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Supply and Demand Mobile Operators


Supply and Demand Mobile Operators document sample

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									  Supply as an enabler in the new telecoms world
  Andreas Grundsell and Karin Mallmin

Building the third-generation network infrastructures needed for mobile                 from zero to 600 million in 15 years puts it
Internet services will require the production and delivery of base stations             in a league of its own.
and network nodes in very large volumes.                                                   Yet it is interesting to look back to the
   At the same time, the demand for infrastructure equipment for GSM                    late 1980s and remind ourselves that the
and other second-generation networks will continue to grow as existing                  mobile phone was then regarded as an ac-
                                                                                        cessory that could only be afforded and jus-
networks expand to cope with the twin pressures of subscriber growth
                                                                                        tified by business people. In 1988, the in-
and traffic growth.                                                                     dustry was forecasting that by the year 2000,
   The supply processes that have brought the mobile communications                     the number of mobile phone users might
industry this far will not be adequate to cope with the extreme market                  reach 20 million in western Europe.
demand for equipment for second- and third-generation infrastructure.                      Every couple of years since then, the in-
This is why Ericsson is developing supply concepts that have a lot in                   dustry raised the forecasts in light of grow-
common with the techniques used in large-volume businesses, such as                     ing market demand. Each time this hap-
the automotive and consumer-electronic-goods sectors.                                   pened, the manufacturers of infrastructure
   In this article, the authors focus on the likely impact of market growth             equipment (radio base stations, mobile
on the supply flow, and profile the supply management initiatives being                 switching centers, and so on) had to gear up
taken by Ericsson to meet the expected demand from mobile network                       for greater volumes.
                                                                                           As the main supplier of mobile infra-
                                                                                        structures, with a global market share of
                                                                                        around 40%, Ericsson had a bigger chal-
                                                                                        lenge than most companies each time the
                                                                                        market growth exceeded expectations, since
                                       Introduction                                     it also had to increase the production of nec-
                                       With more than 650 million mobile phone          essary infrastructure equipment.
                                       users in the world today—a number that is           The fact that the company managed to
                                       expected to reach one billion in the next two    maintain its global market share at a fairly
                                       years—the mobile phone has clearly become        constant level throughout this decade of
                                       a mass-market commodity (Figure 1). It has       rapid growth says much about the effec-
                                       become as much a part of people’s lives as       tiveness of the supply strategies that have
                                       televisions, cars, radios and washing ma-        been developed. But as the world prepares
                                       chines. In fact, if you compare the mobile       for the build-out of third-generation mobile
                                       phone with any other consumer electronic         network infrastructures, it is clear that even
                                       product, the fact that its customer base grew    more aggressive supply strategies will be re-

Figure 1                               Millions
Subscriber growth.                     1200


                                        900                 Fixed telephony

                                        750                            Mobile telephony

                                                                                                 Fixed Internet


                                                                                                   Mobile Internet

                                                  1996   1997   1998    1999     2000     2001    2002     2003      2004   2005

80                                                                                                          Ericsson Review No. 2, 2001
quired (Figure 2). Mobile network operators           BOX A, TERMS AND ABBREVIATIONS
are planning for
• rapid migration to third-generation re-             BSC   Base station controller
  sources; and                                        FC    Flow control center
• rapid increases in traffic in the networks.         GPRS  General packet radio service
One scenario portrays an explosive growth             GSM   Global system for mobile
of traffic in mobile networks, due to swift           MSC   Mobile services switching center
migration from fixed to mobile telephony              OSS   Operations support system
and rapid growth in data traffic. This sce-           TTC   Time to customer
nario represents the consequences of an op-           TTS   Time to service
erator’s change in focus from subscriber              UMTS  Universal mobile
                                                            telecommunications system
growth to increased use of services by the            WCDMA Wideband code-division
subscriber base.                                            multiple access
  The industry is poised on the brink of an-
other massive expansion phase, but this time
there is greater pressure on shorter time to
revenue than ever before. And when time
and cost are essential, supply flow is

The pressure for change
Although mobile phones have become stan-           special orders mean special handling and
dardized mass-market products, the net-            special manufacturing and testing. Special
work infrastructures that support mobile           orders also promote multiple variants. This
phone users are generally still built up on        is a costly and time-consuming approach
the traditional telecommunications infra-          that also creates capacity problems right
structure supply model. According to this          through to the supply chain.
model, network operators specify in detail            For the future, the emphasis is on achiev-
at the node level what they require, and a         ing large volumes and rapid roll-out, with
supplier, such as Ericsson, makes custom           high quality and at low cost. The stakes are
adaptations. This process has delivered what       high for network operators, with the costs
the industry wanted. At least, so far. But         of licenses and of building out new and en-

                                                                                                    Figure 2
   Second-generation networks       Increased business risk for    More turnkey commitments         The supply challenge.
   are expanding rapidly, sharing   our customers, requiring a     requiring a rapid build-up and
   common critical components       faster return on investment    roll-out of competence
   with third-generation networks   through fast ramp-up in        and services

                                                                         Building a supply chain
                          Product                                        that can cope with both
                          development                                    complexity and
                                                                         exceptional aggressive


Ericsson Review No. 2, 2001                                                                                                 81
                                  Argument                                    Operator’s business solution
                                  Financial exposure to our                   Only a long-term solution for stable
                                  customers is strong:                        revenues will increase turnover;
                                  – Yearly depreciation on investments        that is, reliable and high-volume
                                    will hit hard on operators’ bottom line   supply and services
                                  – Decreasing margins on traffic due to
                                    increased competition

                                                                              A changing
                                                                                business t

                                        Ericsson’s business-driven supply solution
                                        – Supply demands can only be handled with simple supply flows and
                                          standardized products flowing in the supply chain—product packages
                                        – Product packages are essential for our customers and for our long-term
                                          retention as the no.1 telecom and solutions provider in the world
Figure 3
Changing business environments.

                                  hanced network capabilities (Figure 3).                that deliver better quality. The only way to
                                  Anything that adds unnecessary costs is un-            do this is through new supply chain strate-
                                  acceptable. This focuses attention on certain          gies based on greater standardization that
                                  key areas of the supply chain. Special de-             enables flexibility.
                                  signs, multiple variants, and inventory all               Large volumes of standard configurations
                                  have heavy cost penalties.                             allow a manufacturer to maintain good qual-
                                     Technology, of course, continues to be a            ity consistently. Standard products also
                                  vital ingredient. In fact, as we move to third-        make testing, delivery, installation and in-
                                  generation networks, the technologies are              tegration easier and more dependable. De-
                                  becoming even more complex—at a time                   livery precision is particularly important.
                                  when greater volumes will be needed, to                An operator might have to close streets, hold
                                  meet network operator plans for rapid net-             up traffic and arrange a helicopter to posi-
                                  work roll-out.                                         tion new equipment on site. It is therefore
                                     A further challenge is that third-                  vital that planned delivery commitments
                                  generation infrastructures will involve the            can be honored, not just to the day, but often
                                  integration of a greater proportion of prod-           to the precise hour and minute.
                                  ucts from multiple vendors than was the case
                                  with second-generation networks.                       Testing supply and
                                     The process of consolidation among mo-
                                  bile operators has created a number of glob-           logistics processes
                                  al operators—another factor that is shaping            Several initiatives taken by Ericsson in the
                                  the supply strategies. Global operators ex-            late 1990s, to transform supply chain and
                                  pect standardized and consistent supply and            logistics processes for second-generation
                                  support deals in every market in which they            systems, had already highlighted the po-
                                  operate.                                               tential benefits. One initiative, for example,
                                     The challenge for manufacturers is to fit           focused on cutting the time needed to ful-
                                  increasingly complex technologies into sim-            fill customer orders for GSM mobile infra-
                                  pler, faster and less costly supply processes          structure equipment. This initiative has

82                                                                                                             Ericsson Review No. 2, 2001
evolved into the wider TTC Global (time-
to-customer) program initiative that oper-
ates across the entire Ericsson organization.      Customer or
The focus is on time to service (TTS), since       market unit
                                                   (local company)
the truly important requirement among                                                                                        Flow control center
network operators is to get equipment                                                                                  – Order control and responsibility
quickly installed, integrated and into ser-                                      TTC Portal talog
                                                                                 – Product             ion                Customer
                                                                                            configurat                                    Forecasting
vice, in order to earn revenues.                                                 – Product l                              care
   The primary focus was on taking time and                                       – Order to king
                                                                                            ac                            Operational
                                                                                  – Order tr g                                            Supply
cost out of every stage of the supply chain—                                       – Forecast
                                                                                              in                          distribution
                                                                                                                          management      management
from the customer ordering stage through
to delivery to the customer site and customer                                                                             Order            Claims
                                                                                                                          handling         handling
acceptance. This was tackled by introduc-
ing significant changes in the ordering                                                                                   New product      Invoicing
process and the supply processes.                      Delivery
   One result was that the time needed to                            Order execution
build GSM base stations and ship them to
the customer site was cut from around 60 to
less than 14 days. Cutting the time needed
to deliver built-to-order products is only one
benefit. Quality and delivery accuracy also
improved significantly. Likewise, the whole                               Distribution service          First-tier suppliers/            Second-tier
ordering process has become much easier for                               provider                      node production                  suppliers
customers, thanks to simplified product
packages and new e-business processes. This
had the important spin-off benefit that cus-
                                                   Figure 4
tomer personnel and Ericsson sales and sup-        The flow control center concept.
port personnel spent less time engaged in
completing and checking orders.
   Greater standardization in the configura-
tion of equipment, such as base stations,
meant that there was less scope for errors in    Guiding principles for the
ordering, and reduced the number of vari-
ants that had to be manufactured. This led       supply of equipment
directly to better quality and greater pro-      Drawing on experiences of the initial phase
duction efficiencies.                            of the TTC Global program and other re-
   Ericsson has introduced a logistics con-      lated initiatives, Ericsson has developed a
cept based on regional flow control centers      supply and logistics framework that will
(FC). Orders flow to the center directly from    cope with the combined need to deliver even
the customer via Web tools. Completed            greater volumes of second- and third-
equipment is then shipped directly from the      generation products.
flow control center to the customer site. This
allows traditional warehousing require-          Product packages
ments to be reduced or even eliminated, and      Product management is about considering
greatly improves delivery precision              the infinite variety of possibilities, and turn-
(Figure 4).                                      ing them into the actual products that can
   These supply processes offer clear com-       enter the supply flow. The enabler of this in
mercial benefits to network operators. They      Ericsson’s supply strategies is strict adher-
also represent some big changes in estab-        ence to standard product packages. Ericsson
lished practices and ways of thinking. One       has looked to other industries to see what
of the main challenges is the acceptance of      lessons could be learned, drawing ideas from
standard product packages, rather than fully     strategies used in the automotive, personal
customized products. As Ericsson intro-          computing, and consumer goods sectors.
duces these supply processes, network oper-         In essence, the idea of product packages is
ators recognize that a reduction in the          that a customer should only be required to
“uniqueness” of the equipment they order is      specify a few properties and options in order
a small price to pay for significant im-         to get the node that will meet the network
provements in time scales, cost, quality and     and service needs (Figure 5). This represents
simplicity.                                      a major shift away from traditional ordering

Ericsson Review No. 2, 2001                                                                                                                             83
                                                                                                                   – Frequency
                                                                                                   Orders on       – Capacity
                                                                                                   properties      – Power
                                                                                                                   – Sectors
                                                                                                                   – Cabinet type

                                            Orders at the
                                            component level

                                                                                       112 62
                                                                            1 SEB rd
                                                            ct Ca binet         S tanda        /03
                                                    Compa                               131 47
                                           – 2202 tLock                      2 KRC 19 104/1
                                           –  Cabine         5/1 &  No        1 B  FL 1          1/1
                                                     GSM A                               903 02
                                            – TRU 9d                          1 BMP 02 02/01
                                            –   CDU A                          1 B  OE 6          9/ 2250
                                                                                          513 70
                                             – ECU       ,E1                   2 RPM 08 002/        /1
                                                 DXU-01 20 Ohm+                 1 B   MK 5
                                             –          ,1                                   0 011/1
                                                 CABLE d BBS main                     MR 96 013/1
                                                                                1 B
                                                                                           960                                                 XX XXX
                                              – Unco TM -48V*                    3 BMR 19 393/1                                          FAB X
                                               –   DC/DC                         1   SXK 1           5/1
                                                                                            119 36 /1
                                                – PSU                              2 SXK               0
                                                    PSU-du y
                                                            mmy                              07 504
                                                –                                     SXK 1            2/1
                                                    BB-dum my
                                                             m                     2          07 472
                                                                                       SXK 1              /1
                                                 –          um                      4         0 1 1288
                                                 – CDU
                                                         -d                            NTM 2             /1
                                                         -d ummy           U A9d 1 ZY 213 421
                                                  – TRU              RU-CD           1 L
                                                            set, 2-T
Figure 5                                           – Cable 00 SW
                                                           2 0
The product packaging enables cost-                – RBS                                                                 Product packages
effective order handling and execution.

                                          practices in the telecommunications infra-                          The product-package approach has
                                          structure business, and reduces the opera-                       moved the ordering process to a higher level.
                                          tor’s scope to specify unique market adap-                       The emphasis is on the functionality and
                                          tations. The benefits, however, are consid-                      value of the node in meeting the operator’s
                                          erable:                                                          business plan, rather than on a detailed tech-
                                          • because software is the main bearer of                         nical appraisal of what is inside the equip-
                                             functionality, hardware platforms can                         ment cabinets.
                                             now be standardized for a mobile net-                            The product-package approach has strong
                                             work;                                                         parallels with, say, ordering an automobile:
                                          • the attraction of standardized product                         the product package is the model. Customer
                                             packages is that they promote or facilitate                   choices are simplified (color, engine size,
                                             repetitive production, short and fixed lead                   seating, and so on). Additional items that
                                             times, and reduce problems during on-                         can be specified might include aluminum
                                             site installation and network integration;                    rims or a stereo.
                                          • product packages enable better cost con-                          The product packaging model consists of
                                             trol throughout the chain of value-added                      core product packages—these represent the
                                             activities, which yields configuration                        range of packages that suits all market re-
                                             flexibility;                                                  quirements. On top of the core product
                                          • standardized products or modules also en-                      packages are the options. There might also
                                             able the supply chain to provide the cus-                     be additional materials (special needs to
                                             tomer with better and more consistent                         meet, for example, mandatory requirements
                                             product quality at lower cost; and                            for a certain market), and finally the instal-
                                          • the ordering procedures are simplified                         lation materials.
                                             and more resistant to errors.                                    Ericsson’s goal is that standard product
                                          All new Ericsson product development for                         packages should cover over 90% of the mar-
                                          mobile network infrastructures is currently                      ket needs. Market adaptations can still be
                                          managed within this product package con-                         considered, but these will always incur high-
                                          cept. Proposed designs are evaluated as                          er cost and longer lead times.
                                          much for their impact on supply processes                           In the case of an Ericsson base station con-
                                          as for price and functions.                                      troller, for example, there are now only a few

84                                                                                                                              Ericsson Review No. 2, 2001
core sizes from which to choose—each size
supports a different number of speech chan-
nels. There are also a few options, such as in-                                                            Medium-range forecast:
                                                                                                           Dimensioning the
terfaces to different generations of base sta-                                                             supply “pipe”
tion, choice of overhead or underfloor ca-                                                                                     Market unit
                                                                                                                               (local company)
bling, choice of 75-ohm or twisted pair con-                                                                                   /Customer
nections, and inverter voltage level. Simi-
larly, there are standardized expansion steps
and upgrade packages from previous                                   Transparent view                         Business           Medium-range
releases.                                                                                                     unit               forecast

Site solution
The scope of the product-packaging idea is                           Transparent view                         Flow               forecast
being broadened. The next step takes the or-                                                                  control
dering process even higher up in the value
chain, to encompass complete site solutions.
A site solution contains several node prod-
ucts together with all necessary cables, fix-          Third tier        Second tier       First tier
ings, power, cooling, services and other
   The completeness of a site solution can be                                                           Short-range forecast:
extremely important in the timely comple-                                                               Handling variations in the “pipe”
tion of a network project. A missing two-
dollar cable, for example, might not be a
problem for a base station installation in a         Figure 6
city—the installation staff can probably ob-         Forecasting information is critical to manage the supply chain.
tain a suitable replacement from a local com-
puter shop. But if the installation is in a very
remote location, it could result in several
days’ delay in getting the network into ser-       tomers can currently update their own fore-
vice. The missing cable could thus result in       casts in the system. By means of the plan-
lost operator revenues running to thousands        ning part in the tool, suppliers can imme-
of dollars.                                        diately get access to updated plans for the
                                                   products they supply.
Forecasting                                          The aim is to give everyone in the supply
Forecasting is always a mission-critical ac-       chain the required information at the same
tivity in planning supply processes. As sup-       time, so that the necessary capacity can be
ply chains get leaner and faster, the role of      accurately planned. The Internet is a good
forecasting will become even more impor-           enabler of this objective (Figure 6).
tant. Disturbances are more critical when            Ericsson is also investigating a way of
lead times are shorter.                            bringing greater precision to the process by
   Good forecasting input results in good          means of a new software tool which, based
supply performance. Ericsson is thus devel-        on the figures of actual and desired network
oping ways of ensuring the accuracy of the         performance, will automatically calculate a
forecasting process. In part, it is a question     forecast.
of education, so that everyone involved in
the forecasting process, on the customer side      Direct distribution
and on Ericsson’s side, understands the new        Inventory costs money, and as the value of
context for forecasting. In part, it is an issue   the inventory rises, so do the cost implica-
of trust on both sides: trust that the figures     tions. At the same time, product lifecycles
being presented are accurate, and that the         are becoming shorter, so there is a need to
requirements will be met.                          keep inventory as low as possible to avoid
   Traditionally, forecasting has been more        losses through obsolescence.
of an art than a science, subject to “adjust-         An important change to supply manage-
ments” by people at various stages in the in-      ment is direct distribution. Beginning in
formation flow. Part of the supply flow is a       1999, Ericsson started to introduce a tech-
Web-based forecasting tool that authorized         nique called merge in transit, which can be
persons in the local markets use to update         defined as the coordinated distribution of
forecasts directly. In addition, some cus-         material from multiple suppliers in order to

Ericsson Review No. 2, 2001                                                                                                                     85
     provide a single, complete, on-time deliv-         stall smaller packages at shorter intervals
     ery without using any inventory.                   and with less disturbance to the network.
                                                        Additional benefits are
     Software perspectives                              • fewer human errors;
     Software delivers the functionality of a mo-       • operators can more easily retain the ex-
     bile communications network. Consequent-              pertise of software specialists who no
     ly, because traffic in mobile networks is             longer have to travel extensively to install
     growing, new types of node element for                software in individual nodes; and
     GPRS and WCDMA/UMTS services are                   • operators can tap into Ericsson’s resources,
     being deployed. Similarly, as the number of           if necessary, by giving Ericsson online ac-
     services and applications expands, the need           cess to individual nodes in the network.
     to install new software in the network is also     A similar approach has also been adopted to
     growing.                                           the flow of software updates to customer net-
        A complication is that many software            works. The automated update-deployment
     adaptations have been made to suit the needs       concept—which is based on the operations
     of different operators in different countries.     support system (OSS), Ericsson’s network
     This legacy situation is being redressed as        management system in use by the majority
     the market recognizes that, just as with the       of Ericsson’s mobile operator customers—
     product-package concept in hardware, there         facilitates a very aggressive roll-out of up-
     are enormous benefits in accepting a more          dates. The first mobile operator to apply this
     standardized, less customized, software            approach has reported that it could reduce
     strategy.                                          its manpower resources for update handling
        The traditional approach to a software up-      by more than 80%.
     grade is for the network operator to imple-           As part of these new software supply
     ment the upgrade node by node, with engi-          processes, Ericsson is moving toward the li-
     neers spending time at each site. For an op-       censing of software on a right-to-use basis.
     erator with many nodes in the network, this        This business logic for mobile infrastruc-
     is a heavy, ongoing workload as well as a fi-      tures fits well in an environment in which
     nancial burden. It takes skilled people who        operators need to remain flexible and move
     might quickly tire of living out of a suitcase     quickly with their services. It also plays to
     and working through the night in order to          the strengths of an industry that is moving
     execute the upgrades.                              toward high-functionality software running
        In 1994, Ericsson began remotely loading        on non-proprietary hardware platforms.
     software in GSM networks. Today, opera-
     tors can manage upgrades automatically             E-business
     from a central maintenance center by means         Web-enabled ways of working are another
     of electronic links (as well as satellite links)   integral part of the supply chain manage-
     to the switches in the network. Increasing-        ment program. The Internet is the main car-
     ly, operators are allowing Ericsson to han-        rier of information along the supply chain,
     dle these upgrades.                                giving everyone the same information at the
        In one case that has been studied, remote       same time. It is also used as the central com-
     upgrading cut the number of man-hours              munication channel between Ericsson and
     needed by 90% compared to traditional              customers, not only for product ordering,
     methods. Remote upgrading also lays the            but also as a shared platform for information
     foundation for new upgrade strategies. For         that can be used by Ericsson and customer
     example, in the past, the emphasis was put         personnel.
     on big annual releases of new software, with          When customers use the “fast-track” sup-
     monthly packages and corrections. With re-         ply processes based on standard product
     mote software loading, it is possible to in-       packages, they can place orders via a Web

86                                                                           Ericsson Review No. 2, 2001
portal directly to the flow control center.
Customers can check the status of the order,       E-busine
                                                            ss                         Remote
tracking it all the way to site via a global                                      software upgrade
tracking system that is used by all main
global distribution service providers.
  Ericsson’s first customer to switch to di-                           Direct shipping
                                                                        and tracking
rect ordering of standard product packages
over a Web portal did so in 1999.
  The prime advantage of putting the prod-                    Product packaging
                                                                Site solutions
uct catalog on the Web is that it eliminates
any handovers of paperwork or information
between the customer and the flow control           Forecasting
center. It also prevents customers from or-        Direct ordering
dering non-standard product packages,
since only standard packages are included
on the Web portal.                                        Supply chain                               Figure 7
  For operators with a global business, Web                                                          Enhancing business competitiveness by
                                                                                                     increasing efficiency in the supply chain.
ordering is useful for reinforcing a consis-
tent ordering strategy across the entire or-
  Once the standard product information is
on the Web, customers can easily look up
relevant technical information on products
and related subjects, such as training.

The supply and logistics concepts present-
ed in this article are part of a larger trend
toward new ways of working between sup-
pliers—in this case, Ericsson—and their
customers.                                      erator can benefit from the supplier’s know-
  Many operators are struggling to cope         how and resources.
with shortages of skilled and experienced          Obviously, these changes in the supply
people. Consequently, many of them are          flow must be planned and implemented
reevaluating the role of their procurement      jointly by the operator and the supplier, be-
functions. As a result, the language of pro-    cause there are many related implications
curement is changing. Instead of discussing     to be considered. In some cases, the supply
bits and pieces, the participants               processes will also require operators to
• want to discuss more strategic business is-   change their own internal processes—for
  sues, such as coverage, capacity and con-     example, how should an e-procurement
  sultancy; and                                 process be integrated into the operator’s
• are seeking solutions that support their      procurement and computer-support sys-
  business objectives.                          tems? However, the overall trend is clear:
Operators are increasingly willing to give      with the advent of third-generation prod-
the technology supplier access to the net-      ucts, the supplier-customer relationship is
work. That way, for key activities, such as     moving into new territory, putting new de-
software upgrades, updates, and planning        mands on the supply chain as a business-
for the expansion of infrastructure, the op-    critical function.

Ericsson Review No. 2, 2001                                                                                                                   87

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