supply): • Insource • Outsource • Partner/Acquire • Partial Insource • Partial Outsource • Invest • Spin Off • Develop Suppliers Every decision requires qualitative and quantitative analysis to reach a conclusion High Knowledge Supply Qualitative Value Strategic Importance Qualitative Model Improve Economics Divest/ Outsource Customer Importance: Hig h Med ium Low Competitive Position: • Ad vantage • Parity • Disa dva nta ge Low Quantitative Value Capable Suppliers: • No ne • Few • Many Possible Decisions: High Insource Outsource Partner/Acquire Partial Insource Partial Outsource Invest Spin Off Develop Suppliers Engine A EVA Engines EVA PBIT EVA AS-IS BIC AS-IS COGS BMK BIC Taxes AS-IS Capital Charge BIC AS-IS X BMK Working Capital +. WACC BMK −. Net Assets AS-IS . . . Transmissions EVA AS-IS BIC BIC AS-IS NOPAT Engine B EVA GMPT EVA Revenue −. AS-IS • • • • • • • • BIC • In teg ral • Modular AS-IS Architecture: AS-IS BMK BIC • Fas t • Medium • Slow Harvest Investment Low Technology Clockspeed: AS-IS • • • Invest & Build Fixed Assets Quantitative Model (Financial) Value Chain Mapping Organizational Supply Chain Chrysler casting supplier Eaton clay supplier Technology Supply Chain engines valve lifters casting manufacturing process clay chemistry Capability Chain Supply Chain Management Quality assurance NVH engineering Underlying Assumption: You have to draw the maps before you can assess their dynamics. R&D VALUE CHAIN DESIGN IS THE ULTIMATE CORE COMPETENCY Since all advantages are temporary, the only lasting competency is to continuously build and assemble capabilities chains. KEY SUB-COMPETENCIES: 1. Forecasting the dynamic evolution of market power and market opportunities 2. Anticipating Windows of Opportunity 3. 3-D Concurrent Engineering: Product, Process, Value Chain CAPABILITIES Fortune Favors the Prepared Firm PROJECTS PROCESS FOR VALUE CHAIN DESIGN 1. Benchmark the Fruit Flies DOUBLE HELIX 2. Map your Supply Chain -Organizational Value Chain BOEING -Technology Value Chain -Competence Chain 3. Dynamic Chain Analysis at each node of each chain map 4. Identify Windows of Opportunity 5. Exploit Competency Development Dynamics with 3-D Concurrent Engineering CAPABILITIES PROJECTS DOT.COM COMPETITION: FOCUS ON THE SUPPLY CHAIN Napster’s New Supply Chain Strategy (go to the end and steal everything!) Identify Talent Develop Songs Vertically Integrated Music Giants Record Music Napster Promote Music Steal Songs Alternate Solution: partner with your competitor Press CD’s Sell to Retail Customer Consumption STRATEGY IN 3-D: CASE EXAMPLES Boeing: Static 3-D in airplane Projects Dynamic, Strategic Value Chain, unintegrated w/ Product & Process Intel: Modular Product vs. Process Integral Process and Value Chain Chrysler: Modular Product & Value Chain (weak on process?) Toyota: Integral 3-D in Nagoya (weak on global 3-D?) Team Exercise: Value Chain Analysis What are the key elements in the value chain? What are the key dynamic processes influencing power in the chain? What are the key dependency relationships in the value chain? What is driving the clockspeed in the chain? What are the opportunities for outsourcing to contract manufacturers? What are the windows of opportunity in the chain? Value Chain Strategy: Clockspeed & 3-D Concurrent Engineering 1. Introduction 2. Fruit Flies & Value Chain Evolution 3. Value Chain Design & 3-DCE 4. Value Chain Roadmapping & Strategy Making One View (the consumer’s) of the Communications Value Chain Form (Size, Weight, Ergonomics) O/S (Windows, Linux, Palm) HW system (OEM, ODM, CEM) Bundled Apps (phone, MP3, IM, etc.) Network (CDMA, WiFi, Sonet, IP, Cable) Equipment (Lucent, Ericcson, Cisco) Appliance (Phone, Camera, Laptop, PDA, TV, Missile, MP3 Player) Access (Wireless, POTS, ISP, Satellite, Cable, HotSpot) Channel (KaZaA, AOL/TW, MTV) Artist (Madonna, NBA, Spielberg, SAP, Self) Openness (EFF, RIAA/DMCA, TCPA) C O N S U M E R Content & Applications (Music, Movies, Email, VoIP, Shopping, ERP, SCM, CRM, Banking, IM, Surveillance, Photos, Games) Another View of the Communications Value Chain MATERIALS & PROCESS EQUIP •Silicon •Gaas •InP •Polymers •Steppers •Etchers •MEMS •Insertion •Etc.. COMPONENTS •Lasers •Amplifiers •Transceiver •Filters •Processors •Memories •Fiber •ASICS •MEMS •DSP’s •Etc.. EQUIPMENT MAKERS •Routers •Switches •Hubs •Base Stations •Satellites •Servers •Software •O/S •Etc.. NETWORK OWNERS •Wireless •Backbone •Metro •Access •Substations •Satellites •Broadcast Spectrum •Communic Spectrum •Etc.. SERVICE PROVIDERS •Long dist. •Local •Cellular •ISP •Broadcast •Hot Spots •Cable TV •Satellite TV •VPN’s •MVNO’s •Etc.. CONTENT & APPLICS •Music •Movies •Email •VoIP •POTS •Shopping •ERP •SCM, CRM •Surveillance •eBusiness •Etc.. APPLIANCES •Computers •Phones •Media Players • Cameras •PDA’s •Weapons •Etc.. END USERS •Business •Consumer •Gov’t •Military •Education •Medical •Etc.. CROSS-INDUSTRY CHALLENGES Digital Rights ( “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;” U.S. Constitution, Article 1, Section 8, Clause 8 ) Access Architecture Roadmapping Communications: What are the Premises? Communications Value Chain is in ill health (ROADKILL MAPPING?) Silos in the value chain are interdependent (integrality). Vertical Absence of disintegration is leadership and the dominant coordination across structure. Silo an interdependent execs tend to focus value chain creates on their own uncertainty, risk, narrow slices. SOME VALUE CHAIN and reluctance to Most industry COORDINATION COULD invest. consortia are SPEED GROWTH. within-silo. HOW TO ACHIEVE COORDINATION IN THE ABSENCE OF VERTICAL INTEGRATION? Roadmapping Communications: What are the Premises? Technology dynamics, Industry dynamics, and Regulatory dynamics are interdependent. Technology and industry roadmapping are typically done by different people SIA roadmaps provided productive coordination in semiconductors, but focused only on technology & a narrow slice of the value chain. Industry growth was assumed. --> Not a good model for Communications. Productive roadmapping must encompass multiple links of the value chain, a multidisciplinary team, and the coevolution of technology, industry, and regulatory policy. “If you come to a fork in the Road[map], Take it.” --Yogi Berra INFORMATION WANTS TO BE SHARED ==> Difficult content business models Internet explosion Wireless Explosion Connectivity Explosion File Sharing Explosion INFORMATION SHARERS GO TO JAIL ==> Poverty of The Commons “If you come to a fork in the Road[map], Take it.” --Yogi Berra INFORMATION WANTS TO BE SHARED ==> Difficult content business models Internet explosion Wireless Explosion Connectivity Explosion File Sharing Explosion Is there a third way? (Quantum Roadmap) INFORMATION SHARERS GO TO JAIL ==> Poverty of The Commons Proposed MIT Communications Roadmap Consortium RLE MPC, MTL MATERIALS & PROCESS EQUIP •Silicon •Gaas •InP •Polymers •Steppers •Etchers •MEMS •Insertion •Etc.. COMPONENTS •Lasers •Amplifiers •Transceiver •Filters •Processors •Memories •Fiber •ASICS •MEMS •DSP’s •Etc.. eBusiness, Oxygen, Media Lab LCS ITC EQUIPMENT MAKERS •Routers •Switches •Hubs •Base Stations •Satellites •Servers •Software •O/S •Etc.. NETWORK OWNERS •Wireless •Backbone •Metro •Access •Substations •Satellites •Broadcast Spectrum •Communic Spectrum •Etc.. SERVICE PROVIDERS •Long distance •Local Phone •Cellular •ISP •Broadcast •Hot Spots •Cable TV •Satellite TV •VPN’s •MVNO’s •Etc.. CONTENT & APPLICS •Music •Movies •Email •VoIP •POTS •Shopping •ERP •SCM, CRM •Surveillance •eBusiness •Etc.. APPLIANCES •Computers •Phones •Media Players • Cameras •PDA’s •Weapons •Etc.. END USERS •Business •Consumer •Gov’t •Military •Education •Medical •Etc.. CROSS-INDUSTRY CHALLENGES Digital Rights ( “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;” U.S. Constitution, Article 1, Section 8, Clause 8 ) Access Architecture Dynamic Analysis to Support Industry & Technology Roadmapping Corporate Strategy Dynamics Customer Preference Dynamics Technology Dynamics Regulatory Policy Dynamics Capital Market Dynamics Industry Structure Dynamics Business Cycle Dynamics Business Cycle Dynamics “The Bullwhip Effect” Customer Retailer Distributor Information lags Delivery lags Over- and underordering Misperceptions of feedback Lumpiness in ordering Chain accumulations Factory Tier 1 Supplier Equipment SOLUTIONS: Countercyclical Markets Countercyclical Technologies Collaborative channel mgmt. (Cincinnati Milacron & Boeing) Corporate Strategy Dynamics CORE CAPABILITIES PROJECT DESIGN R E OM T S E CU ALU TION V SI O OP R P (New products, new processes, new suppliers) COR POR VALU ATE E PRO POS ITION Corporate Strategy Dynamics TECHNOLOGY/PRODUCT ARCHITECTURE BUSINESS SYSTEM/SUPPLY CHAIN ARCHITECTURE INTEGRAL IN TE GR MO D UL AL AR MODULAR Microprocessors Mercedes & BMW vehicles Lucent Nortel Polaroid MSFT Windows Chrysler vehicles Cisco Digital Rights/ Music Distribution Dell PC’S Bicycles Customer Preference Dynamics 1. Population - Aging, Growth 2. Awareness - of Environment/Energy costs, Personal Health - of consumption possibilities & disparities 3. Globalization - of commerce, culture, knowledge, disease, terrorism 4. Clusters - urbanization - wealth - affinity/ethnic groups 5. Technology - cheap computation, pervasive connectivity - technology at the molecular (nano) level (life sciences, electronics, polymers) Regulatory Policy Dynamics: Some Components 1. Players: United States: FCC, Congress, Consumers, Corporations, Interest Groups 2. Environments: Wireless in Europe, NTT DoCoMo, Broadband in Sweden & Korea India vs. China Development US: Access, Digital Rights 3. Standards: e.g., wCDMA vs CDMA2000 Roadmap for Electronic Devices Number of chip components 295oK 1018 Classical Age 1016 Quantum Age 77oK 1014 4oK 2010 SIA Roadmap 2005 Quantum State Switch 2000 1995 1012 1010 108 Historical Trend 1990 6 10 1980 104 CMOS 1970 102 101 100 10-1 Feature size (microns) 10-2 10-3 International Technology Roadmap for Semiconductors ‘99 Year 2005 2008 2011 2014 Technology (nm) 100 70 50 35 DRAM chip area (mm2) 526 603 691 792 DRAM capacity (Gb) 8 64 MPU chip area (mm2) 622 713 817 937 MPU transistors (x109) 0.9 2.5 7.0 20.0 MPU Clock Rate (GHz) 3.5 6.0 10.0 13.5 Moore’s Law Transistors per chip 109 ? 108 Pentium 80786 Pro 107 80486 Pentium 106 80386 80286 105 8086 8080 104 4004 103 1970 1975 1980 1985 1990 Year 1995 2000 2005 2010 Disk Drive Development 1978-1991 Disk Drive Dominant Generation Producer 14” 8” IBM Dominant Usage Approx cost per Megabyte mainframe $750 Quantum Mini-computer $100 5.25” Seagate Desktop PC $30 3.5” Conner Portable PC $7 2.5” Conner Notebook PC $2 From 1991-98, Disk Drive storage density increased by 60%/year while semiconductor density grew ~50%/year. Disk Drive cost per megabyte in 1997 was ~ $ .10 ”Killer Technologies” of the Information Age: Semiconductors, Magnetic Memory, Optoelectronics “We define a ‘killer technology’ as one that delivers enhanced systems performance of a factor of at least a hundred-fold per decade.” Killer Question: Will Integrated Optics evolve linearly like Semiconductors with Moore’s Law or like Disk Drives with repeated industry disruptions? 78 Example Concept for Integrated Photonics Chip Optical Technology Evolution: Navigating the Generations with an Immature Technology 1 2 3 4 5 Timeline Now Starting Starting 3-5 years 5-15 years Stage Discrete Components Hybrid Integration Low-level monolithic integration Medium Monolithic integration High-level monolithic integration Examples MUX/ DEMUX TX/RX module OADM TX/RX module OADM OADM, Transponder Switch Matrix Transponder Core Technologies FBGs, Thinfilm, fused fiber, mirrors Silicon Bench, Ceramic substrates Silica Silicon InP InP, ?? InP, ?? How many Functions? 1 2-5 2-5 5-10 10-XXX Industry Structure Integrated Integrated/ Horizontal Integrated /Horizontal DOUBLE HELIX DOUBLE HELIX WIRELESS VALUE CHAIN:MINI CASE EXAMPLE Wireless Base Stations (WSB’S) comprise 4 key subsystems: Radio Part Digital Signal Processing Modem WSB architectures are -integral & proprietary Suppliers include: Nortel, Moto, Ericsson, Siemens, Nokia Disruptive Modem advances (e.g., MUD) can double Base Station Capacity Transmission Interface Fiber & WireBased Network Modular WSB’s might (1) Stimulate new WSB entrants (ala Dell) (2) Stimulate standard subsystem suppliers (3) lower prices to the network operators (4) Speed base station performance imp. (5) Increase demand for basestations due to improved price-performance ratios. Supply Chain Design is the Ultimate Core Competency: Competency of passing judgement on all other competencies Benchmark the Fruit Flies • Beware of Intel Inside • SC control point unstable (comp, assem, distrib) • SC structures oscillate -- int/int or mod/mod • The Bullwhip lives • Dependence/Independence has positive feedback •Projects feed capabilities & vice-versa •eBusiness accelerates Clockspeeds •All Advantage is Temporary •Align Architectures in Pdt, Proc, & SC •Tech & Comp drive clockspeeds Ve l gra e t In al/ rtic DOUBLE CAPABILITIES Product Process Supply Chain BOEING HELIX H lar odu M / l onta oriz Dependency PROJECTS All Conclusions are Temporary Clockspeeds are increasing almost everywhere Many technologies and industries exhibits fast clockspeed & high volatility Value chain design and service system key competencies Study of Fruit Flies can help with crafting strategy Mother Nature strikes The Cell Phone Supply Chain 8:00 pm, Friday 17 March 2000: Lightning Strikes an ASIC semiconductor plant of Philips in Albuquerque, New Mexico, USA 8:10 pm: Fire is extinguished. Plant will be down for months. Ericsson Cell Phones Philips Chip Factory LESSON: RESPONSE SPEED Nokia Cell Phones Mother Nature strikes The Cell Phone Supply Chain NOKIA Shipment discrepancies noticed within 3 days. Philips is pushed hard. New supply sources. New chip design. Global capacity grab. ERICSSON Problem undiscovered for weeks. Slow chain of command. Slow response. Capacity already taken. $400M revenue loss. Exits phone manufacture. Ericsson Cell Phones Philips Chip Factory LESSON: RESPONSE SPEED Nokia Cell Phones