Supply chain resilience is reviewed by many authors in the form literature, but this report assessed through the research and development of quantitative frame work to analyse the model of resilience issue in the ground of disaster research (Cited in Bruneau et al, 2003; Rose and Liao, 2005).
Dell supply chain resilience can be thought of as an extension of the traditional concept of resistance, defined as the measures that enhance the performance of structures, infrastructure elements, and institutions, in reducing losses from a disaster. While disaster resistance emphasises the importance of pre-disaster mitigation, the concept of resilience extends those ideas in order to also include improvements in the flexibility and performance of a system both during and after a disaster. Based on those ideas, supply chain resilience defines the ability of a supply chain system to reduce the probabilities of a disruption, to reduce the consequences of those disruptions once they occur, and to reduce the time to recover normal performance. (Cited in Falasca et al, 2008)
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The primary purpose of this study is to propose a close to definitive model based on available data on Dell's closed-loop supply chain. Dell's future threats and opportunities are identified particularly in relation to growing competition and expansion of services, which can help quantify resilience in the supply chain. It is important to keep in mind that many actions can increase resilience conflict with "traditional" business goals such as reducing costs and increasing operational efficiency. With this in mind, framework will allow decision makers to model a variety of strategies in order to determine the "price of resilience".
The second purpose is to investigate the above hypothesis by looking at the performance of Dell supply chain after the 1999, an earthquake in Taiwan, a region with high concentration in production of PC components (Cited in Papadakis, 2002).
The remaining part of this report provides a review of the literature related to supply chain resilience then an overview of our decision framework, followed by a description of the proposed methodology and expansion of model. Finally, the conclusion of the report reinforces the verdict of the discussion section and outline directions for future research.
Review of Literature
Dell has become the great deal of study and analysis in attempts to understand what supply chain disruption means in the computer organisation. The topic of resilience emerged a few years ago and has recently become more widely recognized (Cited in Christopher and Peck, 2004). Dell's supply chain is often used as the benchmark for other supply chain designs. Dell is one of the classical examples of outsourced approach rigorously restrict the amount of material they essentially manufacture themselves. (Cited in Kumar and Craig, 2007). A vendor managed inventory system serves Dell to maintain lean inventory levels while focusing its efforts on the assembly of the product rather than inventory management. Close relationships with their suppliers and logistics providers allow Dell to integrate information systems to share customer information and ensure that the entire supply chain runs smoothly. (Cited in Kumar and Craig, 2007)
Dell keeps its computer components uncommitted for as long as possible to enable the customization of products while maintaining economies of scale. Dell has its suppliers ship components from their factories to revolvers, which are small warehouses located near Dell assembly plants worldwide. These revolvers hold the inventory for Dell until the order is received and inventory is pulled through the system via a materials requirement. Dell to bring new innovations made by its suppliers to market faster than its competition who must wait until their finished goods inventory is pushed through the system.
In a similar manner, Peck (2005) acknowledged diverse sources and drivers of supply chain vulnerability and developed a multi-level conceptual model for the analysis of the nature of supply chain vulnerabilities. The drivers recognized by the author include products and processes, assets and infrastructure dependencies, organizations and inter-organizational networks, as well as the environment. The reflection in this paper can be categorized as strategic in nature and as appropriate for analyzing an entire supply chain (Cited in Falasca et al, 2008). Dell plans big changes to its supply chains that will challenge suppliers and distribution partners as the computer maker struggles with fierce competition and new demand in emerging markets. More than a year into its corporate turnaround, the $61 billion company is paring back its "direct model," which promised nearly infinite configurations of its high-tech products ordered by phone or online, in favour of an any-configuration-to-any customer supply chain as Dell tries to bring manufacturing and other costs down by $3 billion a year by 2011 (cited in Hoffman, 2008)
Always on Time
Marked to Standard
Dell's Value Web Model
_________ Physical flows, including products and services
------------ Information flows
The Dell model has enabled each member of its supply chain to focus on what it does best and the customer value is apparent through the growth of the company and the popularity of the Dell computers. It is also able to recover some of that value at the end of a product's life. It has given Dell a competitive advantage within the computer manufacturing industry that may prove sustainable. The complexity of the Dell supply chain also shows that implementing these techniques must be carefully considered and tailored to each firm, based on that firm's openness to change, potential for product modularity, and supply chain relationships. Firms also need to remember that Dell's supply chain has taken 20 years to get where it is. Dell work on pulls and Just in Time strategy (JIT) it helps to get the components just as they are needed for production. The replenishment requirement from customer either from faxes or phone messages is forwarded to suppliers based on genuine orders. Dell also works on building systems to order which means that they do not keep the finished inventory in the channel to manage (Bowersox et al., 1999).
Source: Papadakis (2002), Operations Risk & Supply Chain Design: An Event Study
Dell Computer Corporation has proven that Internet-based mass customization is the preferred business model Build to order-supply chain management and the most profitable in the PC industry. Dell is generating a 160% return on its invested capital by allowing customers to build their own computers online, then successfully manufacturing and delivering these computers with a lead-time of 5 days for the delivery of products (Ghiassi and Spera, 2003). The Build-to-order supply chain production system has different requirements to those of standard mainstream production operations. Additional requirements for a Build-to- order system should include ending the day with the tables empty (no work-in-process), maintaining zero inventories on finished goods, and building products to order only (Wagner et al., 2003). Dell has developed flexible manufacturing practices such as computer-controlled and transfer line assembly operations that allow the company to virtually build computers to order (Cited in Gunasekaran and Ngai, 2008) To support this Build-to-order strategy they run a lean manufacturing operation, component and material inventories can also reduced by sharing the information and close relationship with suppliers.
The specific insights presented by Craighead et al. (2007) relates perfectly within Peck's (2005) conceptual model for analysis, yet they present a more firm basis for modelling the associations that have an consequences on the resilience of a supply chain (Cited in Falasca et al, 2008). Supply chain disruptions in Dell can be explained from the point-of-view of either mitigation measures or response measures, but we typically do not look at both stages simultaneously as it is proposed in this report. The consequences of supply chain risk are easy enough to understand - at some level, there is a loss. This loss can be financial, performance related, physical, social, psychological, or perhaps just a time loss (Mitchell 1995). More will be discussed on consequences in the section below:
Supply chain risk management
Risk management is a method used to avoid, reduce, transfer, or share risks (Norrman and Lindroth 2004). Risks in the supply chain have been characterized as when "unexpected events might disrupt the flow of materials on their journey from initial suppliers to final customers" (Waters 2007). The consequences of supply chain risk are easy enough to understand - at some level, there is a loss. This loss can be financial, performance related, physical, social, psychological, or perhaps just a time loss (Mitchell 1995).
Supply Chain Resilience
The term originates from the material sciences and means the "physical property of a material that can return to its original shape or position after a deformation that does not exceed its elastic limit" (Rice and Caniato 2003) Put even more simply - "the ability to bounce back from a disruption" (Sheffi and Rice 2005). However, Datta et al. (2007) have developed the definition that may be the most precise: "the ability of the supply chain to return to its original state or move to a new, more desirable state after being disturbed."
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Supply Chain Security
Supply chain security is defined as not losing product during the production and transportation phase of the supply chain due to human pilferage causes. Rice and Caniato (2003) advocate both security and resilience in supply chains, saying that one without the other doesn't really create an efficient and effective supply chain. They divide the different means to securing supply chains into physical security, information security, and freight security.
There is not one correct way to categorize disruptions. Researchers have created or referred to categories that best fit their research question and / or data, and that is acceptable. Probably one of the most common attributes of disruptions is the impact factor of the disruption.
Source: Mapping probability and consequences (Sheffi and Rice, 2005)
More recently, Craighead et al. (2007) used an practical research design in order to obtain different insights and proposal that narrate the severity of supply chain disruptions to three specific supply chain design characteristics i.e. density, complexity, and node criticality, as well as to the supply chain mitigation competence of recovery and warning. The selected design characteristics can be considered as strategic in nature, and as relevant to the study of an entire supply chain, however the authors do not clearly originate any quantitative relations between them.
Building the supply chain risks/security threats framework
This section's primary contribution is the development of a framework for understanding the relationships between the terminology and concepts. The framework provides a common base with which the terms and concepts can be understood and researchers can position their research. The framework below helps to identified how aspects of risk management tie together in the supply chain context, this model is taken from Manuj and Mentzer (2008a).
Source: Global SCRM and mitigation framework from Manuj and Mentzer (2008)
This model provide a definition of the terms as well as an over view of the research involved in Dell's risk and risk management. This model consists of steps to identify risk:
Initially frame work provides the risks involved in:
Wrong selection of suppliers, Low inventory levels, Quality Issues, Supply Disruptions, Price escalation and Critical supplier communication
Exchange rates, Country factors, Virtual integration Network breakdown
New competitor, Technology changes, Demand fluctuations and inappropriate products
Information systems breach, Freight breaches and Terrorists attack.
Risk Assessment and Evaluation:
After the identification of risks, it is assessed and then evaluate by prioritising them using risk priority number (RPN).
Risk Management Strategies:
After setting the RPN, risk management strategies are implemented considering the requirement of risk involved. There are different categories of risk management which includes: Avoidance, Postponement, Speculation, Hedging, Control, Share/Transfer and Security.
Postponement: Parts procured only after the customer places the order. Parts in Inventory is
approx 8 days providing better cash flow and low inventory costs.
Hedging: Globally distributed portfolio of suppliers, multiple sourcing
Control: Contracts, integration
Share/Transfer: inventory, contracts, price reduction, location, credit periods, exchange rates
Security: C-TPAT, Radio Frequency Identification Device (RFID), GPS, location
Implementation of Supply chain Risk Management Strategies:
After finalizing the strategies, it should be practically executed according to their RPN to predict the consequences of suggested risk management strategies.
Alternative plans should be prepared to risk resilience in order to avoid the after effects of any disruption. It can be distributed as:
Supply Risks: Emergency suppliers, Alternate products, Insurance, Agile planning systems and Cat Bonds.
Operations risks: Backup system, Multiple Servers, Dedicated Crew and Maintenance.
Demand risks: Quick to Market, Supplier Agility.
Security risks: Alternate sources, Backup Logistics and Insurance.
This model defines the supply chain disruption term and presents several different attributes of disruptions (cited in Macdonald, 2008)
Inherent cause of the disruption. For example, Murphy (2006) categorized disruptions into "natural events", "external - man made events", and "internal - man made events."
Disciplines of the supply chain affected by a given disruption at one time.
Disruption associated with the environmental change.
Duration of the event itself
Cause of the disruption:
This explains the cause of disruption either by actions or activities within the firm (internal) or outside of the firm (external) and it also occurs due to man-made or acts of nature, and hence un-controllable (cited in Macdonald, 2008)
Craighead et al. (2007) define a supply chain disruption as "unplanned and unanticipated events that disrupt the normal flow of goods and materials within a supply chain." Gaonkar and Viswanadham (2007) indicate that there are three levels of these types of risk, namely deviation, disruptions, and disasters:
If one or more than one parameters, such as cost, demand drift from their expected or mean value."
If the arrangement of supply chain system drastically altered.
It consists due to irrecoverable shutdown of the supply chain network for a short-term.
4. Measurement and Expansion of Supply Chain Resilience Model with the credentials of potential sources of competitive improvement.
In order to characterize and measure the relationship between each of the determinants and the associated resilience of a supply chain model academic framework by Manuj and Mentzer (2008) risk probability number (RPN) was calculated on a scale of 1 to 10, where 1 shows the least risk and least to 10 which shows high risk which helps to identifies occurrence of a disaster within the supply chain, and then combining the downstream effects on individual component and links in order to generate overall measures of both immediate impact and time to recovery for the system.
The Global Supply chain risk management model (SCRM) and Mitigation framework was applied on the Dell Value Chain model to analyse and identify its utility. Risk Identification phase placed the identified risks into various categories. This was followed by the risk assessment and evaluation stage. We quantified Probability and Impact to allocate a Risk priority Number to identify and priorities the various risks. Once the risks were evaluated, general risk management and detailed risk management strategies were devised to address these risks. Contingency and mitigation plans were created for critical risks.
The relationship of supply chain resilience can be illustrated theoretically by the impact of the 1999 earthquake in Taiwan. Due to biggest production of computer component manufacturers in Hsinchu, Taiwan, the resulting impact affected to those entire component manufacturers by the earthquake ended up having a significant loss on the entire global PC supply chain (Cited in Papadakis, 2002). This demonstrates how the global strategy of numerous supply chains tends to the possibility, in general, that local events can have significant effects (Cited in Falasca et al, 2008). The overall impact of such an event on the entire supply chain can be considerably increased if a major part of that supply chain is situated within the same state. Veverka (1999) reports that Dell altered its marketing approach after the Taiwan earthquake in an attempt to transfer consumer fondness towards low memory products. In Dell's case the loss due to the price increase in memory components was sizable, showed up fast in the company's accounts and leads it to issue an earnings warning. This warning tends to astonished the investors and caused a statistically considerably decline in the Dell's stock price. Investor agitation about a company's risk experience is noticeably an significant cause for redesigning operation's risk strategies (Cited in Papadakis, 2003). Significantly, Taiwan manufacturing unit was the home to more than 28 semiconductor fabrication facilities, was based just 68 miles north of the epicentre of the earthquake. The size of the economic disruption is clear by the statistics that states about 120,000 people became unemployed and $1.2 billion was the cumulative component production loss as a major consequence. Risk allocation kept as the important perspective to observe, which includes the emergency contracts with suppliers and insurance companies (Cited in Papadakis, 2003).
Concerning the risk prevention and mitigation framework by Manuj and Mentzer (2008), the supply chain disruption at dell, in case of an unplanned natural risk to a supplier, ultimately distressing dell's supply chain can essentially be sheltered by implementing the risk and resilience framework as discussed earlier. In the context of discussion, Falasca et al (2008) explains the supply chain resilience to disasters as could be thought of as the ability of a supply chain system to:
Reduce the probabilities of such disruptions.
Reduction in the consequences once occurs due to disruptions.
Reduction in time causes to recover normal performance.
The Global Supply chain risk management model (SCRM) and Mitigation model by Manuj and Mentzer (2008) provides a simple, high-level means of representing the performance loss of a supply chain system, together with the time to recovery.
The overall objective of Manuj and Mentzer(2008) model is to "reduce the impact of disruption" by supporting the development of supply chain design strategies that, taking into consideration the determinants of supply chain resilience discussed above, result in reduced impacts on total supply chain performance as well as in shorter recovery times should a disaster occur. Thus, this model contributes to decide the various supply chain resilience strategies incorporated and can be compared with the future results. Such investigation eventually can be applied to suggest recommendations for the area of supply chains in term of managing network resilience. At present, the focus of the model is on design reflections with reference to the flow of supplies within the supply chain, as impacted by disruptive changes in the environment that disseminate throughout the physical infrastructure of the supply chain. Future extensions of this initial work include modelling more specific aspects of the infrastructure and the inter-organizational layers, as well as the idea of modelling the "local" behaviour of sub-networks and their impact on the overall supply chain (Cited in Peck, 2005).
Craighead et al. (2007) supports the application of simulation-based examination to help quantifying the correlation between supply chain disruptions and appropriate design characteristics at a strategic level. Dell goes through in its forward and reverse supply chains can serve as a lesson to other companies seeking greater efficiencies within their own supply chains. It is also important that companies understand why the techniques that Dell has used gain it an advantage in the marketplace. Also, as the supply chain is Dell's main competitive advantage, an understanding of the process will highlight challenges and opportunities for Dell in the future. From here, an analysis of Dell's current position in the market can be done and improvements to the supply chain and business model can be proposed.