Supply Chain Collaboration for Agility
Question:
Discuss about the Supply Chain Management Dell.
This is the age of instant gratification where consumers want everything quickly. They have so many options and they do not shy away from buying the product of different organizations and they are not much loyal to any of the organization. In such times, organizations have also understood that their traditional strategy of one size fits all will no longer work if they want to be successful. All the consumers are looking for customized product. While Dell is one of early pioneers of providing customized product to their customers, today one can see this trend everywhere from apparel seller like Zara to paint industry to car manufacturers and restaurants and food chain (Witkowski, Huk, & Perzynska, 2016). The question is how they are doing it when it is not possible them to keep the inventory of numerous products. There are supply chains and logistics strategies for mass customizations and same will be discussed with respect to Dell.
Dell is one of the most successful organizations due to its innovative supply chain strategy and collaboration with all the partners throughout supply chain. As a result, they have very agile supply chain with high visibility with sales and production systems linked to suppliers systems. Their collaboration with suppliers enables them to keep the minimal inventory as suppliers deliver the material directly at the production very fast and some have lead time of just 1 hour. As a result, they do not have to spend much on warehouse for keeping the excessive inventory and drastically bring down the stock keeping units (SKUs) that have to be carried and this also improves their cash flow.
Another important reason for the success of Dell is use of Postponement and mass customization strategy. In this strategy, they do not assemble the final product; instead they assemble the subassemblies and common components that are used across all the products. Then they wait for the customer orders before assembling the final product. Thus, they are providing customized product to their customers using this push-pull supply chain strategy where material is pushed initially till the subassembly stage and after that it is pulled based on the actual customer order (Christopher, 2016). Thus, this enable them to assemble product confirming to the specifications of each customer orders and building one of its kind product without maintaining excessive inventory of different range of end products. Dell’s early adoption of successful JIT practices enables to obviate the need of excessive inventory and makes the financial of the organization very robust. Also, any organization can follow these strategies only if their design is highly modular making it difficult to follow such strategies for many of the organizations.
Not only this, their distribution strategy is also different. They are one of the pioneers of selling PCs directly to consumers online thus bypassing the other players like retailers and distributors in supply chain which increases their velocity to fulfill to customer requirements. As their lead time is very small in fulfilling the customer orders, it provides them competitive advantage. Think of a massive competitive advantage Dell enjoys when the Industry standards are often weeks to build and ship the products to customers, its metrics are just hours and days. Dell has also collaborated with third party logistics partners who deliver the product directly from the manufacturing plants to the customers. Their reverse logistics strategy is also very robust and they are one of leaders in providing after sales service.
Postponement and Mass Customization Strategy
Dell also used vendor managed inventory for some of the raw materials where lead time is a bit high and Kanban management system on its assembly line. All these strategies helps the Dell to effectively manage its cash flows. For instance, In PC assembling industry while competitors like HP, IBM has huge cash to cash cycle time, Dell beats them all simply by having the negative cash to cash cycle time. It is because of its online business model. It is first receiving money from the customers and then paying to its suppliers (Radovic, & Vujicic, 2014). For competitors, they have to pay to suppliers first and then have to receive money from distributors and customers. As a result, Dell ever has to face issues in managing working capital and cash flows.
Explore other distribution Channels: Dell was one of the most successful and top players in selling the PCs. Not only this, they also sell end to end solutions. However, other organizations like Apple and HP have also come into the picture giving a tough competition to Dell. As Dell sells PC online, many people who are not sure about the configuration they should select refrain buying from Dell. Instead, they buy from HP and Apple stores where they get advice also free of cost. Dell should also explore opening exclusive outlets where it can advise people that what they should buy based on their requirements.
Work on Quality: In past, there are several incidences of quality at Dell. In August, 2006, Dell has to recall 4.1 million of its notebook due to faulty batteries. This has very badly impacted the image of the Dell. Not only this, similar to this many incidences happened at Dell. There is also the issue of overheating of the laptops (Saghiri, & Hill, 2014). After numerous complains, Dell publically accepted the issue and agreed to change the system. All these issues are bringing a bad name to reputation especially at a time when competitors like Apple are well known for their customer service and happy to replace the system if it in warranty period with no question asked. There is also incidence where Dell knows that Pcs were faulty but it still sold it to customers. Dell has never been the leader in technology. They actually invented business model and super-efficient supply chain which actually transformed the organization. Dell sold the PCs having faulty capacitors and then blamed that it does not make capacitors. Although Dell does not make capacitors but it should ensure their quality when ordering from a supplier.
High Bargaining power of Suppliers: Dell maintains very small amount of inventory. For some items, they have the inventory of just few hours. At such critical times, it is very much important that organizations has a strong relationship with supplier and only then it can trust the supplier and survive by keeping so little inventory (Qrunfleh, & Tarafdar, 2013). Thus, their dependency is quite high especially on some of the suppliers and suppliers possess high bargaining power over the organization. Thus, Dell can explore the option of either integrating with suppliers to lower the risk or find alternative suppliers.
Direct-to-Consumer Sales as Competitive Advantage
Postponement is the strategy in supply chain management to provide configure to order product/mass customization by delaying the differentiation/customization as late as possible in supply chain. During the 70s, the main focus of the manufacturing firms were on achieving cost optimization, standardization and mass production. However, lately in 90s, with the advent of globalization and as Internet began to shape the world, consumers started becoming more demanding and were willing to pay for customized products (Ping, & Hung, 2015). During this time, competition was changing just from cost to cost, flexibility, customization and quality. But manufacturing systems were not designed for customizations. During this time, when Europe and America are catching up with the quality programs that were started in Japan, Japan went ahead in designing flexible manufacturing systems that focuses on providing customized offerings. Dell were one of the pioneers of using postponement and mass customizations. Dell has mastered the art of postponement for making one of its kind product for its customers. Realizing its benefits many organizations are started using it.
Yes absolutely configure to order and postponed production work at many places and not just at dell. Below are the few examples:
- Avon is an American company that sells beauty products, personal care products. Avon also uses postponement and avoid printing labels on the products in the desired language unless the destination is clear. This strategy helps them to use the same inventory for any of the locations and fulfilling demand of various regions without building any extra inventory. If the Avon has printed in advance the label in particular language, it will be bounded to use that inventory for that particular region only. In such cases, if the company is received big order from any other country but cannot use existing inventory as its labels are printed in some other language. Labelling Postponement strategy helps the Avon to drastically reduce the inventory
- Zara has one of the most responsive supply chain in the apparel industry and can design, produce and deliver the material at any location worldwide in a span of 15 days. Postponement strategy helps the organizations to keep the supply chain agile and flexible. Zara buys more than 50% of its fabric undyed and dyed it according to latest fashion of colors. This helps the Zara to reduce losses even if a particular color or design went out of fashion since they maintain very limited quantity.
- Volkswagen also uses postponement strategy. Earlier, Volkswagen thought that providing higher product variety to its customers will also result in higher obsolescence risk but this strategy of postponement has made them redesign their strategy in which it can build numerous varieties without having to keep the inventory of various models since the number of common components are very high (Mejia, Perdomo, & Monsreal, 2016).
These are few of the examples however this strategy has become quite common these days and all the major manufacturers are following it some or the other way. Except make to stock manufacturing companies that manufacture to forecast and have a relatively stable demand, most of the other manufacturers in make to order and assemble to order environment follows push pull approach. This means they will forecast the subassemblies, common options and components that can be used in a large variety of products. But these subassemblies will be pulled once the customer order is received. Actual customer orders will consume the forecasts and will pull the material. Thus, this push-pull strategy is also a type of postponement.
There are many logistics management strategies that have been very effective. Organization could use 1 or any combination of logistics techniques depending upon its business processes. Some of the strategies apart from postponement that has already been discussed in this case are as follows:
- Vendor Managed Inventory is a technique which is made popular by Walmart. In this technique, inventory will at the buyer’s location but still part of vendor’s books only. Only when inventory is purchased by the customer, during that time only vendor transferred the inventory to organization’s books (Benda, LaVoie, Osborn, Davison, & Rocha, 2014). This helps the organization to keep its working capital in a good condition by locking less investment in buying inventory.
- Cross docking is a strategy where incoming materials is directly loaded to outbound trucks without storage or little storage. The material is never been stored into the warehouse. It will be unloaded and loaded which saves a lot of time (Chen, 2014). This activity helps the organizations to reduce the inventory as well as risk of handling inventory, less space in warehouse. All this helps organization in increasing the lead time.
- 3rd party logistics: If the core competency of the organization is not logistics and organization does want to spend too much investment on logistics, they can also take the services of 3rd party logistics. 3rd party logistics companies are Fedex, DTDC, united parcel service etc
- Postponement are also of various types. While Dell is following assemble to order postponement, there are also packaging postponement, labelling postponement, customer postponement (Kasturiratne, & Conway, 2013). Organization can think of a suitable strategy based on its business process and deploy the appropriate one.
Conclusion
This case study has discussed various logistics management strategies that are very important for any organization to become successful. It also take a particular example of Dell and discusses about strategies used by it like postponement and mass customization. Dell has explicitly not used these strategies but it is the outcome of its business model. Dell has become the leader in PC selling industry however during some last few year there has been many quality issues at the Dell which has tarnished its reputation. Dell has to work on its reputation to maintain its position in the market. Not only this Dell can explore other distribution channels in order to reach more customers and increase its customer base.
After analyzing the Dell in depth and discussing what went good at Dell and what went bad, there are also few recommendations suggested. For instance, Dell is highly dependent on tis suppliers who supplier inventories just in time. In the past, there are some incidences some part is not available and that increase the lead time of the model involving that particular part. Thus, Dell has to find more suppliers and in order to reduce risk, it can consider option of horizontal integration with some key suppliers. Apart from it, Dell also need to focus on the quality of the materials supplied by the suppliers and can consider in increasing its distribution channels.
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