Operations Management Supply Chain Management at Dell

Operations Management

Supply Chain Management at Dell Computer Corporation

Supply chain management systems have historically been designed to bring increasingly higher levels of automation and standardization of processes throughout supplier relationships, fulfillment, quality management and services. Throughout the latter half of the 20th century the concentration on lean supply chain performance sought to drill out every errand and unnecessary step and costs from supply chain collaboration, planning and execution (Foreman, Gallien, Alspaugh, Lopez, Bhatnagar, Teo, Dubois, 2010). This was especially the case in high technology industries including personal computers where the greater the level of standardization, the higher the level profits and lower the costs. Lean supply chain management and manufacturing was the approach Compaq took to establishing an early market share lead, yet was quickly challenged by Dell with its innovative uses of build-to-order supply chain management and rapid mass customization selling techniques (Gunasekaran, Ngai, 2005). The intent of this analysis is to evaluate how Dell was able to completely change the supply chain management practices of an industry by simplifying highly complex build-to-order product strategies in a fraction fo the time of its competitors (Papadakis, 2003).

Build-To-Order Supply Chain Management at Dell

The impetus for the build-to-order supply chain management strategy at Dell concentrated on how to better align each specific product line's production expertise to common customer requests (Gunasekaran, Ngai, 2009). Dell realized early on that the lean supply chain and manufacturing processes of its competitors Compaq, DEC, IBM, HP and many others was forcing each of these companies to miss a very large, profitable segment of the market. Using a more agile, demand-driven-based supply chain process that modeling and simulated a variety of build-to-order scenarios, Dell's supply chain planners reasoned they would be able to expand into untapped markets their myopically-driven competitors could not touch (Gunasekaran, Ngai, 2009).

Dell went the opposite direction of its competitors and embraced the heterogeneity and diversity of customer requirements. Further, it divided up customer requirements by the level of product customization required to meet or exceed their objectives. The outcome if this analysis fo customers needs was a segmented and highly effective supply chain strategy that grouped product by assemble-to-order, build-to-order, configure-to-order and engineer-to-order (Papadakis, 2003). Figure 1, Dell's Build-to-Order Supply Chain Management Strategies Compared Shows how Dell aligned these supply chain and manufacturing strategies to their online sales channels (Guided Selling, Quote-to-Order, Product Configuration.

Figure 1: Dell's Build-to-Order Supply Chain Management Strategies Compared

Sources: (Gunasekaran, Ngai, 2005)

(Gunasekaran, Ngai, 2009)

(Papadakis, 2003)

By creating an effective strategy for managing wide diversity in both consumer- and business-based demand, Dell was able to tap into an entirely different and much larger profit pool than competitors, disrupting distribution, manufacturing and services strategies immediately (Kapuscinski, Zhang, Carbonneau, Moore, Reeves, 2004). The outcome of the disruptive innovations was an immediate impact on operations-based metrics, within nine months to a year, financial metrics and Key Performance Indicators (KPIs) began to also reflect the shift in overall performance of the company. Detractors said that build-to-order manufacturing would create a more fragmented and difficult-to-manage supply chain, resulting in Dell losing millions based on wasted materials. In fact the opposite was true as Dell created a Just-In-Time (JIT) supply chain coordination and synchronization strategy that sought to order just the components needed for a given series of systems (Papadakis, 2003). In this respect, Dell involved suppliers as co-owners of the forecast and was able to drastically increase inventory turns to up to 40X a year, far surpassing their competitors who averaged 12 or at best, 18X (Foreman, Gallien, Alspaugh, Lopez, Bhatnagar, Teo, Dubois, 2010). All of these strategies were melded together into a streamlined quote-to-order (Q2) process shown in Figure 2. Increasing revenues, reducing costs and improving the financial performance of Dell was accomplished by managing to metrics and KPIs in each of these three strategic areas (Kapuscinski, Zhang, Carbonneau, Moore, Reeves, 2004). The implications on long-term sales productivity were also immediate an initially unforeseen by Dell, as they anticipated build-to-order coordination to only impact their supply chains. Instead, the build-to-order production processes made it possible for sales teams calling on enterprise accounts to be more effective and productive, selling more customized servers and networks than competitors by a wide margin. The net effect of these advances in the Dell business model driven primarily by their selection of build-to-order selling, supply chain and fulfillment strategies over time drastically improved efficiency. The results of these investments over the first three years of operations are shown in Figure 2.

Figure 2: Measuring the Business Impact of Streamlined Supply Chain Management Processes

Sources: (Gunasekaran, Ngai, 2005)

(Gunasekaran, Ngai, 2009)

(Papadakis, 2003)

Applying These Concepts to a Netbook Startup

In many respects the collision occurring between tablet PCs, netbooks and laptops is similar to what Dell found during the initial early states of their build-to-order strategy. Dell was challenged with integration and connectivity options in their products, and that is certainly the case with tablet PCs, netbooks and laptops. The same holds true for the development of EV-DO-based technologies that allow for systems to be connected at any time, from anywhere, to the Internet. This technology revolutionized the iPad and led to the development of an entirely new product category.