Basic Concept Of Supply Chain Management Commerce Essay

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In this paper we are going to discuss the basic concept of supply chain management and logistics. We discuss about the SCM evolution and its growing contribution to business objectives. We take the example of Dell Corporation limited, a company which are one of the leaders of manufactures' of quality computer machines and its accessories. We discuss the strategies they use; we will investigate how Web-Bases application has a strong contribution of the supply chain in the organization and the effectiveness of systems, Polices and process of web-based transaction in Dell Corporation


Supply chain management and logistics are gaining importance rapidly and are becoming the hot issue of every business. For the growth and prosperity of a business, it is very important to manage its supply chain and logistics activities effectively. The terms supply chain and logistics are not new to the business world. Supply chain management has been a part of business terminologies from the last twenty years whereas the term logistics has been around in the business world from the last seventy years when it is 1st originated from the French word "Logistique" which means "quartering troops". Now the term logistics doesn't apply only to quartering troops but it is widely used in military, society and business with different meanings in different areas of its usage. In business world logistics and supply chain management are often used interchangeably because these two terms are often confused with each other.

2 Supply Chain Management

"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".

Supply chains can be simple or it can be difficult to understand that what activities come under supply chain and what not.

"The complexity of the supply chain will vary with the size of the business and the intricacy and numbers of items that are manufactured".

In order to ensure the effective operation of supply chain to get the desired level of customer satisfaction with cost effectiveness, organizations adopt different activities and technology associated with supply chain management.

2.1 Activities

"Supply Chain Management has three levels of activities that different parts of the company will focus on: strategic; tactical; and operational".

2.1.1 Strategic

It involves size of the site and where it is actually located, what sort of relations an organization has with the suppliers and what sort of product is produced and how it will be marketed.

2.1.2 Tactical

Tactical activities focus on measures to produce cost benefits by developing a purchasing strategy with favored suppliers, working with logistic companies for cost effective transportation and developing warehousing strategy to minimize the inventory cost.

2.1.3 Operational

It comprises of day to day decision making and checks whether there is any change in the schedule of production. What is the purchase agreement? How organization take orders from the customers and checks different warehousing activities regarding product movement.

2.2 Technology

Instant exchange of information between vendor and the customer is the key for successful supply chain management. Many organizations are using web based software and internet for effective communication. "If a company expects to achieve benefits from their supply chain management process, they will require some level of investment in technology. The backbone for many large companies has been the vastly expensive Enterprise Resource Planning (ERP) suites, such as SAP and Oracle".

3 Logistics

As Ghiani, Laporte and Musmanno 2004 states, "Logistics deals with the planning and controls of material flows and related information in organizations, both in public and private sectors. Broadly speaking its mission is to get the right material to the right place at the right time, while optimizing a given performance measure (e.g. minimizing total operating cost) and satisfying a given set of constraints (e.g. a budget constraint)."(p.1)

3.1 Logistic Providers and their Functions

The logistic function or logistic activities can be categorized according to different types of logistic service providers such as:

3.1.1 Asset Based Logistic Provider

Major functions of asset based logistic providers are transportation, warehousing, inventory management and postponed manufacturing.

3.1.2 Skill Based Logistic Provider

These providers mainly deal in management consultancy, information services, financial services, supply chain management and solutions.

3.1.3 Traditional Transport and forwarding companies

These companies are involved in transportation, warehousing, export documentation and custom clearance.

3.1.4 Network Logistic Provider

Major functions of these logistic providers are express shipment, track and trace, electronic proof of delivery, JIT deliveries.

Supply Chain Evolution

Supply chain s isn't born they evolve. Their evolution can be traced through five levels of maturity that range from simple sourcing and logistics to advanced collaboration and networking.

Charles Poirier developed the five levels based on his experience as the head of manufacturing for a packaging company and his work as a partner in CSC's supply chain practice. He outlined the first four levels in his 1999 book Advanced Supply Chain Management: How to Build a Sustained Competitive Advantage and then added a fifth level in 2000 in E-Supply Chain: Using the Internet to Revolutionize Your Business. His concepts are used to guide the supply chain practice's implementations.

Each company has to go through these levels as the supply chain progresses:

Level 1 is focused on internal improvement, including taking costs out of sourcing and logistics. The efforts tend to be confined within a particular business unit.

Level 2 starts to break down internal walls, and works on corporate integration. The various parts of the company start to cooperate to align purchases, processing and shipping.

Level 3 businesses start to take an external view that includes a closer focus on the customer. Customer satisfaction becomes one of the metrics that measure the supply chain's success.

Level 4 brings trading partners and suppliers into the discussions about how to reach customers. Whereas previous relationships between the trading partners were about buying and selling, the partners now start collaborating and sharing information to reach a common customer.

Level 5 is a move toward truly automated connections between businesses. Partners share information electronically, which lowers production cycle times. Inventory can be viewed on a real-time basis so forecasting errors can be diminished.


US-based Dell Inc., one of the leading PC manufacturers in the world, pioneered a unique model of selling PCs directly to the consumers, bypassing the resellers. The model is popularly known as the Direct Model. The case describes this model in detail and explains how it enabled Dell to manage its supply chain efficiently

in the third quarter of 2006; Dell's major competitor HP had overtaken the company in terms of market share to become the top PC manufacturer in the world. Industry experts opined that lack of new products, poor customer service, increasing support costs, lack of retail presence and the limitations of the Direct Model were some of the reasons for Dell's poor performance.

Dell's Direct Model, which was company's strength, lost its sheen, with the competitors gaining better supply chain efficiencies and opting for a mixed sales model. The case examines how Dell planned to consolidate its supply chain and manufacturing activities globally and venture into retail business in order to regain its leadership status.

February 2007, US based computer hardware manufacturer Dell Inc. (Dell) announced that Michael Cannon (Cannon) had been brought into the company to assume responsibility as the Head of Global Operations Organization (GOO).

GOO is Dell's center for consolidating its global manufacturing, procurement and supply chain activities. The company aimed to integrate its supply chain and achieve higher efficiency and quality through GOO. Overlapping activities would be eliminated, and new manufacturing and distribution models to focus on the requirements of the customers spread across the world would be introduced as a part of GOO.

Earlier, all Dell's factories had been managed regionally, and procurement functioned as a separate division. The changes were made after Michael Dell (Michael) returned as CEO on January 31, 2007 the changes were part of an effort to regain the company's position as the #1 PC manufacturer in the world. Dell had been the top PC manufacturer till the second quarter of 2006. But in the third quarter of 2006, HP overtook Dell. According to Brent Bracelin, Analyst with Pacific Crest Securities, Portland, "This (the introduction of changes) is a first step in perhaps Dell trying to regain the supply chain advantage they had and lost

Dell had pioneered a unique direct model of selling PCs bypassing the conventional model of selling them through the reseller channel. In the conventional model, resellers purchased PCs from manufacturers and distributed them to the customers.

Using the direct model, Dell provided consumers with tailor-made products, built only after procuring the order from them. In the process, it was able to reduce inventory costs and overheads as it didn't need any intermediaries. Through this model, Dell was able to provide its customers the latest available technologies, performance, and superior value at competitive price.

The Direct Model

Dell's direct selling model traces its origins to Michael's idea of selling computers directly to the consumer eliminating the need for middlemen and distributors. 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 customers. Dell also began employing computer literate sales personnel, who guided consumers in their choice of systems. Each system was assembled according to the preferences of the customers. This option helped customers to get computers at price lower then other brands

Role of Dell's Suppliers

In order to manage its operations with low inventory levels, Dell collaborated closely with its suppliers. The company's 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%)...

Balancing 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 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...

Production Process

Dell received orders via the telephone, Internet, e-mail, etc. Orders were received by business units, which downloaded the orders every 15 minutes. With advancement in technologies, the choices available for the consumers also widened. Customers could use Dell's website, 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...

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. (Refer Table IV for the advantages of Direct Model according to Michael Dell)...

12 Conclusion

In the light of above discussion, we can say that supply chain management has a strong contribution in the success of any organization and with its development and growing ,they are playing an important part like, web -based applications etc. IT helps the organization to achieve their desired objectives in a very effective and systematic manner. In that way organizations will not only be fulfilling its social responsibilities but also will be benefiting from reducing cost. It not only enables the organization change the structure of the organization.