The Structure Of Supply Chain Management

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Using the concept of flow from raw material to consumer, Mabert and Venkataramanan (1998) presented a general structure of the supply chain and a sample of elements (managerial functions and tasks) that configure it. The chain contains five aggregate or major stages to represent important phases in the flow.

Sourcing involves not only the supply of raw materials and components through a network of vendors, it also includes product development support through subassembly design and tooling production for process changes.

Inbound Logistics focuses on effective and efficient movement and storage of required materials to meet production schedules.

Manufacturing uses provided inputs to produce a high quality and price competitive product in a timely manner.

Outbound Logistics concentrates on movement of finished goods through the distribution network to global markets for consumer use.

After-market Service recognizes the need to support the product either through repair service, or customer service representatives, to answer product-use questions.

Implementation of Supply Chain Management in a company

Dell is the largest computer-systems company based on estimates of global market share. It is also the fastest growing of the major computer-systems companies competing in the business, education, government, and consumer markets. Dell's product line includes desktop computers, notebook computers, network servers, workstations, and storage products. Michael Dell founded the company based on the concept of bypassing retailers and selling personal computer systems directly to customers, thereby avoiding the delays and costs of an additional stage in the supply chain. Much of Dell's superior financial performance can be attributed to its successful implementation of this direct-sales model.

Dell's Supply Chain

Dell's supply chain works as follows. After a customer places an order, either by phone or through the Internet on, Dell processes the order through financial evaluation (credit checking) and configuration evaluations (checking the feasibility of a specific technical configuration), which takes two to three days, after which it sends the order to one of its manufacturing plants in Austin, Texas. These plants can build, test, and package the product in about eight hours. The general rule for production is first in, first out, and Dell typically plans to ship all orders no later than five days after receipt. There are, however, some exceptions. For example, Dell may manipulate the schedule when there is a need to replace defective units or when facing large customers with specific service-level agreements (who have nonstandard quoted manufacturing lead times) for their orders.

Work Management in Dell

Dell distinguishes three rough customer segments: large organizations (large companies or government institutions), small and medium businesses, and personal consumers; the mix of customers served is wide (no customer represents more than 1-2% of Dell's revenues) and there is a focus on large customers (70% of Dell's sales corresponds to them) [34]. It is also worth mentioning that segmentation is getting finer and finer in order to better approach the customers. This fact, in combination with the direct model, leads to the ability to better forecast demand [34]. Especially in the case of large customers, the above-mentioned direct relationship is upgraded to virtual integration. With the help of information technology and traditional face-to-face human contact, customers work with Dell as partners; this means that "Dell is not going to be just their PC vendor anymore, but their IT department for PCs", as Michael Dell claims [34]. There are two main facilities that bring Dell and its customers closer: Premier Pages and Platinum Councils. Premier Pages, now called, are customized IT procurement and support sites for big clients, which let them decide and manage their purchases from Dell, thus leaving to salespeople a more consultative role. represents a customized sales channel and as Dell has realized how beneficiary that is, it has increased the number of Premier Pages from 1000 in 1998 to 50,000 in 2000 [36]. Platinum Councils are regional meetings of Dell's largest customers, where executives, salespeople and technicians discuss their experience with Dell and their needs and expectations from technology. Additionally, Dell's Customer Experience Initiative, Dell Forums [55], the Direct2Dell blog [57] and the IdeaStorm [56] illustrate the importance that Dell places on its customer relationships.

Business strategy of the company

An important ingredient of the supply chain specification is the production planning and control methodology (PPC). Any order for an end product triggers a series of work processes in the supply chain that have to be completed so that the end customer order is satisfied. Generally, the following demand management strategies are employed in supply chain management. Engineering-to-Order (ETO): This strategy places emphasis on the design, which is usually developed after receiving customer requirement and approval by the customer. Consequently, nothing is stocked before the arrival of demand, not even the design. Make-to-Stock (MTS): The end customer orders are filled from the stocks of inventory of finished goods that are kept at the supply chain network's (SCN) various retail points.

Make-to-Order (MTO): It is the confirmed customer orders that trigger the flow of materials and information in the supply chain. Of the finished goods or component materials, there is very little or no inventory maintained. Important issues include setting due-dates and release dates for orders flowing in the SCN, scheduling of various orders so as to minimize the variance or mean of order flow times, effective allocation of resources and order tracing mechanisms for efficient customer response.

Assemble-to-Order (ATO): Assemble to order involves having the same core assemblies for most products and the ability to vary all other components of the final assembly. The markets addressed by MTS companies make to stock, based on forecasts, and try to limit risk by limiting the product range. MTO companies are prepared to provide much customized products, but start to produce only after receipt of a firm customer order. ATO companies position themselves in between MTS and MTO, and address primarily the markets of durable products. With an ATO approach, customer order lead times are minimized by dividing the value chain into two stages. (i.e., a stage of module manufacture based on forecasts followed by a stage of final assembly of customized products.) Risk is minimized by modularizing products and by standardizing modules as much as possible.

Dell's Approach

Dell wishes to stay ahead of competitors who adopt a direct-sales approach, and it must be able to reduce supplier inventory to gain significant leverage. Although arguably supply-chain costs include all costs incurred from raw parts to final assembly, Dell concentrates on Dell-specific inventory (that is, parts designed to Dell's specifications or stored in Dell specific locations, such as its revolvers and assembly plants). Because assembly plants hold inventories for only a few hours, Dell's primary target, and ours in this project, was the inventory in revolvers. Dell has a special vendor-managed-inventory (VMI) arrangement with its suppliers: suppliers decide how much inventory to order and when to order while Dell sets target inventory levels and records suppliers' deviations from the targets. Dell heuristically chose an inventory target of 10 days supply, and it uses a quarterly supplier scorecard to evaluate how well each supplier does in maintaining this target inventory in the revolver. Dell withdraws inventory from the revolvers as needed, on average every two hours. If the commodity is multisourced (that is, parts from different suppliers are completely interchangeable), Dell can withdraw (pull) those components from any subset of the suppliers. Dell often withdraws components from one supplier for a few days before switching to another. Suppliers decide when to send their goods to their revolvers. In practice, most suppliers deliver to their revolvers on average three times a week.

Dell's Supply Chain Management

Dell's strategic choices and his effective way of realizing them have played a significant role in Dell's success story. The key element of his successful business model of the company is its supply chain management; hence, many theorists of Supply Chain Management have tried to investigate Dell's SC strategies, and several companies have attempted to "copy" Dell's business model, without success however. This fact shows the complexity of Dell's SC strategies and its unique way

of putting them into practice. The core elements of Dell's business model are its direct sales model, usually referred as "direct model", and the build-to-order strategy.

The sheer number of transactions and pieces of information that the supply chain management system needs to handle is impressive. Each of the core components of the supply chain management (SCM) system are heavily used and relied on to keep Dell's operations running smoothly.

Configuration Management: The Configuration Management system manages over 1 million Dell part numbers across approximately 200 product families, and over 2 million Bills of Materials (BOMs) per year. BOMs listing component part numbers are created for manufacturing to build assemblies and sub-assemblies to produce Dell's products.

Procurement: The Procurement system manages nearly 1.8 million Purchase Order lines per year, from more than 5,000 suppliers worldwide. To streamline the procurement process Dell uses an automated application which includes workflow approvals and vendor communication, and provides for services such as defective part warranty replacement.

Cost: The Cost component of the system runs mostly in batch mode to calculate the costs to Dell for all Bills of Materials. These batch jobs run weekly, monthly and quarterly, with each run rolling up total material costs.

Inventory: Between all sites there are more than 3 million inventory movements daily from stock rooms to the factory floor. A corresponding 3 million messages are transmitted to various systems for reporting, analysis and factory scheduling.

Accounts Payable: Accounts Payable handles approximately 15,000 items per day including payments to Dell suppliers, invoices and receipts. Vendor information includes number, location, negotiated terms and contact information. On top of these order-related transactions, there are several batch process jobs that need to be run to rollup data every week, month or quarter. The longest of these, the end-of-quarter (EOQ) rollup, took 31 hours under the Unix-based solution.

In Dell's Americas region the SCM Oracle database application consists of approximately 3,000 database objects (functions, packages, procedures, triggers, tables, and views). The same SCM system is also supported by 6 Dell Power Edge 2650 application servers, 5 internally developed web-based applications, more than 50 system-to-system integrations, approximately 125 batch jobs, and about 500 user interfaces deployed to support the entire SCM application.

Data Collection and Analysis

The model provides Dell with a scientific tool to determine the revolver inventory levels and hence to manage its supply chain in a systematic way. The model can also create a reference point for future improvements and estimate the savings Dell can obtain by changing its current manufacturing system. Specifically, buyer-planners can use the model to manage their inventory at a desired service level, and commodity managers can use it to measure improvements in the supply chain. To implement the model, we needed to gather historical data and create a self-contained, user-friendly spreadsheet template buyer planners can use daily.

Analysis of revised supply chain strategy

After analyzing the data required for the model, we created an Excel-based tool for the buyer-planners. This spreadsheet-based tool was self-contained and included an overview of an input area, actual calculations, suggested decisions, and explanations of the logic for each step. To provide detailed information on each component, we created a series of charts dynamically linked to source data. These charts depicted

-current inventory versus recommended inventory in units,

-current days of inventory versus recommended days of inventory (the above output translated into days),

Other supply-chain-optimization team members were identified as leaders for these projects, and we roughly quantified the effects some of the improvement projects will have on Dell and its suppliers.

The benefits are likely lower than the true savings possible as they ignore the facts that Dell does not implement the current inventory policy consistently (the Z-scores are not stable) and does not set service levels correctly, basing them on historical service levels.

Consequently, we expect actual savings to be even higher than our estimates. Throughout the project, we concentrated on a basic solution and showed its use as not only a tactical, but also a diagnostic tool. If such a tool yields savings for a fairly sophisticated manufacturer like Dell Inc., most likely it would also benefit other companies with similar supply-chain issues. We presented the model to all the stakeholders and prepared the buyer-planners to use it before we departed. Also, the project was awarded the second prize at the Spotlight (a formal festive presentation of results from all TMI projects) held at the University of Michigan in September 1999. A second TMI team continued the project, focusing on decreasing variance on the suppliers' side, and a third team focused on an efficient process for collecting and maintaining the inputs to the model.

Pestle analysis

A market is defined by what is addressing it, be it a product, company, organization, brand, business unit, proposition, idea, etc, so be clear about how you define the market being analyzed, particularly if you use PESTLE analysis in workshops, team exercises or as a delegated task. The PESTLE subject should be a clear definition of the market being addressed, which might be from any of the following standpoints:

• A company looking at its market

• A product looking at its market

• A brand in relation to its market

•A local business unit or function in a business

•A strategic option, such as entering a new market or launching a new product

•A potential acquisition

•A potential partnership

•An investment opportunity

Dell Pestle analysis


In the following, the analysis of the political, economic, social and technological factors leads to a description of the macro environment of the computer industry.

a) Political

Political factors include government regulations and legal issues determining the conditions under which companies have to operate. In this field, the computer industry has to face certain restraints. Problems can arise in countries where political stability is not guaranteed, no matter whether companies operate production facilities or if they do business with that country through exports. Many countries still have restrictive policies which are maintained to protect domestic manufacturers and production. Such policies often hinder foreign companies from entering into these markets. The only possibility to do business in those countries is to establish partnerships with local companies, where they are additionally forced to accept minority shares and to provide money and technological know-how. However, the computer industry sees great potential in those countries which loose their restrictions.4 This is especially true for China which has opened for many industries since its accession to the WTO in 2001. In the course of globalization trade barriers decline and new markets emerge, allowing free trade to expand.

b) Economic

The computer industry expects a growth of approximately ten percent over the next years.5 This growth is influenced by the economic situation in a specific country, having an impact on the purchasing power of potential customers. Additionally, changing inflation rates and currency fluctuation also determine the profitability of a company.

c) Social

The national demand for computers is dependent on the educational level prevailing in a specific country. The higher the educational standard, the higher is the demand. Furthermore, computers get more and more involved in daily life. Today, children already get familiar with the use of computers at a very young age, representing a generation that will hardly live and work without a computer in the future. Additionally, the brand image of a computer and lifestyle trends get more and more decisive for the purchasing decision. The computer industry adapts to this trend, e. g. by offering a wider range of notebooks and by trying to create a strong brand name.

d) Technological

There is hardly any industry that is characterized by a faster technological development than the computer industry. Increased Research & Development have caused permanent innovation processes which lead to short product life cycles resulting in a faster depreciation of the products

Porter's Five Forces model

The nature of competition in an industry in large part determines the content of strategy, especially business-level strategy. Based as it is on the fundamental economics of the industry, the very profit potential of an industry is determined by competitive interactions. Where these interactions are intense, profits tend to be whittled away by the activities of competing. Where they are mild and competitors appear docile, profit potential tends to be high. Yet a full understanding of the elements of competition within an industry is easy to overlook and often difficult to comprehend. Porter has identified five basic forces that collectively describe the state of competition in an industry:

1. The intensity of rivalry among competitors

2. The threat of new entrants to the market

3. The amount of bargaining power possessed by the firm's/industry's suppliers

4. The amount of bargaining power possessed by the firm's/industry's customers

5. The extent that substitute products present a threat to a firm's/industry's products

These forces assist in identifying the presence or absence of potential high returns. The weaker are Porter's five forces, the greater is the opportunity for firms in an industry to experience superior profitability. More generally, understanding how these forces affect competition within an industry allows the strategist to identify the most advantageous strategic position.

Dell computers is known for low cost and best quality computer, laptop and server manufacturer in the industry. The key behind dell's success is maintaining good relationship and collaboration with the supplier of computer hardware and software.

Dell has identified that Rivalry among competing firms is the most powerful of the five competitive forces i-e the ongoing war between the firms competing in the same industry for gaining customer share in order to increase their revenues and profits. The competition is more intense if the firm pursues strategies that give it a competitive advantage over the strategies pursued by its rivals.

Developing new strategies is easier than retaining the uniqueness of the strategies so as to gain a competitive edge over the rivals in the industry. Changes in strategy by one firm may be met with retaliatory countermoves, such as lowering the prices, enhancing quality, adding features, providing services, extending warranties and increasing advertising.

New supply chain Strategy

Dell offers high quality computers and laptops at lower prices compared to its competitors. In the field of manufacturing industries, suppliers play a major role in the production of goods and services, from processing the raw materials till the finished goods.

With fuel process falling back over the last few weeks, industry experts are warning that now is not the time for complacency. According to Simon Tomlinson co-founder of THE LOGISTICS BUSINESS, fuel prices and transport costs will remain at historically high levels meaning that businesses need to rethink their supply chain strategy and return to more de-centralized models.

Simon explains: "We've been predicting for some time that the move to increasing centralization will have to reverse as transport costs rise.

"Historically transport costs for most businesses, have been relatively low compared to other operating costs and supply chains have tended to be influenced more by other factors such as reduced stock costs, economies of scale and business simplification.

"Over recent decades, for example, we have seen manufacturers centralizing production of different products in different countries for trans national distribution.

"Although its cheaper to transport raw materials than the final product the higher cost of distributing the manufactured product has been outweighed by increased manufacturing efficiency, ease of planning and in some cases reduced safety stock.

"A similar move has been taking place in retail distribution. Although often more sensitive to transport costs, it has still been cost effective for retailers to centralize some or all of their distribution thanks to the economies of scale and stock savings that result.

"As transport costs rise the balance will shift and manufacturers and retailers will be forced back to more localized supply chain models. This is particularly true of many types of food where sources and demand and supply can often be co-located.

"And rise they will. The current falls in fuel costs will not continue and high prices are here to stay. Governments have been trying for years to price transport off the road to avoid the need to build more roads and now have obligations under climate change agreements to halt the rise in CO2 emissions. Although they keep being fought back by fuel protests and the like, eventually they will succeed and companies will have to find ways of locating sources of supply closer to demand.