Assignment 2

Project Management
Supply Chain Management

A Case Study on DELL
14th January, 2012
Submitted To
Prof. Tapash K Ganguli
Submitted By
11020541006 Amol Pashine 11020541015 Avinash Chaudhary 11020541041 Nikhil Kumar Goyal
Supply Chain Management of DELL
Abstract
This paper describes the application of the axiomatic design methodology to supply chain management in order to develop and implement comprehensive supply chain strategies. After an overview of supply chain management, strategy and issues, a supply chain design decomposition is presented. It separates objectives and means methodically regarding supply chain management. On this basis, supply chain strategies can be developed, which make top-level objectives systematically operational. Hence, supply chain strategies are aligned with business strategy ensuring that all measures contribute to value creation. Furthermore, the development and implementation of supply chain strategies is framed into a decision-making process. In this paper we also include a case study of DELL. The DELL supply chain begins with a need for a computer. In this example, a customer places an order for a Dell computer through the Internet. Since Dell does not have distribution centers or distributors, this order triggers the production at Dells manufacturing center, which is the next stage in the supply chain. Microprocessors used in the computer may come from AMD and a complementary product like a monitor may come from Sony. Dell receives such parts and components from these suppliers, who belong to the up-stream stage in the supply chain. After completing the order according to the customers specification, Dell then sends the computer directly to the users through UPS, a third party logistics provider. In this supply chain, Dell Computer is the captain of the chain; the company selects suppliers, forges partnerships with other members of the supply chain, fulfills orders from customers and follows up the business transaction with services. So we include about DELLs suppliers, its Direct Model etc.
Symbiosis Institute of Telecom Management
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TABLE OF CONTENTS
1. Introduction 1.1 Introduction of Supply Chain Management 1.1.1 Elements of the Supply Chain Network 1.2 1.3 1.4 1.5 2. Objective of Supply Chain Management Importance of Supply Chain Management Objective of the Assignment Chapterisation of Assignment 8 10 10 11 11 12 12 12 12 13 13 13 15 16 17 4 4 5 6 7 8
Feasibility Study and Project Planning 2.1 2.2 2.3 2.4 Understand the Business Strategy Assess the Extended Supply Chain Develop an Implementation Plan Development Considerations 2.4.1 Cooperate and Collaborate with Your Partners 2.4.2 Outsource Where Appropriate 2.5 Performance Management 2.5.1 Iterate the Cost Benefit Evaluation Process 2.5.2 Keep Communicating with Partners
3. 4. 5.
Development Stages in Supply Chain Management Supply Chain Scheduling Organization Project Team 5.1 5.2 Recent Design Models The Integrated Model
6.
Benchmarking: Quality Control in Supply Chain Management 6.1 6.2 6.3 6.4 Internal Benchmarking Internal Benchmarking Competitive Benchmarking Components of Benchmarking
7.
Project Safety Management 7.1 Supply Chain Security Stakeholders

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7.2 7.3 7.4 7.5 7.6 7.7 8.
Supply Chain Security Elements Supply Chain Security Considerations Industry / Trade Trading Partner Security Governments Risk Analysis
Project Monitoring & Control Mechanism 8.1 Access Control
9.
Project Resource Management
10. Validation & Testing 11. Implementation 12. Supply Chain Management Close Out Phase 12.1 SAP Implementation 12.2 Overall Equipment Effectiveness 12.3 Quick Response Manufacturing 13. Questionnaire 14. Literature Review
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1. INTRODUCTION 1.1 Introduction of Supply Chain Management A Supply Chain encompasses all activities in fulfilling customer demands and requests. These activities are associated with the flow and transformation of goods from the raw materials stage, through to the end user, as well as the associated information and funds flows. The Global Supply Chain Forum defines Supply Chain Management as the integration of business processes from end-user through original suppliers that provides products, services, and information that add value for customers. Another definition is provided by the APICS Dictionary when it defines SCM as the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally." There are four stages in a supply chain: y y y y Supply network The internal supply chain (which are manufacturing plants) Distribution systems End users information
Moving up and down the stages are the four flows: material flow, service flow, flow and funds flow.
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1.1.1 Elements of the Supply Chain Network A simple supply chain is made up of several elements that are linked by the movement of products along it. The supply chain starts and ends with the customer. Customer: The customer starts the chain of events when they decide to purchase a product that has been offered for sale by a company. The customer contacts the sales department of the company, which enters the sales order for a specific quantity to be delivered on a specific date. If the product has to be manufactured, the sales order will include a requirement that needs to be fulfilled by the production facility. Planning: The requirement triggered by the customers sales order will be combined with other orders. The planning department will create a production plan to produce the products to fulfill the customers orders. To manufacture the products the company will then have to purchase the raw materials needed. Purchasing: The purchasing department receives a list of raw materials and services required by the production department to complete the customers orders. The purchasing department sends purchase orders to selected suppliers to deliver the necessary raw materials to the manufacturing site on the required date. Inventory: The raw materials are received from the suppliers, checked for quality and accuracy and moved into the warehouse. The supplier will then send an invoice to the company for the items they delivered. The raw materials are stored until they are required by the production department. Production: Based on a production plan, the raw materials are moved inventory to the production area. The finished products ordered by the customer are manufactured using the raw materials purchased from suppliers. After the items have been completed and tested, they are stored back in the warehouse prior to delivery to the customer.
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Transportation: When the finished product arrives in the warehouse, the shipping department determines the most efficient method to ship the products so that they are delivered on or before the date specified by the customer. When the goods are received by the customer, the company will send an invoice for the delivered products.
1.2. Objective of Supply Chain Management The objective of every supply chain is to maximize the overall value generated. The value a supply chain generates is the difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customers request. For most commercial supply chains, value will be strongly correlated with supply chain profitability, the difference between the revenue generated from the customer and the overall cost across the supply chain. For example, a customer purchasing a computer from Dell pays $2,000, which represents the revenue the supply chain receives. Dell and other stages of the supply chain incur costs to convey information, produce components, store them, transport them, transfer funds, and so on. The difference between the $2,000 that the customer paid and the sum of all costs incurred by the supply chain to produce and distribute the computer represents the supply chain profitability. Supply chain profitability is the total profit to be shared across all supply chain stages. The higher the supply chain profitability, the more successful the supply chain. Supply chain success should be measured in terms of supply chain profitability and not in terms of the profits at an individual stage. Having defined the success of a supply chain in terms of supply chain profitability, the next logical step is to look for sources of revenue and cost. For any supply chain, there is only one source of revenue: the customer. At Wal-Mart, a customer purchasing detergent is the only one providing positive cash flow for the supply chain. All other cash flows are simply fund
exchanges that occur within the supply chain given that different stages have different owners. When Wal-Mart pays its supplier, it is taking a portion of the funds the customer provides and passing that money on to the supplier. All flows of information, product, or funds generate costs within the supply chain. Thus, the appropriate management of these flows is a key to supply chain success. Supply chain management involves the management of flows between and among stage sin a supply chain to maximize total supply chain profitability.
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1.3 Importance of Supply Chain Management Organizations increasingly find that they must rely on effective supply chains, or networks, to compete in the global market and networked economy. During the past decades, globalization, outsourcing and information technology have enabled many organizations, such
as Dell and Hewlett Packard, to successfully operate solid collaborative supply networks in which each specialized business partner focuses on only a few key strategic activities (Scott, 1993). This inter-organizational supply network can be acknowledged as a new form of organization. Here are some of the benefits provided by SCM: y Purchasing SCM offers an advantage of making it easier for companies to manage all aspects of purchasing and production. Companies using this system develop a set of metrics to monitor the supply of goods. This metric system promotes purchasing raw products both in an efficient manner and in a way that customers receive high quality in goods produced. y Collaboration SCM develops a chain of businesses to work with. This group of interconnected businesses works together for one main goal: to provide customers with the goods and services they demand. SCM systems choose suppliers for raw products as well as distributors. The company uses different suppliers and distributors based on customer demand. y Lower Costs These systems use many suppliers and distributors, allowing a company to choose the most cost- effective ones. An SCM system helps companies plan how much raw material is needed to meet customer demand. This allows companies to have a lower amount of inventory on hand at all times. Purchasing agents can then identify ways to save money when purchasing raw products. y Cycle Time
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A cycle refers to the amount of time it takes a business to complete an entire process. When the methods of SCM are used, the most efficient means of operations are discovered. This helps improve the time it takes to complete a cycle. In short, successfully implemented SCM can achieve the following objectives of: y Profitability by driving down fixed cost by adopting flow through strategies and reverse logistics management practices y Performance through implementing real time visibility and event management technologies y Partnership by rationalizing the logistics network and outsourcing non-differentiating activities to partners.
1.4 Objective of the Assignment Effective supply-chain management is a powerful tool for business transformation it can dramatically increase a companys profitability while simultaneously improving customer service. While todays competitive environments are forcing businesses in this direction, the steps to take are often not evident. Problems of supply-chain management can be complex, and their solution requires special knowledge and experience. In this Assignment we are studying DELL Supply Chain Management. We are focusing on Manufacturing, roll of DELL Suppliers, Direct Model, balancing demand and supply, production process etc. 1.5 Chapterisation of Assignment Chapter 2 gives an overview on feasibility study & project planning in supply chain management. It is providing steps to do that, understand the business strategy, assess the extended supply chain, development of a implementation plan etc.
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Chapter 3 provides different development stages in supply chain management, it is providing brief overview of plan, develop, make, deliver, return and it also talks about another model of stages strategic, tactical, operational. Chapter 4 talks about supply chain scheduling problems. A central issue in supply chain management is coordination between the decisions made at di erent stages of the supply chain, e.g., between a manufacturer and a distributor Chapter 5 provides an overview of organization & Project Team. Its providing structure of project team by recent design models & integrated design model. Chapter 6 provides details about benchmarking to check quality of service. It also talks regarding different kind of benchmarking like internal or external. Chapter 7 talks about project safety management with respect to different areas like security stakeholders, security elements, security considerations, industry / trade, trading partner security etc. Chapter 8 gives information about project monitoring & control mechanism. Its giving information about SCMo (Supply Chain Monitoring & Control) & Access controls prohibit unauthorized access. Chapter 9 provides project resource management information regarding WMS (warehouse management system). Today how much this is important for supply chain management with the new concepts of ERP & RFID. Chapter 10 provides information on validation & testing of supply chain management. It talks about main challenges & pitfalls in this process. Chapter 11 talks about implementation part of supply chain management. What are the important areas in doing that? It also talks about maintenance part for SCM, what we will consider in order to do that.
Chapter 12talks about supply chain management close out phase. After implementation there is some other issues which project manager have to take care.
Chapter 13 had a questioner. This can be used to collect information about current problems or requirement in supply chain management.
Chapter 14 is providing literature review. What different authors said about SCM & DELL SCM? Chapter 15 is about the Topic. In this we include a case study of DELL supply Chain Management. To manage their service what kind of SCM they applied. How they are using their suppliers to make service more effective.
Chapter 16 talks about findings in this research. We are providing key benefits of DELL SCM. What they achieved by doing this.
Chapter 17 is overall conclusion of this report. Chapter 18 had references / bibliography. We used all these articles & Links to prepare this report.
2. FEASIBILITY STUDY AND PROJECT PLANNING 2.1 Understand the Business Strategy The first step is for supply chain executives to clearly understand how the enterprise chooses to compete. This is important not only for the obvious reason of working off the same play book,
but also for the reason that it forces the supply chain operation to see itself as a customer facing entity serving the competitive goals of the enterprisenot merely an operational department. Supply chain strategy is not simply a linear derivative of the business strategy. At best, supply chain strategy can be the enabler of the business strategy. If the business strategy is to be the low cost provider, the supply chain strategy should support this. And just like when developing a business strategy, look to your core competencies, focus, and means of differentiation when developing a supply chain strategy. Being able to strategically source parts at an attractive price may support both the supply chain strategy and business strategy, but only if there exists the capabilities to do so effectively. Look to your supply chain competencies and leverage what can be done well. The company may want to focus on a particular market or segment in which to gain supply chain efficiencies or may want to differentiate the organization operationally by providing lower costs to customers or providing services that other industry players are unable to do. 2.2 Assess the Extended Supply Chain The next step is to conduct a detailed, realistic assessment of the capabilities that exist within the organization and even the extended supply chain. Begin by closely scrutinizing your organizations assets and evaluate how well they support the strategy. Old machinery and disparate systems may mean high operational overhead and costly process inefficiencies and redundancies clearly not supportive of a low cost provider strategy. A formal supply chain assessment by a non-biased outside party may assist you in better understanding your operational strengths and opportunities for improvement. Look for a firm that can provide with operational benchmarks both inside and outside of your industry in order to gauge core competencies. Once the assessment is complete, assemble a team to review and prioritize recommendations, validate the opportunities, define the risks, and the requirements for implementation. Ultimately, if there is a disparity between the supply chain strategy and the operational assets, one may have to make capital investments. Of course, the other alternative is to change assumptions and alter the strategy all together. 2.3 Develop an Implementation Plan
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From this critical work emerges the go forward supply chain strategy directly tied to the business strategy, highly specific as to enablers and metrics, and with a defined set of implementation requirements and contingencies. The development of an implementation plan should include activities and tasks, roles, responsibilities, a corresponding timeline, and performance metrics. Establish a sub-team to shepherd the execution and provide project management responsibility to resolve issues and track status. 2.4 Development Considerations 2.4.1 Cooperate and Collaborate with Your Partners Throughout the development process, remember to include your supply chain partners. While you dont necessary need to divulge the full details of your strategy, you can certainly communicate how you would like to do business. Ideally, seek out mutual goals that both organizations can execute on. Not only will you be one step closer to realizing your supply chain strategy, you will learn more about the companies that you do business with. For example, collaboration in product design may meet your need to stem R&D costs and also alert you to new product concepts that you wouldnt discover without working with your customer. 2.4.2 Outsource Where Appropriate Part of developing a supply chain strategy includes evaluating opportunities to outsource areas that are not your core competency. If someone else can do it cheaper, it may be worth outsourcing not only to drive down costs, but also to focus more resources on the core competencies your organization does well. 2.5 Performance Management Execution involves closely following your implementation plan and applying good project governance. You can improve your chances for success by managing performance throughout implementation and beyond. Tracking performance allows an organization to measure how successful it is in realizing the goals of a strategy. It also makes people understand their
contribution and responsibilities, creating a more cohesive, in tune, organization. Performance management works best when people are rewarded for their performance and reporting is conducted on a regular basis. Moreover, performance goals should be used to communicate business expectations to outside entities as well. The more the extended supply chain is involved, the more the supply chain strategy is supported and reinforced. 2.5.1 Iterate the Cost Benefit Evaluation Process On a periodic basis (e.g., annually) you should formally revisit your supply chain strategy. Did you meet the goals of the business strategy? Have the needs of your supply chain partners changed? How has the industry changed i.e., new competitors, business practices, products, technology? At this time, you may even want to reassess your supply chain organization, if the changes are significant enough to warrant it. Also, use this effort to look for new opportunities to further position your organization for success. 2.5.2 Keep Communicating with Partners Executing a supply chain strategy means dealing with many different entities, both internally and externally. Just as it is crucial to align the supply chain strategy with the business strategy, it is equally important to execute in a manner consistent with these different groups or stakeholders. The goals of your supply chain components and those that you deal with must be similar and conducted at the same speed. Your organization may be able to move at speeds other supply chain entities are unable to maintain, resulting in misalignment and poor efficiencies. And some of your supply chain partners may not have the resources to commit to realizing these goals. Good communication can keep the extended supply chain in sync. 3. DEVELOPMENT STAGES IN SUPPLY CHAIN MANAGEMENT Typically, supply chain management is comprised of five stages:
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Plan A plan or strategy must be developed to address how a given good or service will meet the needs of the customers. A significant portion of the strategy should focus on planning a profitable supply chain.
Develop
It involves building a strong relationship with suppliers of the raw materials
needed in making the product the company delivers. This phase involves not only identifying reliable suppliers but also planning methods for shipping, delivery, and payment. y y Make the product is manufactured, tested, packaged, and scheduled for delivery. Deliver Then, at the logistics phase, customer orders are received and delivery of the goods is planned. This fourth stage of supply chain management stage is aptly named deliver. y Return As the name suggests, during this stage, customers may return defective products. The company will also address customer questions in this stage. Another model for understanding supply chain management groups all management activities into three categories: y Strategic: At this level, company management will be looking to high level strategic decisions concerning the whole organization, such as the size and location of manufacturing sites, partnerships with suppliers, products to be manufactured and sales markets. y Tactical: Tactical decisions focus on adopting measures that will produce cost benefits such as using industry best practices, developing a purchasing strategy with favored suppliers, working with logistics companies to develop cost effect transportation and developing warehouse strategies to reduce the cost of storing inventory. y Operational: Decisions at this level are made each day in businesses that affect how the products move along the supply chain. Operational decisions involve making schedule changes to production, purchasing agreements with suppliers, taking orders from customers and moving products in the warehouse.
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4. SUPPLY CHAIN SCHEDULING A central issue in supply chain management is coordination between the decisions made at di erent stages of the supply chain, e.g., between a manufacturer and a distributor. The di erent objectives of these decision makers and the data specic to each stage (costs, changeover times, customer due dates, and so on) dene optimal schedules that, in general, di er between the stages. If each stage uses its optimal schedule, then the overall system performance is poor in many cases. The coordination problem is therefore to nd schedules for both stages that provide better overall system performance. The study of coordination in scheduling decisions is called supply chain scheduling. y Suppliers problem An important example of decision making that affects both supplier and manufacturers is the delivery process between the two. A manufacturer may prefer to receive frequent deliveries of small batches of parts from the supplier, because this will enable the manufacturer to achieve better resource utilization. However, the supplier may be reluctant to deliver very frequently. A fact that makes these scheduling and batch delivery problems particularly challenging is that they cannot be made in isolation from each other. That is, the scheduling decision must be coordinated with the related batching and delivery decisions. y Manufacturers problem The manufacturer has downstream customers. The decision problem faced by the manufacturer is therefore very similar to that faced by supplier. Indeed, the only difference is that the scheduling, batching and delivery decisions made by suppliers define a release date for each job, which specifies the earliest time at which the manufacturer can begin work on that job. Therefore, Supply Chain Scheduling is the very heartbeat of all Supply Chain Systems. To synchronize your material flows between your suppliers and your customers, you will need to synchronize the deliveries to your plant, and the shipments that you will be making to your customers, all to a detailed schedule of production operations that are happening throughout every business day inside each plant in your supply chain.
5. ORGANIZATION OF PROJECT TEAM Senior management teams across many industries are increasingly realizing how strategic their supply chain is to business: that it is, in fact, one of the critical success factorsfor profitability as well as productivity. In todays business climate, of course, adaptability and agility are key. The strategy may be changing more frequently than ever, and the supply chain organization needs to keep up with the changes youre making, whether large or small. Such restructurings may require to redefine roles and responsibilities to focus on changed objectives, reduce process complexity, or develop new competencies and skills for newly required capabilities. Or it may simply have the need to clean house or redeploy resources that are not performing upto expectations. Organizational change is also required as you make changes in how you evaluate supply chain performance. In a traditional functional organization, supply chain metrics are often designed to motivate behaviors that optimize performance within a specific department or function. Traditional operations that is, key supply chain activities and associated groups report directly to their relevant functional managers. A typical functionally based organization may have logistics (receiving and shipping) and manufacturing reporting to an operations vice president, and separate procurement and customer order-management groups. This type of organizational structure was typical of many companies in the 1970s, and it is still quite common today. In the 1980s and 1990s, companies began to transition to organizational structures that grouped many, but not necessarily all, core supply chain functions within one department. Many of these companies still had the position called vice president of operations, but the responsibilities expanded from a purely functional orientation: These managers now had responsibility for management of the supply base and fulfillment of customer orders in addition to manufacturing and physical logistics. It is called as the Transitional Supply Chain Organization. Most transitional organizations do not have customer order-management reporting to the vice president of operations; the most common home for these activities is within the sales or sales operations function. It was not until the mid to late 1990s that the term supply chain came into vogueand it was then that we began to see organizations with positions called supply chain manager or vice president of supply chain. This period, of course, also marked the beginning of the now widespread philosophy of the supply chain as an end-to-end process.
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5.1 Recent Design Models Two primary models have evolved that have established supply chain management as a separate function or entity within organizations. In both models, a supply chain management group is responsible for achieving cross-functional operational objectives, such as inventory days of supply, order-fulfillment lead time, or customer on-time delivery. The difference between the models lies in resource management. In the first model, which we call the Partially Integrated Organization, the supply chain manager does not have full control over the resources responsible for executing the supply chain strategy. In the Integrated Organization model, he or she does have full control over these resources. While at first glance, the Transitional and Integrated models may look very similar, the difference is much more than a few shifts in box position on the organization chart or renaming of the various functions. The concept of a discrete supply chain organization as depicted in the integrated model is relatively new.
General Manager
Finance & Administration
Marketing & Sales
R&D
Order Management
Purchasing
Operations
Materials Planning Buying
Logistics
Manufacturing
Functional supply chain organization 5.2 The Integrated Model Many companies still think of their supply chain organization as a set of functions that complements their manufacturing or operations (receiving, production, and logistics) departments. But if an organization is to provide effective end-to-end supply chain management, it should encompass all the people responsible for development and execution of each of the core Plan, Source, Make, Deliver, and Return processes, as well as the supporting infrastructure. That
means grouping these processes under one senior manager, but more importantly, it means giving that manager a set of cross-functional performance objectives and the resources he or she requires to meet these objectives. This is a key characteristic of what we call the integrated model of supply chain organization. It is a more advanced form than its predecessors, the Functional model, the Transitional model, and the Partially Integrated model. One of the biggest challenges in supply chain operations is determining how to restructure the organization. We might not necessarily have to completely overhaul our existing operations functions to do so. Neither we have to create a new department or invent a new vice president. We will have to think about the supply chain organization as the collective set of departments and individuals that have responsibility for executing each of the core processes.
General Manager
Marketing & Sales
R&D
Operations
Order Management
Logistics
Supply Management
Purchasing
Manufacturing
Transitional supply chain organization
Order Fulfillment
So even if these departments and individuals are not grouped together through a large-scale reorganization, we should consider some level of formal change to the existing organizational
structure. This may mean consolidating two departments to eliminate a functional boundary or process handoff, re-scoping the responsibilities within a particular group, or realigning existing groups to focus on specific channels or customers. Consider a company that has established the strategic objective of being the low-cost provider within its major markets. In order to ensure that required margins are achieved, it will need to create a supply chain that minimizes material and production costs. The process requires a thorough assessment of existing capabilities and identification of any gaps between currently available skills and those needed to support the strategy. This has far-reaching implications for both the process design and the configuration of each process element, as well as for the supporting organization. The company will need to develop superior supplier management capabilities and must establish a sourcing organization that can successfully negotiate lower material costs and closely monitor supplier capabilities. At the same time, the company will need to ensure that its planning organization is able to provide an accurate forecast desired prices and secure the required supplier commitments.
General Manager
Marketing & Sales
R&D
Supply chain Manager
Manufacturing
Supply Management
Order Management Order Fulfillment
Partially integrated Supply chain organization As the process design is confirmed, the likely impact on the organizational structure must be analyzed, and specific organizational requirements must be identifiedthis is the gap analysis described earlier. These requirements may include a wide range of elements, such as a crossSymbiosis Institute of Telecom Management Page 19
trained production workforce, a centralized supplier development group, or a new position with overall responsibility for demand management.
General Manager
Marketing & Sales
R&D
Supply chain Manager
Supply Management
Purchasing
Order Management
Integrated Supply Chain Organization
Order Fulfilling
Manufacturing
6. BENCHMARKING: QUALITY CONTROL IN SUPPLY CHAIN MANAGEMENT Supply chain operations within an organization should be constantly reviewed to identify where improvements can be made or deficiencies eliminated. One method to help do this is to perform a series of benchmarking tests on their supply chain processes. Benchmarking or goal setting allows a company to assess the opportunities they may have for improving a number of areas in their supply chain including productivity, inventory accuracy, shipping accuracy, storage density and bin-to-bin time. The benchmarking process can provide a company some estimate of the benefits achieved by the implementation of any improvements. Benchmarking implementation type: Three types of benchmarking can be identified; internal which is focused on the processes of a single company, external which examines processes outside of a companys direct industry and competitive, which examines processes at firms within the same industry.
6.1 Internal Benchmarking The internal benchmarking process allows a company with a number of facilities that operate the same supply chain processes to compare and contrast the ways in which the process is performed in those facilities. For example if a company operates five distribution centers in the US and Canada, the benchmarking process can examine a number of operations that take place at each of the distribution centers and compare how they are performed and what improvements can be made by comparing the results of the benchmarking. If a company benchmarks the processes around inventory accuracy, shipping accuracy and storage density, the results of the assessments of the facilities can help a company to improve on those processes at all of the facilities. 6.2 External Benchmarking For companies that have performed internal benchmarking and want to investigate new ways in which to improve performance of their internal processes, external benchmarking can produce significant improvements. Many companies believe that their processes are as efficient as possible, but quite often, the efficiencies are limited by the knowledge within the company. The external benchmarking process takes a company outside of its own industry and exposes them to different methods and procedures. For example, a manufacturer and distributor of electrical components have internally benchmarked their warehouses for a number of years and have exhausted ideas on improving efficiencies. They approached a very successful retail company to visit their central warehouse and benchmark the processes that occur there to compare to their own warehouse processes. The external benchmarking allowed the manufacturer of the electrical components to assess the processes seen in the retailers warehouse and develop an improvement plan for their own facilities based on the results. 6.3 Competitive Benchmarking For companies that are not performing as well as their competitors they may want to identify the reasons why their processes are not as efficient. Consulting and research firms can perform competitive benchmarking studies for companies that will identify the strengths and weaknesses of their processes based on those of their competitors. The company can then produce improvement plans based on the results of the competitive benchmarking.
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6.4 Components of Benchmarking There are a number of components to a benchmarking study. Not every benchmarking project will incorporate these components, but a combination of these can be used. y Financial benchmarking This involves a financial analysis of the operations that are assessed. For example, a company can compare the cost of storing a component in each of its warehouses. y Performance benchmarking This can compare the efficiency of performing a task in one company location to another, or to a competitors. y Product benchmarking This method compares the product of one company against another, or comparing between facilities in the same company. y Strategic benchmarking This method observes how other companies compete. This can be within the same industry or outside of the companies industry. y Functional benchmarking This is considered to be traditional benchmarking where a company will benchmark a single process at a location or a number of locations to identify where efficiencies can be made. 7. PROJECT SAFETY MANAGEMENT 7.1 Supply Chain Security Stakeholders y y y Trade / Industry Governments Port Authorities / Terminal Operators
7.2 Supply Chain Security Elements Key elements of supply chain security include: y y y y y Risk Analysis Physical Security Access Control Personnel Security Education and Training Awareness
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y y y y y y y
Procedural Security Information Security Incident Reporting and Investigations Documentation Processing Security Trading Partner Security Conveyance Security Crisis Management and Disaster Recovery
7.3 Supply Chain Security Considerations Many elements of supply chain security pertain to all organizations, but to differing degrees y y Focus on elements of greatest importance to your organization Complex, multi-country, and multi-vendor supply chains demand more collaboration on security issues y Collaboration outside the four (4) walls of the organization is key to success
7.4 Industry / Trade Industry, in collaboration with other companies, governments, government agencies, standards organizations, port authorities, industry, key trading partners, and other entities, are responsible for establishing and implementing supply chain security to assure the safety of people, country, and commerce. y y y y y y y y y y Enlist executive support Provide or utilize a standardized, consistent framework for evaluating security risk Document security policies / guidelines to include the following key elements: Security education and training awareness In-house security Warehouse security Transportation service provider security Manifest security Access control Personnel Security
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Information security
Document Processing Security y y y y Risk Analysis Physical Security Procedural Security Incident Reporting and Investigations
7.5 Trading Partner Security y y y y y y y y y y Build on existing systems and practices Crisis Management and Disaster Recovery Security measures Awareness of appropriate security measures Perform periodic reviews of existing security Prioritize and address security deficiencies identified by Conduct regular security inspections to ensure the continuation and effective Prioritize implementation based on risk management and the needs of your organization Establish a code of ethics and conduct to be followed by all executives and employees Conduct training, drills, and exercises to ensure familiarity with security plans and procedures 7.6 Governments Governments, in collaboration with other governments, government agencies, standards organizations, port authorities, industry, key trading partners, and other entities, are responsible for establishing or endorsing security guidelines to assure the safety of people, country, and commerce, and for establishing or endorsing the means by which supply chain security representations may be validated. y y y Provide or utilize a standardized, consistent framework for evaluating security risk Prioritize implementation based on risk management Approve a Port Facility Security Plan and subsequent amendments
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y y y y y y y
Approve a Port Facility Security Assessment and subsequent amendments Test the effectiveness of the Ship or the Port Facility Security Plans, as appropriate Determine the port facilities required to designate a Port Facility Security Officer Exercise control and compliance measures Establish the requirements for a Declaration of Security Set security levels Ensure the provision of security level information to: y y y Ships entitled to fly their flag Port facilities within their territory, and Ships prior to entering a port or whilst in a port within their territory
y y
Update security level information as circumstances dictate Establish procedures to verify that there is a valid International Ship Security Certificate or a valid Interim International Ships Security Certificate
Establish written security agreements with other governments, government agencies, standards organizations, port authorities, industry, and key trading partners
y y y
Incorporate aviation security standards into national civil aviation security programs Allow for the provision of alternative measures in small airports or ports Adopt a civil aviation quality control program to assure the effectiveness of the established national aviation security program
y y y y y
Establish a security standards/program training program Use a common methodology to monitor/audit compliance Conduct inspections and investigations as necessary to assure security Perform unannounced inspections/assessments Prioritize security deficiencies identified by assessments
7.7 Risk Analysis Risk analysis provides the foundation and justification for implementation of appropriate security measures. The evaluation should include review of many elements including crime rates, value of assets effectiveness of law enforcement and the criminal justice system in the locale where you are operating, past incident activity, and the potential for natural/man-made disasters.
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8. PROJECT MONITORING AND CONTROL MECHANISM 8.1 Access Control Access controls prohibit unauthorized access to facilities, conveyances, vessels, aircraft, shipping, loading docks, and cargo areas. Supply chain monitoring and control: Implementing SCMO SCMo is a cross-company concept, that delivers transparency with regard to the state of a supply network. SCMo features a functionality that cannot be achieved with decentralized ERPsystems, which are focused on every single enterprise. SCMo is operated in parallel to the existing ERP-systems that remain the leading systems in every organization. The main benefit is the speed of information flow and the cross-company visibility and synchronization. Examples of well-known SCMo implementations are the supply networks for leather seats and leather trim parts for DC and BMW and the Audi Space Frame (ASF) for the Audi A2 made out of aluminum. Around 100 companies have already been using SCMo in January 2002 and a rapid growth can be foreseen for the near future. SCMo addresses the problem of high stock levels, premium freight, interruption of supply and high administrative effort in difficult to master supply networks. The basic idea is to automatically alert the employee in charge (e.g. via email) as soon as the inventory in the supply network (cross-company view) is either too low or too high regarding the real (final) customers demand. That means the companies involved get clear signals how to adjust production according to short-term variations in demand. The result is a smooth and secure supply with minimized safety buffers. Also for the optimization in bottleneck situations, SCMo has proven to be very effective. 9. PROJECT RESOURCE MANAGEMENT Warehouse Management Systems (WMS) have been available since the earliest computer systems and were allowed simple storage location functionality. Today WMS systems can be standalone or part of an Enterprise Resource Planning (ERP) system and can include complex technology such as Radio Frequency Identification (RFID) and voice recognition. However the basic principle of the warehouse system has remained the same, which is to provide information to allow efficient control of the movement of materials within the warehouse.
When selecting a WMS there are many vendors to choose from. If a business currently operate an ERP system then the WMS functionality may be part of that suite, or it can use a bolt-on WMS package. For companies that use best of breed solutions, the choice of WMS will reflect the requirements of its warehouse operations. The implementation of a WMS is often complex. Project planning is critical to the success of any WMS implementation. The project requires warehouse resources to collect data on the physical warehouse, materials, inventory as well as defining the strategies required to operate the warehouse. There is the added challenge of implementing the system whilst still operating the warehouse. A major factor of all projects is still ship product whilst the WMS is being implemented. The complexity of a WMS implementation varies with every business. The physical dimensions and characteristics of each item in the warehouse are required to be collected and entered into the new system. Capacity calculations require the physical size and weight of the item as well as the dimensions of all the storage bins or racks in the warehouse. The storage options for each item are required, for example if the item can be stored separately, in box, pallet or if it can be stacked. Each item must be reviewed to see if it is physical limitations on its storage, such as requiring refrigeration. Hazardous material information needs to be collected so that the item is not stored in certain areas. This information is only part of the requirements of the WMS implementation. The system requires decisions or configuration to be made on how items are to be placed or removed from the system, in what order, for what types of materials and what methods of placement and removal should be used. The implementation requires significant input from the resources that operate the warehouse on a day to day basis and this can be a strain on warehouse operations. A successful project will recognize this fact and ensure that the key personnel required for the implementation are given adequate back up so that warehouse operations do not suffer. After the successful launch of the WMS system, many businesses will find that the resources required to operate the system is greater than prior to the implementation. This is primarily due to the data intensive nature of the software and the fact that warehouses are in a state of flux; racks are moved, placement and removal strategies changed, new items added, new processes
developed. Warehouse accuracy is paramount for the software to operate and to do this data will need to be entered accurately and in a timely fashion. Although most WMS implementations will reduce labor costs in the placement and removal of materials, there is often an added warehouse management function required just to operate the software. Despite the complexity, WMS implementations do offer businesses significant benefits. Not only will placement and removal cycle times be reduced, but inventory accuracy should be improved as well as increased storage capacity, more organized storage of materials and greater flexibility of warehouse operations. 10. VALIDATION AND TESTING The main conclusion is that the benchmarking studies took longer than expected and presented some unexpected challenges. However, in the end they produced many useful findings and helped gain a better understanding of the best practices in this area. The challenges, possible remedies, and success factors are listed below. In terms of challenges and pitfalls, the main elements were: y Finding benchmarking partners willing to participate in the benchmarking studies. This is by far the single most difficult of all tasks, which is quite usual in benchmarking. Identifying companies that seem to be comparable in terms of size, market conditions, industry, etc.. that is believed to be sufficiently better to have something to teach others, and at the same time are willing to share their best practice information, is difficult. The normal way to overcome this obstacle is to run company searches through many different channels, e.g., the companys own network, industry associations, area experts, etc. y Getting acceptance for the use of both quantitative and qualitative benchmarking information. The information sought in benchmarking normally consists of two parts; quantitative performance data used to determine the differences in performance levels among companies comparing and qualitative business process descriptions used to create learning among them. Since the numerical performance data often involves financial information, the willingness among the consortium and benchmarking partners to surrender this type of information was rather low.
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Lack of business process understanding. Although the term business process has been known in academic circles for a few years, it is not as widespread in industry. While some of the benchmarking partners had modeled their business processes and could give us flow charts depicting these, many of them did not. Thus, it required much more work to establish the flow of goods and information and model the processes.
Limited duration of each interview. During interviews, we were limited by time. In order to go in depth of each individual process it would have required more time, both during the interview and for the preparation. If we had been able to perform longer and more specific interviews we would have been able to get a deeper understanding of the processes and their performance.
Comparability of companies and processes. The benchmarking partners were all chosen because they had a similarity to or relationship with the industrial partner. This did not, however, ensure comparability of their processes. Even though not all information was comparable the visit could still generate new ideas for the industrial partners. These are all pitfalls and challenges prospective future bench markers should be aware of and try to counteract. Some possible solutions to these challenges are:
In general, the very difficult issue of finding relevant and willing benchmarking partners can be attempted solved through different approaches:
1. Applying a systematic procedure whereby a large number of potential benchmarking partners are scanned for relevance and high performance. 2. Seeking aid and support from sources and institutions that might be able to point to and convince potential partners, e.g., industry associations, area experts, media, etc. 3. Making sure the offer made to the companies is attractive, for instance by informing about processes the benchmarking company is particularly good at and offering return visits. 4. Requesting initial performance information about the process in question before selecting a benchmarking partner, to make sure the performance is sufficiently good to offer new insights. 5. All challenges pertaining to poor data collection after actually having found willing benchmarking partners can be counteracted by a number of remedies:
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6. Exchanging all possible background information beforehand, thus being able to start covering the interesting parts right away. 7. Sending the questionnaire in advance to allow time for data gathering and preparations.
8. Meeting for a social gathering the night before the benchmarking visit to break the ice and build up trust before starting the meeting. 9. Offering to pay for the time spent by the benchmarking partner in preparations for and during the benchmarking visit. 10. Making sure to bring along someone fluent in the local language if the benchmarking partner finds it difficult to conduct the interviews in an international language. 11. IMPLEMENTATION A large part of supply chain management depends on the implementation of the SCM planning. Sometimes it can be easy to make SCM plans, but then it is difficult to actually implement these plans and put them into practice. Here are some ways to implement supply chain management: y Make sure that supply chain partners are goods The supply chain management system is based on the idea of less control and more supply chain partners supply chain management is supposed to build up trust and collaboration between these supply chain partners. This trust and collaboration is supposed to help improve the amount of inventory that is produced and the amount of time it takes to produce inventory. y Constant follow up: There is a need of continuous follow up of the supply chain partners to make sure that the work is being done correctly and constantly. It is also needed to make sure that you have the quantity and location of inventory including raw materials, finished goods, and products that are in the process of being made. y Dont rationalize the business from an internal point of view: One of the biggest problems right now is that a lot of businesses are rationalizing their business because they are looking at it from an internal point of view. This means that they are more concerned about their businesses point of view internally than they are looking at their business through the eyes of a customer. y Make sure that all of the strategic, tactical and operational aspects of supply chain
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management are covered Part of the important part of implementing supply chain management is to follow the steps that are outlined in the program, even if you dont feel like doing them! For example, one should be involved in the product design coordination, building an information technology infrastructure to support supply chain operations, align organizational strategy with supply strategy and also be involved with building a strategic partnership with suppliers. MAINTENANCE The contributions of capital equipment maintenance programs to production and operations strategies are evident. Over time, all equipment fails or degrades in its ability to produce, and such trends should be managed through a combination of preventive and corrective maintenance. In any modern manufacturing facility the equipment used requires a level of maintenance to ensure that the manufacturing process is not disrupted and the production plan can be achieved. World class organizations spend time and resources on maintaining their equipment using a preventative maintenance plan. So there is need to implement Total Productive Maintenance (TPM) and this can achieved by following these procedures y Corrective Procedures This type of maintenance procedure is used in companies that do not employ a preventative maintenance program. In its simplest form, a company will not perform maintenance on a piece of equipment until a failure occurs. When this happens the plant maintenance department will then perform work on the item to either repair it so that it can be placed back into service or replace the piece of equipment if it cannot be repaired or requires maintenance that would cause significant delays to the production schedule. y Preventive Maintenance Companies that use a preventative maintenance will plan regular maintenance inspections so that any issues that may occur with a piece of equipment can be identified before a critical failure occurs. Preventative maintenance also ensures that critical parts are replaced before they fail and consumable items, such as oil and lubricants, are changed regularly. y Predictive Procedures
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Some companies use predictive maintenance to maintain their equipment. Predictive maintenance helps companies determine the condition of their equipment so that they can predict when maintenance should be performed. This method can be a considerable cost saving over preventive maintenance as it allows maintenance departments to perform work on equipment only when they believe it is needed rather than on a set schedule. This procedure is also known as condition-based maintenance as a company can employ conditioning monitoring which uses non-destructive testing, such as infrared, vibration analysis and sound analysis. 12. SUPPLY CHAIN MANAGEMENT CLOSE OUT PHASE The task of project manager is not over after successfully implementation of supply chain management. There is general tendency of human beings to resist any change; therefore it is the duty of project manager is to deal with such issues. There are varieties of ways by which we can address such issues such as12.1 SAP Implementation y SAP implementation encompasses the processes and methods to implement the SAP ERP software in an organization. The SAP implementation method varies from company to company. It is based on best practices and case studies from available resources, and results in a complete implementation method that would allow the organization to plan and apply the implementation of SAP modules. y The implementation of SAP software is a huge operation that brings many changes in the organization. The implementation process can take several months, and it involves most of the staff in the organization i.e. from SAP technical support people to the end-users of the SAP software. As the process of SAP implementation is aimed to achieve streamlined and efficient business, it is therefore very important that proper training is provided to the employees for the following reasons: o Allows the employees to be more effective at using the SAP software o The employee-training part is mandatory for its capability to maximize future revenues
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o The end user training helps in motivating people and thus creating more userfriendly products. 12.2 Overall Equipment Effectiveness This can be achieved by implementation of other manufacturing improvement procedures such as Six Sigma. When businesses want to evaluate the relative success of their TPM procedures they often use a set of measurements. 12.3 Quick Response Manufacturing Quick Response Manufacturing (QRM) is the latest development in lean manufacturing where companies have progressed from the just-in-time (JIT) methodologies. The QRM process looks at how lead times across the company can be reduced to increase productivity. 13. QUESTIONNAIRE General Information Name of company Contact details for any follow up Type of user Date
Supply Chain information Type of products manufactured/sold Scale of companys activity
Which of the supply chain options could be useful for the company? y y Identity preserved (segregation) Bulk RSPO (commodity grade)
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y y y y
Mass balance/%-based claims Mass balance/% in-% out Book and claim None
What would your company want the control of your supply chain to deliver? y y y y y Guarantee of sustainable production Minimizing internal risk Implementing internal company policy Marketing/ making claims Others, please state
How important it is to your company that the supply chain approaches used are credible to each of the following actors? Actors Producers processors End users NGOs Governments Others Very Moderately Slightly
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How effective does your company consider each of the following verification approaches to be in ensuring the credibility of the supply chain approaches used? Verification process Self-declaration by suppliers Verification by independent RSPO approved verifiers Independent certification Very Slightly Moderately Slightly
How does your company rate the relative credibility of the potential supply chain approaches and why? Approach Identity Preserved (segregation) Bulk RSPO (grade commodity) Mass balance/ .%-based claims Mass balance/. % in-% out Book and claim Very Moderately Slightly Reasons
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14. Literature Review Supply Chain Management Integration & Implementation Damien Power, Department of Management, the University of Melbourne, Melbourne, Australia The integration of supply chain processes can provide an effective means by which costs can be reduced and customer service levels improved. The formula for integration, however, is not a simple one. Organizations that aim to become part of an extended, integrated supply network can also expect that this will require an infrastructure enabling effective information flows and streamlined logistics. A key component of this infrastructure will be based on robust and durable collaborative arrangements with trading partners. The most effective of these networks will be those that are able to get the mix of information requirements, physical logistics and collaboration right, providing shared benefits to a majority of partner organizations. The configuration and operation of supply chain activities and resources provides significant potential for developing new and alternate sources of sustainable competitive advantage. The potential for an integrated supply chain to provide an alternate source of differentiation both highlights the importance for organizations of developing a competency in this area, and begs the question as to why it is still the domain of a minority. Implementation of technologies and methodologies for the management of supply chains is likely to be accompanied by significant intra and inter-organizational change. This will manifest itself in particular in the area of process re-design and in many cases the development of entirely new processes. The difficulties and complexities inherent in implementation have led to the development of frameworks (e.g. SCOR) to enable this process. It is interesting to note that evidence suggests that adoption and application of these frameworks is at best limited. The literature suggests, therefore, that implementation is best attempted through an incremental rather than big bang approach. Business Week Review on Supply Chain Excellence written by Cheryl Krivda According to a report from Boston-based AMR Research Inc., companies that excel in supplychain operations perform better in almost every financial measure of success. Where supply-chain excellence improves demand-forecast accuracy, companies have a 5% higher profit margin, 15% less inventory, up to 17% stronger perfect order ratings, and 35% shorter cash-to-cash cycle
times than their peers. Companies with higher perfect-order performance have higher earnings per share, a better return on assets, and higher profit margins roughly 1% higher for every three percentage-point improvement in perfect orders. The basis of competition for winning companies in todays economy is supply-chain superiority, says Kevin OMarah, vice president of research at AMR Research. These companies understand that value-chain performance translates to productivity and market-share leadership. They also understand that supply-chain leadership means more than just low costs and efficiency it requires a superior ability to shape and respond to shifts in demand with innovative products and services. 2006 Supply Chain Executive Summit - Dr. Hau Lee, Stanford University Dr. Hau Lee summarized the summit by emphasizing that supply chain can be the driver to business growth and market value creation. Specifically, structural transformation can be attained by leveraging the supply network, new business models, supplier integration, products to service migration, and technology evolution. y Leverage the supply network for new solutions to assist in the design and development of new product innovations. Utilize the network and the knowledge to create new businesses. y Tailor supply chains and scale. Drive mass customization for volume and unique configurations for specialized markets (scale effect) y y Outsource for process excellence (substitution effect) Achieve process innovation through intra and inter-organization integration. Change the mindset y y Continue to seek lower cost sources of product and labor Leverage product flow and information flow to include the financial flow
Harland, D., Scharlacken, W.J., Global Supply Chain Planning, 40th APICS International Conference Proceedings Harland, suggests that there are six pillars that have to be built for the success of a global supply chain planning process. They are:
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1. Integrating supply chain planning activities, wherein the organization integrates all the activities crossing functional boundaries, so that all the activities are done so as to attain the organizational goals 2. Establishing uniform business policies and rules for all the business units on issues like sales incentives and pricing, forecasting etc, wherever possible. Standardizing on common supply chain planning information systems within and across the business units can increase adaptability 3. Unified supply chain planning information systems help in reducing the costs involved in interpreting the data from different systems and helps the company to sell the products at a higher profit 4. Establishing planning centers of excellence, with the core staff responsible for coordinating the supply chain planning process co-located in a central or regional planning centers, helps in identifying new capabilities whenever needed and they will be able to identify opportunities to convert supply chain innovations into distinct competitive advantages 5. Shared performance measurements facilitate evaluating partner contributions and worker skills across the organizational boundary and helps in directed progress 6. A process based organizational structure supports global supply chain planning by improving communication and stream lining reporting hierarchy throughout the supply chain. Areti Manataki, Master of Science Artificial Intelligence, School of Informatics, University of Edinburgh Supply Chain Management is becoming more and more important for the success of todays business world. Dell has realized this trend from its very first steps and has become one of the most successful PC companies in the world by putting emphasis on its supply chain, orchestrating its build-to-order and direct sales strategies. Hyun-cheol Paul Choi, California State University, Fullerton, CA The performance of a supply chain depends critically on how its members coordinate their decisions. Sharing information is the most basic form of coordination in supply chains. There are
a number of new emerging technologies available to connect the members of a supply chain to support information sharing. Recent developments in corporate information technology, such as Enterprise Resource Planning (ERP) systems, allow information to be shared seamlessly between members of a supply chain. However, the benefits of sharing information among supply chain members are not always the same. They depend on the supply chain structure (e.g., serial or distributive systems) and its operational characteristics (e.g., demand patterns and costs involved). In the literature, the members at the suppliers end are called upstream members, while the members at the manufacturers (or buyers) end are called downstream members. When supply chain members share information, downstream members can share information with upstream members or upstream members can share information with downstream members we call the former downstream information sharing, and the latter, upstream information sharing. A common example of sharing downstream information can be found in Vendor Managed Inventory (VMI) relationships where grocery retailers (downstream members) share end customer point of sale (POS) demand data with their suppliers (upstream members). Thomas Lawton and Kevin Michaels, Irish Journal of Management Lawton and Michaels contrast companies that pursue vertical integration (owning and operating multiple steps in the value chain) to those that pursue virtual integration (owning one step, but coordinating the actions of many steps). They claim that as a company moves from vertical to vertical, traditional organizational structures need to be revised. They note the historical trend away from Henry Fords completely vertically integrated firm to Toyotas physically close network of suppliers to the modern supply chains where there is a growing physical separation of activities. Lawton and Michaels go on to describe the relationship between DELL and its suppliers as a uniquely configured network of alliances and partnerships. Therefore, they argue that DELL has perfected the art of strategic outsourcing, and that this is essence of DELLs success. Daniel G Jacobs, Transportation and Distribution (now Logistics Today) Jacobs claims that the operations secret sauce is a single minded dedication to supply chain excellence, which means working relationships with its suppliers and vendors that border on the incestuous. He provides a brief but accurate snapshot of some of DELLs supply chain
management practices, emphasizing many of the IT software modules that support DELLs day to day procurement, logistics and manufacturing operations. James Curry and Martin Kenney, California Management Review Curry and Kenney group computer manufactures by their production / distribution models, and they examine the different specific practices each group uses to deal with the rapidly declining prices of components and finished products. They conclude that DELLs system (build to order production) poses a stunning challenge to the PC industry, because it completely eliminates the problem of eroding component value. Andrew Park and Peter Burrows, Business Week Park and Burrows examine some general management practices at DELL. Specifically, they identify the following five practices as important y y y y y Expecting a high level of personal accountability Minimizing celebration / maintaining sense of urgency Management teamwork, especially two-in-the-box management Tightly managing the balance of revenue and growth Being able to kill losing projects quickly
Although the Park and Burrows article is about DELL as a whole, it does highlight some success stories in operations. Additionally, this article came out when the author was working at DELL, and it was generally considered accurate by the operations employees involved in this project. Kathleen Eisenhardt and Shona Brown, Harvard Business Review Eisenhardt and Brown present a compelling idea called time pacing, which they define as creating new products and services, launching new businesses, or entering new markets according to the calendar. They claim that time pacing can counteract the natural tendency for managers to wait too long, move too slowly, and lose momentum. They mention how DELL has coined the term Dell-ocity to describe the fast-paced nature of many of its processes. Eisenhardt and Brown message resonates with the DELL Operating Model when they say that time pacing creates a relentless sense of urgency around meeting deadlines while at the same time creating predictability by giving people a sense of control in otherwise chaotic markets. Carla Joinson, Human Resource Management International Digest
Anonymous, Human Resource Management International Digest The human resource management International Digest published a couple of short articles on the flexibility of DELLs HR practices and culture. The first article presents a quick glimpse into the cultural selection criteria for hiring and promoting employees. This articles reports that HR seeks managers who can change roles, who thrive in flat organizations, and who understand the DELL philosophy of growing and splitting business units quickly. This article also reports that recruiters often work in regular functional roles during the non-peak periods of recruiting cycle. The second article presents a short description of the philosophy underlying training programs at DELL. This journal reports that DELL tries to allow learning to occur in the most flexible way possible through the use of web-based content, individually developed training plan, and shortterm relationships with training providers. The Demand Driven Supply Chain: a holistic Approach, The Economist Now more than ever, businesses must improve the efficiency of their supply chains in order to maintain competitive advantage. But the principles of lean manufacturing and inventory control that famously helped companies like Toyota, Dell and Wal-Mart to rise to the top of their respective industries are no longer enough. Companies must apply new technologies and sophisticated analytics not only to make their supply chains more responsive to customer demand, but also actively to shape demand towards more profitable business. Todays demand-driven networks must enable companies to be flexible in applying the full array of levers at their disposalincluding pricing, sales incentives, promotions and other marketing toolsto stimulate demand for their highest margin products and to maximize business with their most profitable customers. This holistic approach to building demand-driven supply chain operations requires: y Improved demand forecasting tools that help to fine-tune base-level forecastsbased on historical sales datato eliminate anomalies and other noise, before incorporating larger deviations and less predictable variables. y Integration of new forecasting and demand management tools with existing supply chain and logistics systems to allow visibility of supply and demand all along the network in real time.
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A collaborative approach to sales and operations planning that brings sales and marketing together with supply chain operations to develop a comprehensive plan.
Profitability as the prime objective, above simple cost cutting or revenue enhancement, in measuring supply chain performance. Companies must target their most profitable customers and promote their most profitable products and services.
15. About the Topic Dell, Inc. is a multinational technology corporation that develops, manufactures, sells, and supports personal computers and other computer-related products. Based in Round Rock, Texas, Dell employs more than 82,700 people worldwide. Dell grew during the 1980s and 1990s to become (for a time) the largest seller of PCs and servers. As of 2008 it held the second spot in computer-sales within the industry behind HP. The company currently sells personal computers, servers, data storage devices, network switches, software, and computer peripherals. Dell also sells HDTVs that are manufactured by other brands. In 2006, Fortune magazine ranked Dell as the 25th-largest company in the Fortune 500 list, 8th on its annual "Top 20" list of the most-admired companies in the United States. In 2007 Dell ranked 34th and 8th respectively on the equivalent lists for the year. A 2006 publication identified Dell as one of 38 high-performance companies in the S&P 500 which had consistently outperformed the market over the previous 15 years. MANUFACTURING In the 1980s Dell became a pioneer in the configure to order approach to manufacturing delivering individual PCs configured to customer specifications. In contrast, most PC manufacturers in those times delivered large orders to intermediaries on a quarterly basis. To minimize the delay between purchase and delivery, Dell has a general policy of manufacturing its products close to its customers. This also allows for implementing a just-in-time (JIT) manufacturing approach, which minimizes inventory costs. Low inventory is another signature of
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the Dell business model a critical consideration in an industry where components depreciate very rapidly. Dells manufacturing process covers assembly, software installation, functional testing (including "burn-in"), and quality control. Throughout most of the companys history, Dell manufactured desktop machines in-house and contracted out manufacturing of base notebooks for configuration in-house. However, the company's approach appears to have started to change. The 2006 Annual Report states we are continuing to expand our use of original design manufacturing partnerships and manufacturing outsourcing relationships. The Wall Street Journal reported in September, 2008 that Dell has approached contract computer manufacturers with offers to sell" their plants. The specific DELL model is called the DIRECT MODEL of DELL. THE DIRECT MODEL Dells direct selling model traces its origins Michaels idea of selling computers directly to the consumers eliminating the need for distributors and middlemen. Michael believed that by selling PCs directly to the consumers, the company would be able to better understand the needs of its customers. The first computer that the company introduced in 1985-Turbo PC was advertised in computer magazines and sold directly to consumers. Dell also began employing computer literate sales personnel, who guided consumers in their choice of systems. Each system was assembled according to the preference of customers. This option helped customers to get computers at a price lower than other brands. The company also realized that in order to be on par with the top PC manufacturers like Compaq and IBM, maintaining a high level of quality was necessary. However, this required more cash. The top executives of the company met and decided to increase their funds in hand by reducing inventory. However, managing the difference between lead times for components and lead times promised to customers was difficult. The new supply chain had to manage with low components levels but without increasing the customer lead time.
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Dell decided to produce PCs as per the orders it received and not to hold excess inventory or finished products. The Heads of the Manufacturing and Marketing departments decided to reduce component inventories. At the time of starting this process, their primary focus was to reduce the inventory by 50 %, improve the lead time by 50 %, reduce obsolete inventory by 75 % and reduce the assembly cost by 30 %. Later, Dell decided to replace inventory with information, on the premise that with more information on the needs and requirements of the target customers, the level of inventory could be further reduced. The company decided to pass on the information to the suppliers, who were provided access to companys internal data about the demand for specific components. Initially, the component inventory dropped from 70 days to 30-40 days and consequently to 20 days. With reduction in components inventory having a positive effect on each cash flow, the company decided to bring other tasks related to production in line with the reduced inventory. In the process of reducing inventory, Dells executives observed that as the inventory was reduced, the component lead time improved while the finished product inventory also reduced. This happened because Dell was aligning inventory and sales, rather than carrying inventory against projected sales. Another benefit was in terms of returns. The returns grew as Dell was able to eliminate carrying costs and also obsolete stock, and reap savings due to cheaper components. The overall savings Dell derived from managing the inventory encouraged it to try matching supply and demand on monthly, weekly and daily basis. This reduced the variation in supply and demand and gradually it was no longer necessary for Dell to maintain any component inventory. The cash that was freed up due to reduction in inventory levels was used to target corporate customers. Dell had the hard task of convincing corporate customers that the products it provided were of good quality and was cheaper compared to those of its competitors. Customers were also not sure that Dell would be able to meet its service and delivery deadlines. Once the corporate customers were convinced that they could order what they needed, rather than buy what was available with the resellers, they moved on to Dell. After Dell started fulfilling specific orders, while maintaining high quality standards, several corporate began approaching Dell with their requirements.
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Dell established its website in 1994, when the companys total revenues were US $ 3.5bn. Online pricing was introduced in 1995, and online sales began in 1996. Within six months Dells revenues on the Web stood at US $ 1 million a day. The internet proved to be a shot in the arm for Dells direct model as it was able to facilitate transactions, reduce costs, and improve relationships with customers. The website initially catered to the needs of individual customers. Once the order was received, it was sent to a specific e-mail box. It was ensured that the order was complete and had all the required details and was then sent to the build-to order system. Once the order was placed, customers could log in to check the status of their order. By 1997, sales through Internet were at around US $ 1bn, and Dell was the first company to record more than US $1 billion in online sales. By 1998, Dells sales through the Internet accounted for more than half of its total sales. Dells direct model was directly supported by the way the companys activities were organized globally. Its corporate headquarters, located in Round Rock, Texas, also served as the regional headquarters for the US, Canada, South America, and Latin America. Other regional headquarters at Singapore catered to the Pacific Rim including Japan, China, India, Australia and New Zealand. The company also had regional offices in several countries, which functioned under the regional headquarters. New product development was undertaken in the US and the products were customized according to the requirements of specific markets, taking into consideration power supplies, language specific keyboards and procurement and product development teams were located in Austin. Major components were sourced centrally, while consumables were sourced locally. ROLE OF DELLs SUPPLIERS In order to manage its operations with low inventory levels, Dell collaborated closely with its suppliers. The companys procurement decisions were based on four criteria-quality, cost, delivery and technology. Suppliers were selected on the basis of cost (given a weightage of 30 %) and quality, service and flexibility (with a weightage of 70%). Commenting on the supplier selection process, Kevin Kettler, Chief Technology Officer, Dell said, Features, functions and performance level is one piece, but we also ask can they hit the quality requirements? Can they
provide continuity of supply for the volumes were looking at? Do they have the capability to diagnose a customer-related issue and interact? Do they have capabilities to quickly diagnose it with Dell as we trace it back to a component-level issue? Whats a favorable arrangement for both Dell and the company so that were both successful? Dell separated activities related to contracting like cost negotiation, contract terms, source selection from commerce-related activities like purchase order release, delivery management and payment. Cost was centrally-managed while delivery was managed regionally. Printed circuit board assemblies and sub-assemblies were handled by contract manufacturers or OEMs. Components and peripherals like CD ROM drivers, monitors, keyboards and pointing devices were supplies by the offsite suppliers. Software was supplied by standard suppliers like Microsoft or as per the requirements of the corporate customers. Most of Dells suppliers were located in Asian countries. As bringing the components from the suppliers factories to Dell took anything between 7 and 30 days depending on the mode of transportation, Dell required all its suppliers to maintain a warehouse close to its factories. They could either manufacture the product at the warehouse or produce at another place and ship the finished product to the warehouse. Most of Dells Asian suppliers produced some components near Dells manufacturing facilities, while other components were produced in Asia and shipped in to their own warehouses near Dells factories. The warehouses known as Suppliers Logistics Centers (SLC) were located a few miles away from Dells assembly plants. Each SLC could be shared by more than one supplier. Typically, Dell required suppliers to maintain inventory for 8 to 10 days in SLCs. Dell took the inventory from SLCs as required, usually replenishing its stocks every two hours. It was up to the suppliers to decide on maintaining inventory at SLCs. Most suppliers replenished the stocks at SLCs thrice a week. Dell had a vendor managed inventory arrangement with its suppliers. As per the arrangement, Dell set the target inventory levels-typically 10 days. The vendor had to decide when to order the inventory and the quantity to order to maintain the levels set by Dell. The suppliers also had to
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decide on sending the components to SLCs so that Dell could take the components as and when required. With some suppliers, who had been with Dell over a long time, Dell agreed to purchase a particular percentage of the components it required. This was to ensure that an adequate supply of products was available even when the demand in the market was higher than the supply. Some of the engineers from the major suppliers worked in tandem with the new product development teams in Dell. This enabled the suppliers to understand Dells requirements, and in case there was a problem with the components, the engineers from the suppliers were available to rectify it immediately. Due to this close collaboration with suppliers Dell was able to manage with an inventory of just a few hours for some components. Some of the partnerships that Dell entered into with its suppliers enabled it to operate with almost zero inventory levels. A case in point was Sony, which supplied monitors for Dell. These high quality monitors, with very few defects, were not tested by Dell. These monitors were not shipped to Dells assembly lines, but were shipped directly to Dells customers. Dell shared with its suppliers the data pertaining to sales forecasts once a month. The data was generated by the marketing department of the company and took into account various factors like the demand for new products, and seasonality trends like the demand from the government departments at the end of the year, demand from school children at the start of the academic year, and holiday season demand during Christmas. The availability of the components at the suppliers end was checked by the Center of Competence in Dell and sent to commodity teams in the company. The commodity teams made a six-month forecast, which was updated every week. It was the responsibility of the commodity teams to break the forecasts down to the component level. Dell believed in maintaining a close relationship with its suppliers. All the inventory data, including the long-term planning data, volume expectations, and replenishment data was shared with them. Dell was of the view that if it had more information to share with its suppliers, it could
expedite the process of building the products and receiving material from suppliers, and minimize its inventory. Dell constantly passed on data on demand and supply trends to its suppliers. The company gathered information about inventory levels of the suppliers and the suppliers were required to share information on their capacity to deliver products on time, new technology drivers, etc. Dell provided the details of customer demand to its suppliers, and details of changes in demand patterns. Dell demanded that its suppliers should be extremely flexible to accommodate short term demand fluctuations. The company provided suppliers with data on real-time customer demand, and every week, suppliers were given an order commitment from Dell for the following week. The suppliers needed to send their consent to meet the companys demands immediately. Every supplier was given a supplier report card and their performance was constantly monitored against the metrics set by Dell. Every day Dell rated vendors on several parameters like cost, technology and service and the scores were posted on a website. Every quarter, Dells officials met with the suppliers, and provided them feedback on their performance and its expectations from them. Each supplier was given a scorecard comparing it with other suppliers in the industry in terms of cost, reliability, quality and on time delivery. Based on the comparison, the suppliers were awarded a certain percentage of Dells purchases in the next quarter. One of the suppliers was chosen s per its aggregate performance on the four parameters and given the best supplier award during the annual supplier conference. Dells suppliers also maintained low levels of inventory. The company had about 30 suppliers who provided 75 % of the components required by the company and they maintained inventory for an average of 8 to 10 days. If the inventory exceeded 10 days, Dell worked together with the suppliers to ensure that optimum inventory levels could be maintained by them. In mid-1998 Dell launched Valuechain.dell.com, a site which let the suppliers know what the companys components requirements were at any given moment, so that they could plan their own production schedule accordingly. This helped improve vendor management as it led Dell
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exchange information with its suppliers in real time. Valuechain.com also helped Dell to place orders in real time instead of relying on daily or weekly batch order transfers. In 2004 and 2005, Dell conducted a Supplier Self-Assessment, through which suppliers were made aware of its supplier principles and labor management systems. With an extensive global supply chain, Dell was of the view that it had the responsibility of working with its suppliers to promote sustainable environmental practices, the health and safety of people and fundamental human rights. Dells approach was drawn from a review of global best practices, management systems and acknowledged standards. Included among these were the United Nations Declaration of Human Rights, the UN Convention on the Rights of the Child, fundamental conventions of the International Labor Organization (ILO), Electronic Industry Code of Conduct International Organization for Standardization (ISO 14001), Occupational Health and Safety Assessment Series (OHSAS 18001), The Soul of Dell, The Dell Code of Conduct as well as the benchmark of other corporations and industries across the globe. In 2006, collaborative projects were carried out with suppliers, to hiring about awareness in the areas of working hours, health & safety and environment. The team consisting of personnel from Dell and its suppliers used Business Process Improvement (BPI) methods to define and measure improvement in the suppliers processes. Dell used BPI to understand, analyze and improve its own business processes, product quality and services as well. All the suppliers were required to comply with ISO 14001 environmental management standards and OHSAS Certification, a standard for workplace health and safety management. All the suppliers were also trained in areas like environmental practices, health and safety and Electronic Industry Code of Conduct (EICC). BALNCING DEMAND AND SUPPLY Dell maintained a database to track the purchasing patterns of corporate customers and their budget cycles, in order to forecast demand. It also maintained a similar database for individual customers in order to cater to their future requirements for PCs. Through its forecasting
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techniques, Dell was able to forecast demand with 75% accuracy. Thrice a day, the changing demand patterns were communicated to the major suppliers. In all the countries in which Dell operated it had a direct sales force, which was directed by the marketing department located at the headquarters. The sales force was primarily responsible for marketing the PCs to the corporate and public sector customers. Dell maintained a sales force in all the regional offices. As Dell sold directly to the corporate customers, it kept track of their purchases and gained knowledge about the PC requirements of the major customers. Dell loaded customized software and also placed the asset codes required for some of its corporate customers. Several customers reported considerable savings through these services Dell provided. The company placed some of its personnel in the factories and offices of major customers like Boeing. These employees were involved in planning the clients requirement and provide them optimum solutions to meet those requirements. Every month Dell developed a production plan and conducted sales plan meetings. In the meetings, the department heads arrived at product strategies, competitive factors and constraints. Every week, the lead time meeting was conducted with personnel from sales and marketing, and the supply chain. They interpreted the demand trends, tried to resolve supply issues and focused on lead times for delivering products to the customers. If it was found that the lead time for a product was increasing, the procurement of the product was expedited or additional suppliers were brought and the customers were encouraged to buy substitute products. If any component was found to be accumulating, customers were provided incentive to buy those products. The pricing also changed from week to week reflecting the demand management in the company. The product lead times were updated every day. In case the demand exceeded supply at any given point in time, Dell had more than one supplier for each of components to expedite supply. If the component was generic, Dell checked with alternative suppliers. Once all the supplier options were exhausted, Dell used its marketing team to shift demand. Within hours, the marketing team would create advertisements for computers with components that were in abundant supply. Through these advertisements, Dell created demand for other products by putting them on its own website and also some other popular websites. Dell also used other media including television, magazines, catalogs and newspapers.
For example, at any particular time, if Dell was in short supply of 60GB hard drives and the demand was more, advertisements would immediately he placed on Dells website providing an alternative of 80 GB hard drives, which were in adequate supply. According to Dick L Hunter, Vice president, Supply Chain Management, Dell, If were short on Sony 17 monitors, we could offer a 19-inch model at a lower price or even at the 17-inch price. We know if we do this a lot of demand will move. Supply chain experts call this process of creating demand for products that were adequate in supply demand shaping. PRODUCTION PROCESS Dell received orders via the telephone, internet, e-mail, etc. Orders were received by business units, which downloaded the orders every 15minutes. With advancement in technologies, the choices available for the consumers also widened. Customers could use Dells website www.dell.com, to configure their customized computer and place an order for it. Customers could choose from a variety of products ranging from desktops, notebooks servers, printers, etc. the website catered to different segments of customers like individuals, home office customers, small businesses, medium businesses, large businesses and public sector customers like government departments, educational institutions and healthcare institutions. Customers could customize their computers by selecting processors, operating system, display screen, memory hard drive, video card, audio cars, etc. as well as accessories like printers, power options, T.V. tuner, etc. for products like notebooks, Dell provided choices in terms of batteries and carrying cases. The other services included warranty services, installation, internet, etc. After the customers had selected the options, a summary of all the components, accessories, software and services chosen by the user were displayed, along with the price. At every step, the customers could get more details on the components they were selecting. If some of the components the customer was opting were in short supply, the website warned that choosing that particular component could delay the shipping date. The orders were processed after checking the credit of the customers and configuration evaluation, where the feasibility of the configuration selected by the customer was checked. As of 2003 Dell received about 50,000 orders per day and around 25,000 orders were received via the
internet. All orders were sent to Dells Legacy order Management System, which received the inventory status and generated requests for the materials. The request was then sent to suppliers. After the order from the customers was received, in order to process order, a barcode was printed and attached to the components, and this remained on them through the assembly line. Every two hours, the production lines in every factory located across the globe were rescheduled. At the beginning of the cycle, the component providers had 90 minutes to deliver the products for the next schedule of production. Dell on its part required 30 minutes to take the material and deliver the components to the assembly line. The process took two hours, and after this another production cycle began. Without maintaining inventory and warehouses for storing finished goods. Dell still managed to process orders on time by ordering the components from its suppliers, only after the final order was received. The schedule for making a product was drawn up and sent to the factory accompanied by a order number. At the same time, a message as sent to SLCs. After receiving the information, the suppliers delivered the required materials at the specified dock door to send them to the assembly line. Personnel from the suppliers were present at Dells facilities to run the process smoothly. Dell assumed the ownership of the components only after they had reached its production line. For example in Topfer Manufacturing Center in North Austin, however there were around 110 cargo bays, there were thin white lines forming a rectangle. Tractor trailers with components from the suppliers were lined up at the bays. When the assembly lines signaled requirements of a particular component, a forklift went on to the trailer containing the component and took the pallet containing the components. When the pallet crossed the white line on the floor, a barcode scanner recorded the movement and at that point of point, the inventory was registered into Dells books. Once all the required components were ready, the customer order was picked up and the barcode was scanned. Then the parts required were sent on a conveyer Belt. As the parts went into the assembly, each was scanned to ensure future traceability. The system was assembled and a quick test was carried out to verify if the order was executed as per the customer specifications. After
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the verification, the unit was placed back on the conveyer belt. The assembling was carried out by a single worker, and it was the responsibility of the worker to maintain the quality of the product. The next step was loading the software and ensuring that the application runs correctly. This process took up to four hours. The technician present there detected any failures that occurred and rectified them immediately from companies like Microsoft and Intel were added. The unit thus assembled was cleaned and placed in a box with a barcode on the box. Prior to 1997, Dell operated the assembly line in a traditional manner, where each worker was responsible for a single task. A chassis with the order containing specifications of the customers was sent across the production floor and the components like drives and chips were installed. The PC which was partly assembled was sent to a workstation, which contained steel racks with several drawers full of components. Red and green lights they needed to pick up. Once the components were picked up from the drawers from the other side they were replenished. In 1997, Dell decided to carry out the entire assembly at a single location, thereby reducing the assembly time by 15%. At random, 10% of the products were selected and audited to check if the product was according to the customer satisfaction and to ensure that it was in a proper condition. The random audit comprised of two Extended Tests ET1 and ET2. In ET1, motherboard and extended parts were examined and in ET2, hard drives were tested. When the unit failed in problem was related to hardware or software. If it was realised that the problem was due to a part supplied by the supplier, a meeting was held the supplier to correct the mistakes. In case the corrective action was not taken by the supplier, Dell procured parts from an alternative supplier. Before the unit was packed, a separate box containing the keyboard, documentation, and mouse, which was supplied by a sub-contractor was added. The barcodes used on the product were used on this box too. Using the barcode, addressing was done. By reading the barcode, the boxes were sorted depending on their final destination and were shipped to different distribution hubs. For example, Dells plant in Limerick, Ireland had associated with it. The hub at Limerick served Ireland, Eastern Europe, Middle East and the African markets, except South Africa. The hub at Liverpool served the UK market, the hub at Tillberg, Netherlands catered to the mid-European market. Another hub located at Gottenberg in Sweden served the markets in the Nordic countries. The hub located in Johannesburg catered to the South African market.
All the Dell factories had flexible assembly lines. For example, Dells facility at Limerick, Ireland had five assembly lines for manufacturing desktop PCs, two lines for notebooks and one line for servers. The lines used for notebooks and servers could also be used for assembling desktops. The factory at Limerick operated in two shifts from 8 a.m. to 4 p.m. and system, and it planned production in such a way that all orders were fulfilled within five days from the receipt of the request. To replace defective units and to process large orders from corporate customers with certain specifications, Dell rescheduled its activities. From time to time, Dell improved its plants and introduced new technologies while constructing new plants. In 2004, Dell chose North Carolina for establish in a new plant. The company opted for a plant in the US, against the trend of starting plants abroad though major competitors like HP were outsourcing assembly of their PCs to third parties based in Asia. Analysts were of the view that this decision had more to do with bottom line and cost effectiveness that the company could achieve by manufacturing the computers closer to its customers. According to Charles Wolf, Analyst, Needham & Company, When everybody is outsourcing, Dell continues to manufacture in the United States because over two decades of fine-tuning, they have figured out how to do it cheaper and smarter. Dell imported higher value components from outsourced plants in Asia and carried out final assembly in the US. Another unique feature of the Carolina Plant was the placement of inbound small components suppliers within the factory premises. Dell had set aside 150,000 sq ft of space in 750,000 sq ft plant to stage the inventory, next to the assembly line. By placing the small components suppliers within the factory premises, Dell was able to eliminate transportation costs and reduce the supply time from an average of two hours. At the plant, the inventory was divided into three levels based on the demand. The high demand products included motherboards, low capacity hard drives, etc, which were present in every computer; the low demand products were products like hard drives with high capacity and specifically requested items like floppy drives, and LCD monitors. The SLCs were located in the ground floor and the assembly on the mezzanine floor. Large components like monitors and speakers were handled at an offsite SLC. This was a deliberate move by Dell, to save floor space associated with storing large components. From the new plant, the company aimed to deliver desktop computers within two days on teh US East Coast.
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THE BENEFITS Dell maintained nearly zero inventories for some of its components. With the value of inventory declining rapidly at an average of 0.5% a week, holding a significant amount of inventory did not prove to be an advantage. As Dell did not hold large inventory of finished products, it did not have to sell technologically obsolete products at a discount. Dell was able to bring in new products according to the needs of the customers into the market faster than its competitors. In 2004, the inventory turnover rate in Dell was at 107 times a year, compared to 8.5 times at HP and 17.5 times in IBM. Dells production system functioned on negative working capital. Usually, computer manufacturers paid the suppliers 30 days before the PC was skipped to the market. In Dells case, it received payment from the customers on order, after which the specified order was carried out. The suppliers were paid 36 days after Dell received payments from its customers. Through the Direct Model, Dell was able to incorporate new technologies quickly into its products and take them to customers almost two months ahead of its competitors. Bothe suppliers and customers benefitted from this, as the suppliers could not use the latest technologies. The consumers derived benefits also in terms of cost as Dell passed along the material cost savings to them through forward pricing. Dell decided on the optimum price of the PC for achieving a high sales volume. It then considered a target price and the expected volume and communicated to the vendors who adjusted their price accordingly. In the process, Dell was able to meet the expected price and the vendors also benefitted as they were to sell higher volumes of the components. The efficiency of Dells supply chain become apparent in October 2002, During a 10-day labor lockout by dockworker at 29 West coast ports, including Los Angeles, San Diego and Seattle. Due to the strike, several cargo ships with raw materials and finished goods were unable to unload their cargo. Dell, which maintained inventory only for a very short period was expected to be hit hard by the strike, as the components would fail to reach the factories on time. However, Dell was well-prepared to face the situation and had a contingency plan in place, as it was aware of the impending strike much in advance. The company chartered cargo planes from UPS, China Airlines, and other cargo carriers, much before others could. The suppliers in Asia were ready
with the components to be loaded into the planes at Shanghai and Taipei airports and so on time was wasted in loading the components. Dell even had a plan to face the situation after the strike when the ports were filled with thousands of container. Dells freight specialist in all the major ports in Asia ensured that Dells cargo was the last to be loaded in the cargo ships, so that they would be the first ones to be unloaded at US ports. After the strike was called off, Dells components arrived at the US west coast in 50 ships, but Dell was in a position to assess, when the ships would be unloaded and when it would be sent to the supply chains of several companies, with more than three days of components inventory, went through without it missing a single customer order. THE PROBLEMS In the years 2005 and 2006, Dell faced several problems, and lost its coveted position as the largest selling PC manufactured to HP. HP was able to surge ahead of Dell by procuring components at a cheaper price and improving its supply chain management practices. Dells problems included growing complexities in its products line and pricing system. At the same time, demand from the corporate buyers, who accounted for a major share of Dells sales fell. According to a survey by CIO Insight, technology spending among companies with revenues of US$500mn decreased by 1.3% in 2006. While corporate spending was falling, Dells share in the corporate market was also in decline. In a study by Goldman Sachs, it was found that Dell and HP were losing their market share. According to the report, Dells troubles seem to be bleeding into its corporate business which up till now had been a stronghold. In 2006, Dell had to recall several notebook computers due to battery faults. These problems were accompanied by problems relating to financial reporting and growing dissatisfaction about Dells after sales support. Minimizing overheads, especially those related to holding inventory and in retail channels and with the prices of components dropping, Dell was able to reduce costs and maintain its price advantage. By 2006, competitors like HP made massive changes in their supply chains and were able to close the price gap by achieving cost savings through closure of several assembly plants, and reduction in manpower. This enabled HP to reduce the price of its low-end PCs to match those of Dell.
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Analysts were of the view that Dells strength lay solely in its supply chain, and the company had nothing much to boast of on the product or R&D front. When a company has only one area of strength, any problem in that area would have severe repercussions. They opined that the supply chain was getting too complicated, and so was the product line. Additionally, customer preferences were changing with several additional and new features being incorporated in the PCs. The customers preferred to know more about the utility and unique features of PCs from sales people- this was one of the reasons why HP had taken over from Dell at the top spot. When consumers walked into retail stores to buy PCs, most of the time they found PCs from HP prominently displayed. HP opted for a mixed sales channel by selling computers directly as well as through retailers. In the case of notebook computers, consumers preferred to take a look at the notebook computer before buying it, and Dell could not provide this because its products were not available at the retail stores. Apart from this, in developing countries like China, customers wanted to see even the desktop PCs and other products before arriving at a purchase decision. Though Dell reaped significant cost savings through its direct model on the support side, the model could not provide much cost advantage. All the support related activities and costs associated with them had to be borne by Dell, right from information requests, queries, taking orders, after sales service, etc. While the cost of PCs was falling by the day owing to cheaper components and automated manufacturing, the cost of support activities remained high, as the level of automation in support tasks is limited. Dell faced a lot of problems associated with customer support and had to invest heavily on revamping its support activities and on increasing the number of customer support personnel. Analysts opined that as long as support costs formed a small part of the total cost of a product, the direct model was viable. In the case of Dell, the share of support costs was constantly going up the prices of PCs fell. Industry experts felt that Dell was losing the competitive advantage it had gained over the years by using the Direct Model. In the second quarter of 2006, Dells net income fell by 51% as compared to the second quarter of 2005. Analysts were of the view that Dell had ignored the customer and had failed to maintain efficient customer service. By the third quarter of 2006, HP surpassed Dell by a few units and by
the fourth quarter, HP was leading in the global PC market. According to Gartner, while the worldwide PC shipments grew by 9.5% in plans to open stores in New York and Austin by the end of 2007. At these locations, customers could see the products, test them, discuss them with store personnel and place the order online. Industry experts suggested that Dell could create products with a longer shelf-life, like digital televisions and printer cartridges, in addition to a few desktops and notebooks and sell them through the Dell retail stores. Another step Dell could take was to enter the commercial retail segment and compete with the likes of HP and Acer, but this was an area in which Dell wasnt experienced enough. Dell could also consider partnering with stores like Costco- the stores Dell had been using to sell some of its outdated components since 2005. In case Dell developed a retail footprint, it would also be able to address some of the customer service issues and improve its support system. In what was termed Dells first step into the global retail segment, in May 2007, dell announced that it had entered into an agreement with Walmart. According to the agreement, Dell would sell its sub-US$700 PCs through more than 3400 outlets of Walmart. Dells desktops would be sold through Walmart stores in the US, Canada and Puerto Rico. According to Gary Severson, senior VP, Home Entertainment, Walmart, Dell is a proven electronics brand and adds a new complement to our other high quality desktop selections, and we are very excited to now bring our customers new access to a product they want, with the ability to purchase a Dell right away. Though Dell had made a foray into retail, analysts were of the view that Dell was not attuned to the retail format and it would be very difficult for the company to change, going retail would require Dell to forecast demand, build inventory and deal with retailers. According to Steve Baker, VP, industry Analysis, NPD group, A Dell store might work, but traditional retail would be hard. They just dont know it. 16. Findings of the Research Faced with ever-changing customer needs, product commoditization, unique global requirements and new, low-cost competitors, Dell embarked on a three-year journey to segment its supply
chain response capabilities. The company designed its supply chains based on a mix of cost optimization, delivery speed and product choices that customers value, while aligning internally across all functions to execute against this vision. Key Findings Dell's market and business strategies changed, requiring the company to move from a single supply chain to a customer segmentation supply chain approach. y A unified, cross-functional business strategy with collaborative, decision-making processes across sales, marketing, product design, finance and supply chain is essential for segmentation. y Segmentation is enabled by a cost-to-serve (CTS) methodology to dynamically allocate costs to business decisions, highlight net profitability and drive the right actions for each supply chain. y Supply chain segmentation is a multiyear journey enabled by the development and alignment of organizational skills to the needs of the journey's different phases. Dell identified four critical success factors: Start with customer value Historically, customers were segmented by verticals (e.g., consumer, corporate, government and small business) as well as regions and size. Dell had to look across an aggregated view of these existing groupings to identify shared values relating to product features and supply chain capabilities. A global view was critical to this process. As Mr. Noakes stated, "[Our] growth markets are not in traditional regions. We need to adjust our model to the new requirements." y A unified, end-to-end business strategy The Dell team stated this effort was "truly a corporate wide transformation." Key to this was the ability to clearly articulate the need for change, the vision and the role of different organizations. To support this communication, several leaders started an internal blog to keep people up to date. y Executive sponsorship The segmentation strategy and potential benefits were shared with the entire executive leadership team to drive cross-functional alignment. Vice
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Chairman Jeff Clarke was the sponsor of the effort throughout design and implementation. Ms. Clayton added, "We conduct weekly, cross-functional executive production governance [meeting] where we spend two-thirds of our time on the future quarters and one-third of our time on how our current quarter plan is being executed. Our planning has become much more unified and strategic." y Dedicated COE Dell identified 12 key work streams. Each has a VP sponsor, with small teams coordinating and program-managing the change. The company also integrated lean techniques to look across work streams, with four to five value streams to ensure the customer needs were being met by the proposed changes. 17. Conclusion & Recommendation Conclusion In this paper we stated about supply chain management and its critical factors. We covered key areas in supply chain management development process. We also discuss about DELL supply chain management, so we can say there is six phases to improve supply chain of an organization. These are the main factors which make DELL a leading PC maker and a well-known name in Supply Chain Management Identify Customer Values Understand your Strengths Understand the External Environment Chart Clear Course and Benefit Engage the Entire Organization Continue to Govern and Refine Portfolio
y y y y y y
Recommendations Start with segmentation of your company's customers and channels to understand the different demand rhythms and cycles. Focus on decreasing the time required to sense or shape changes to end-customer demand.
Begin the design of your supply chain portfolio by isolating and quantifying costs of an end-to-end supply chain that optimizes for operational efficiency. Repeat this analysis for supply chains that require different supply chain responses (for example, agility rather than efficiency).
Use a clear set of goals to align cross-functional metrics and incentives to your portfolio in order to drive the right business decisions for each supply chain.
Refine and govern your supply chain portfolio continually by establishing crossfunctional review processes between sales, marketing, product design, finance and supply chain.
18. Bibliography / References http://asaha.com/ebook/UMjE1NDI-/SUPPLY-CHAIN-EXCELLENCE.pdf http://ebookbrowse.com/2010-1-13-pdf-d50233384 http://dspace.mit.edu/bitstream/handle/1721.1/34778/56721985.pdf?...1 http://viewswire.eiu.com/report_dl.asp?mode=fi&fi=1304214915.PDF&rf=0 http://www-935.ibm.com/services/us/gbs/bus/pdf/bcw00617scm_executive_summit_2006_insights.pdf y y y http://www.johngattorna.com/documents/Dell_Case_study_for_supply_chain.pdf http://www.inf.ed.ac.uk/publications/thesis/online/IM070456.pdf Harland, D., Scharlacken, W.J., Global Supply Chain Planning: Synchronizing Operations and Logistics with the pulse of the International Market Place, 40th APICS International Conference Proceedings, 1997, Pages: 211-219. y Thomas Lawton and Kevin Michaels, Advancing to the virtual value chain: Learning from the DELL Model, Irish Journal of Management, PP 91 - 112 y Daniel G Jacobs, Anatomy of a supply chain, Transportation and Distribution (now Logistics Today), Jun 2003 VOL. 44, Issue 6, Pg 66 y James Curry and Martin Kenney, Beating the Clock: Corporate response to rapid change in the PC Industry, California Management Review, PP 8-36
y y y y y
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Andrew Park and Peter Burrows, What you dont know about DELL: a look at the management secrets of the best run company in technology Business Week, Nov. 3, 2003, Issue 3856, Pg 76
Kathleen Eisenhardt and Shona Brown, Time Pacing: Competition in Markets that wont stand still, Harvard Business Review, March - April 1998, PP 59-69
Carla Joinson, Small is beautiful at DELL Computer, Human Resource Management International Digest, 1999, PP 3-5
Anonymous, DELL takes a walk in the Park Human Resource Management International Digest, 2001, PP 23-25
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Project Management

Supply Chain Management

14th January, 2012

Supply Chain Management of DELL

Symbiosis Institute of Telecom Management

Supply Chain Management of DELL

Project Safety Management 7.1 Supply Chain Security Stakeholders

Symbiosis Institute of Telecom Management

Supply Chain Management of DELL

7.2 7.3 7.4 7.5 7.6 7.7 8.

Project Monitoring & Control Mechanism 8.1 Access Control

Project Resource Management

Symbiosis Institute of Telecom Management

Supply Chain Management of DELL

Symbiosis Institute of Telecom Management

Supply Chain Management of DELL

Symbiosis Institute of Telecom Management

Supply Chain Management of DELL

Supply Chain Management of DELL

Symbiosis Institute of Telecom Management

Supply Chain Management of DELL

Symbiosis Institute of Telecom Management

Supply Chain Management of DELL

Supply Chain Management of DELL

Supply Chain Management of DELL

Symbiosis Institute of Telecom Management

Supply Chain Management of DELL

Supply Chain Management of DELL

Symbiosis Institute of Telecom Management

Supply Chain Management of DELL

It involves building a strong relationship with suppliers of the raw materials

Symbiosis Institute of Telecom Management

Supply Chain Management of DELL

Supply Chain Management of DELL

Symbiosis Institute of Telecom Management

Supply Chain Management of DELL

Finance & Administration

Marketing & Sales

Materials Planning Buying

Supply Chain Management of DELL

Finance & Administration

Marketing & Sales

Transitional supply chain organization

Supply Chain Management of DELL

Finance & Administration

Marketing & Sales

Supply chain Manager

Order Management Order Fulfillment

Supply Chain Management of DELL

Finance & Administration

Marketing & Sales

Supply chain Manager

Integrated Supply Chain Organization

Supply Chain Management of DELL

Symbiosis Institute of Telecom Management

Supply Chain Management of DELL

Symbiosis Institute of Telecom Management

Supply Chain Management of DELL

Symbiosis Institute of Telecom Management

Supply Chain Management of DELL

Symbiosis Institute of Telecom Management

Supply Chain Management of DELL

Symbiosis Institute of Telecom Management