Nokia Calls On 4R to Design New Supply Chain for Luxury Products

Nokia is the world leader in mobile communications and the world's largest mobile phone producer. Committed to industry innovation, the company recently launched a new brand line of luxury cell phones called Vertu, which are sold through a chain of dedicated Vertu brand stores and select retailers. Because Vertu products combine cell phone technology with the same level of craftsmanship required by fine watches and other precious products, Nokia needed to create an entirely new supply chain to support its luxury line.

Supply Chain Challenges

Vertu, unlike any other mobile device, combines advanced cellular technology, groundbreaking new features such as a built-in acoustic speaker phone and sophisticated design and packaging using high-end materials, including stainless steel, gold and platinum. This created a unique set of supply chain challenges for Nokia. For one, production volumes for Vertu products were expected to be very low in comparison to other cell phone lines. Production technology also differed from the norm in that Vertu uses precious materials provided by a number of small suppliers. In the luxury goods sector, such specialized suppliers are typically a major source of capacity constraints. Finally, as the market for luxury cell phones was virtually created by the launch of Vertu, prior sales data was not available to help predict future demand.

In designing a new supply chain for Vertu, 4R Systems focused on areas of particular concern to Nokia, including capacity definition and management, inventory investment estimates, and projected inventory/service level trade-offs.

High Impact Results

4R's contributions included:

• Determining inventory/service level trade-offs. 4R demonstrated how increasing or decreasing inventory investment could impact service levels. It also developed a dynamic model for analyzing the effects of unexpected levels of demand as well as the inventory investment needed to reach target service levels. The goal was to address both the uncertainty before a product launch and the typical demand fluctuations of luxury goods.
  
  
• Estimating inventory management. 4R identified the investment needs of the new venture, drawing on its understanding of the full product lifecycle and inventory requirements of luxury goods manufacturers. 4R also determined the key parameters that drive inventory investment, identifying those that would have the most significant impact on investment and would be easiest to modify to reduce costs.
  
  
• Addressing capacity definition and management. 4R developed a model that calculates capacity requirements as a function of final consumer demand, yield at all stages of the supply chain and bill of materials. It also identified different sets of components that could face capacity shortages under varying conditions.