7 Supply Chains to Look Out For in 2007
The story of Redback Networks (www.redback.com), a designer and seller of routers for broadband networks, is a study in contrasts. When a new management team was brought in five years ago the San Jose-based company was not far from going out of business. It may have chalked up over $200 million in sales, but it was holding $250 million in inventory, managing five contract manufacturers, achieving a well below industry average 30% gross margin, and it was losing money.
This year Redback Networks is looking at $272 million in sales (up sharply from $128 million in 2005), has a scant $9 million in inventory, relies on a single manufacturing partner, and boasts a 62% gross margin. Five years ago supply chain costs represented 15% of revenues. Today such costs represent around 4% of revenues. Ebrahim Abbasi, the company's senior v.p. of operations, IT and customer service, attributes the radical change in fortunes to a reinvented supply chain and a focus on operational excellence.
"You want to invest your money in what differentiates you from your competitors," he says. "Our differentiator is our key technology. I want every dollar to go there. I want to maintain our lead technologically. The best way to maintain the technology lead is to maintain our operational excellence by running a very lean and efficient and productive operation."
At Redback lean and efficient means relying exclusively on key partners. These partners include Jabil Circuit (St. Peters-bury, Fla., www.jabil.com) for manufacturing, Avnet (Phoenix, www.avnet.com) for components distribution, DW Morgan (Pleasanton, Calif., www.dwmorgan.com) for logistics and distribution, and IBM (Armonk, N.Y., www.ibm.com) for IT infrastructure support.
"DW Morgan knows as much about the movement of products and depot management and repair operations as I do. Jabil Circuit knows as much about demand and supply balancing and visibility as I do," Abbasi says.
Having such a support network is what has allowed the company to scale up operations to support its dramatic sales growth without investing a lot of new capital, and spend limited resources—because resources are always limited—on developing new technology.
"In this day and age, I shouldn't be the only one who's worried about my customers," he says. "I'm representing an incredible, world-class series of suppliers and partners who have joined forces with me to support my customers. That means unlimited scaleability while allowing me to invest the resources that otherwise I would have had to invest in my insourcing strategy."
When asked about the wisdom of sole strategy, Abbasi says such partnerships depend upon trust and transparency. When everything in the supply chain is visible, everyone is responding to and acting on the same information and there's no need for finger pointing.
"Trust and transparency go hand in hand. When we select the right partner. I believe in trusting that partner," he says. "The majority of strategic components that go into our product are sole sourced. And 100% of partners that I rely on to make me look good and to make Red-back successful are sole sourced. And I'm proud of it."
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