The Great Inventory Correction

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The Great Inventory Correction
Cole Stripling
November 8, 2012
Flood of the century or not, tech companies are taking steps to limit their exposure to the next traumatic event. Some are revising their inventory models; others are implementing supply chain software and setting up Web supplier hubs. Everyone wants tighter collaboration with suppliers and timelier information from customers. Tech companies are trying, in short, to make their supply chains shorter, transparent, and as flexible as possible. Rethinking of supply chain management at large networking, telecom equipment, PC and chipmakers is the remedy in this unstable condition. The consequences have proved tremendous resulting in huge amounts of write-offs, including, Cisco’s 2.25 billion and Altera’s 115 million. Together with the inventory glut there are several other problems we need to mention, including, volatile demand, forecast uncertainty, and the communication gap amongst partners of the supply chain. We will dive into each of these issues in more detail as we discuss the following questions below:

1. How has Altera modified its strategy? Why?

The strategy Altera used prior to the modification can be described as a build-on-spec (ulation) strategy. Altera would build finished products using a push-based strategy. Following the modification Altera will postpone adding value to die bank inventory. Altera plans to build-on-order using a push-pull strategy which is better equipped for their industry. “We’re asking customers to give us more visibility in their inventories and build plans,” says Sarkisian. That may seem like an obvious solution, but it isn’t always available, says Maltz, because “there’s some concern on the customer side that you’re giving away strategic information.” Nevertheless, Altera recently took two big steps toward greater visibility, announcing joint...