Peter Kelly: Engineering A Nimble Response

Imagine each of your customers requires an entirely customized product. It take eight weeks to make, but when buyers need to replenish their supplies, they want to place orders today and take delivery tomorrow. Keep too little on hand and you’ll upset your market.

But “if I have the wrong ones in stock, I run the risk of obsolescence and massive inventory,” says Peter Kelly, executive vice president, global operations group at Agere Systems in Allentown, Pa.

This challenge drove Kelly to reinvent the supply chain at Agere, a global manufacturer of semiconductors for storage, wireless data, and networks.

“Once we’ve sold something to the customer, it’s up to me to make sure we deliver whatever we’ve sold, when the customer wants it,” says Kelly, who oversees Agere’s supply chain, manufacturing, quality, logistics, information technology, and procurement.

To help Agere respond nimbly to ever-changing requirements, Kelly led the development of two major systems. The first is a set of models that predict upcoming demand for Agere’s customers, manufacturers such as Apple, Cisco, and Seagate.

“Based on data from the last few months, we have a fairly good idea of what they’ll buy in the next weeks and months,” Kelly explains. “Using that, I set up specific inventory strategies and put buffers in place in different parts of the supply chain.”

Kelly’s second move was setting up TOM (Total Order Management) to help Agere manage its production sites on a daily basis. “Every day I reschedule our factories and our planning commitments so we can react to changes in both demand and supply,” he says.

Agere implemented these systems “with a vengeance,” Kelly says, after the telecommunications industry crash, when the company’s annual revenues plunged from $6 billion to $2 billion and it was forced to cut its payroll by nearly two-thirds. The changes have paid off.

“Our supply chain costs, as a percent of our revenue, have dropped 33 percent,” Kelly says. And thanks to the new systems, inventory turns are set to increase from 4.5 per quarter to nine or 10. Already, Agere saves “about $80 million or $90 million in inventory per period,” and has improved shipping performance, according to Kelly.

Kelly has also cultivated collaborative relationships with Agere’s suppliers and customers. “We link the operational people in the various organizations so we can talk to each other rapidly about what goes on and what changes we see,” Kelly explains.

He looks forward to a day when a new generation of software allows information to flow along the supply chain on a sale-by-sale basis.

“When Best Buy sells a PC or a hard drive that is going to require a replacement component from me, I’d like to know,” Kelly says. “At the moment, we get a lot of latency within the supply chain,” as each partner waits awhile before ordering additional stock from its supplier up the chain.

“The Holy Grail of our industry is to eliminate that kind of latency in the supply chain forecast,” says Kelly, “so we can really understand what’s going on and what the requirements are from a capacity perspective.”

The Big Questions

What are you reading?

Master of the Senate by Robert Caro and Open: Inside the Ropes at Bethpage Black by John Feinstein

Business motto?

Everything you do should either increase revenue, improve margin, or improve asset utilization. If it doesn’t, why do it?

First web site you check each morning?

Yahoo! Quotes and the comic strip “Get Fuzzy”

Advice to people starting out in logistics?

Change will continue to accelerate. The only way you’ll be happy is if you embrace this change.

What’s in your briefcase?

A notebook PC, a notebook for writing, my Blackberry, and various magazines and articles I’m trying to catch up on.

What do you do when you’re not at work?

I’m an avid but rather poor golfer. I usually get to play about once a week. I have a wife and a 19-year-old daughter with whom I love to spend time, including going to the movies. I’m on the board of the United Way in the Lehigh Valley and on the board of the Baum School of Art.