This push strategy backfired, and resulted in the $115 million loss. Altera has now modified their strategy towards a push-pull strategy. The push strategy is to produce mainstream products in the form of die banks, which is the largest portion of the manufacturing process. This allows flexibility in their inventory with minimum risk. The final form of the product will start after orders are placed and confirmed. Altera will now only build to order and no longer lean forward by building from specs.
This is the new applied pull portion of the strategy. 2. Do you think Altera’s new strategy will be successful? What are some advantages and disadvantages of the new strategy? I think the new strategy, implementing a push-pull strategy will vastly improve efficiencies throughout Altera. Some advantages and disadvantages are as follows; Advantages * Risks will be decreased as bulk die banks will provide a readily available and flexible inventory for product demand while holding manufacturing time to a reasonable level. Effective inventory management responsibility will display confidence in business operations and promote future joint ventures, such as those made with Motorola and Nortel. * Process improvements have reduced cycle time for wafer manufacturing and reduced long term planning time 75 percent with the implementation of supply chain management software. Disadvantages * Reliance on more strategic forecasting information from customers may limit the customers Altera will be able to integrate with. Not all companies will want to provide this information. Previous customer’s may not like the new build to order strategy as lead times will increase to weeks and months versus having readily available but risky stocks on hand, ready for shipment, where Altera carried all the risk. * Inventory levels will have to be closely monitored as the customer orders will require special handling and production scheduling versus the push mentality of producing many products to stock. 3. How do you anticipate Altera’s customers will react to this new strategy? What are some advantages and disadvantages for Altera’s customer?
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I believe Alters customers will react positively to their strategic changes. It should appear to the customers as an obvious solution to establish open communications and seeking more information to help the customer, however there are advantages and disadvantages. Advantages * Altera will have better insight into inventory levels of the customers and be in a better position to advise of possible overstocking. * Implementation of supply change management software will improve production and inventory efficiencies. The cost savings may be passed down to Altera’s customers.
Disadvantages * Altera’s customers may see longer lead times for parts. Parts previously received in days are now going to take weeks and months, pending customer orders. Advance notice and more open communication should mitigate adverse effects on production. * The customer may be reluctant to share inventory and build plans for future products, especially if Altera provides support to the customer’s competitors. 4. What information does Flextronics have that it’s clients do not? Why? How can Flextronics leverage this information?
Flextronics, one of the world’s largest electronic manufacturing services, was in a position that allowed them to see company’s excessive demands for inventory. The inventory levels for these high tech companies grew from $470 million to $1. 7 billion within a year. The aggregate inventory levels were flooding the industry and as illustrated in a decentralized system, typically benefits only the manufacture of the components. Allowed to continue, this will have an adverse effect on the manufacturer as a result of the bullwhip affect.
Flextronics can leverage this information by implementing a supplier-managed inventory environment system. Flextronics will attempt to establish material hubs where supplier’s facilities are located close to Flextronics factories. This will allow Flextronics to play a more important role in demand shaping for electronics. The insight will help determine impacts of product withdrawal and demand forecasts throughout the industry and avoid dramatic shifts in production and inventory glut.