Question

“The Great Inventory Correction”

1. How has Alter modified its strategy? Why?

2. Do you think Altera’s new strategy will be successful? What are some advantages and disadvantages of the new strategy?

3. How do you anticipate Altera’s customers will react to this strategy? What are advantages and disadvantages for Altera’s customers?

4. What information does Flextronics have that its client do not? Why? How can Flextronics leverage this information?

5. How does IBM manage its suppliers in order to make its pull strategy more effective?

Answer 1

1)

Altera’s old strategy included building finished products, storing them in inventory at distributors and heavy use of subcontractors to build their product. This is basically a push strategy where they were ready to meet demand (in case of any). However, this comes with high inventory cost.

The new inventory strategy implemented few changes. These are

• Do not build inventory immediately but build on order. This is a push-pull strategy that is more effective in managing low inventory cost. The die-banks were pushed but the final products were pulled using customer order
• Gather customer perception and input. They found out if the customers will be willing to wait or what their feedback will be in case there is a wait period for their products. This helped them plan their inventory system better.
• Use software and information technology. They began using SCM software and reduce the cycle time from 4 to 1 week. This is a tremendous jump in productivity and also allowed them to automatically manage production schedules.

2)

Overall the new strategy provides their business with lower inventory management cost, high engagement with customers and overall a comparatively lean operation. This is a positive approach to their business model and they will likely be successful in the new strategy.

The advantage of the new strategy is that it has lower cost of operation, system is more streamlined, value creation is higher, lower risk of obsolete inventory, higher customer engagement and satisfaction.

The disadvantage comes when there is variability in demand. A sudden spike in demand may cause backorder. They have also become dependent on their software system which may become expensive in the future and create a problem.