Importance Of World Class Supply Network Commerce Essay


Supply chain is very important to the success of businesses because it affects products and services are created. Aitken (1998) defined that a supply network is 'a network of connected and interdependent organisations mutually and co-operatively working together to control, manage and improve the flow of materials and information from suppliers to end users'. This has indicated that manager should focus on the relationship management to enhance the supply chain.

A good supply chain delivers maximum value to customers and maximum profit to the business. Christopher (2011) has figured out the consumers on current marketplace has become more demanding not only on the product quality but also the value added services.

To ensure that supply chains achieve its goals and maintain the kind of strategic operational excellence exhibited by World Class Supply Networks, it should have the following framework. The case study will evaluate the below four factors.

1. Work is designed as a series of team tasks that immediately reveal problems and can be cascaded across the supply network.

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2. Problems can be investigated quickly across the supply network and counter measures rapidly introduced.

3. Solutions are disseminated and adopted locally within the supply network.

4. People at all levels of the organizational supply network are taught to have empowerment, with the help of coaching, mentoring and training.

The four components of the framework above should exist in one form or another as company 'best practices' and is distinct from company to company depending on the nature of business. A certain best practice for the supply chain on specific company trying to achieve competitive advantage may not be best for another company in another industry, nor even in its own.

A real world case study of Dell Inc is discussed in this section in order to demonstrate the implementation of its company 'best practice' to achieve sustainable competitive advantages within the computer manufacturing industry.

3.0 Company Background

Dell Inc was founded by Michael Dell in 1984 and is a global technology company dedicated to providing IT and internet infrastructure solutions as well as manufacturing computers and servers to maximize returns for the benefit of its shareholders and employees (Dell, 2011). Dell's core business is to sell customized computers directly to customers. Dell has created a unique business model through a time-tested process that prioritises the customers' need (Dell, 2011). This has driven Dell to become one of the world's leading computer companies with innovation, high quality of services and product customisation.

The mission statement of Dell is to be the most successful computer company in the world at delivering the best customer experience in the marketplace (Farfan, 2010). Hence, Dell has one simple concept of running their business which is to sell computer systems directly to end-users (Figure 4) while meeting the customers' expectations and needs simultaneously (Lazaris, 2004).

Figure 1: Dell's Build-to-Order Model

4.0 Strategic Business Practices of Dell Inc.

As mentioned early, organisation should integrate the supply chain as a whole to achieve competitive performance. Dell recognises the importance of best practice operations and productions systems to run their supply network efficiently and effectively. The company implement following approaches to ensure continue improvement in Supply Chain Management (SCM) performance.

3.1 Work is designed as a series of team tasks that immediately reveal problems and can be cascaded across the supply network.

The current market environment has change from supplier focus to more consumer-centric where the traditional supply chain has no longer can sustain the business today. Christopher (2011) has identified that the modern supply network has transformed to customer oriented with customisation which require business flexibility supply chain network to cope with the rapid demand change. Figure 1 has shown the shift of a traditional supply chain model to more market driver supply chain model.

Figure 1: Supplier driver to market drive supply chain

Source: Christopher, 2011.

Dell's fundamental business concept is the innovative idea of 'build-to-order' model. Through this model, suppliers will provide particular components of what the customers have ordered and the manufacturers will only assemble the products according the customers' configurations. This model requires Dell to work closely with their suppliers and logistics providers to share latest and accurate information across the supply network (Kumar & Craig, 2007). With greater control over production times, Dell is able to practice just in time production practices thus freeing up useful capital that would otherwise be stuck in stockpile of both finished products and raw materials.

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However, Dell is evolving to a new direction to become a virtual corporation (Figure 2). Over the years, Dell had continuously redefined its business model as well as the supply network. Dell developed a strong relationship between its suppliers and customers. Regarding this, Dell has integrated its business strategy by utilise the information system to ensure a lean and agile supply chain flow (Klinker, 2006). It is because Dell needs to ensure that the right components were always available at the right time and place to fulfil customers' order.

Figure 2: The Evolution of Dell's Business Model

The dominant model in PC industry

Dell's direct model ('build-to-order')

Virtual integration

Source: Magretta, 1998.

According to Reddy and Reddy (2001), virtual integration has been defined as the necessary mechanism for integrating a broad range of both upstream and downstream activities within the value chain, including interaction with suppliers, distributors, delivery representative and customers. Christopher (2011) further explained that virtual integrations are information based which utilise the information technology for information sharing between companies and suppliers to achieve an agile supply chain (Figure 3).

Figure 3: The agile supply chain

Source: Harrison, 1999.

Michael Dell, founder of the Dell Inc. has ever stated in an interview that 'virtual integration means you basically stitch together a business with partners that are treated as if they're inside the company' (Magretta, 1998). He has utilise the information technology to combine all the best practices of its company such as customer-centric, suppliers partnerships, mass customisation and just-in-time manufacturing to achieve new level of efficiency and productivity.

It is important for Dell to share information across all parties to ensure the entire supply network operate effectively and responsively. Dell's 'build-to-order' model requires close relationship with their suppliers and logistics providers to share latest and accurate information across the supply network (Kumar & Craig, 2007). This process integration helps Dell to eliminate inventory problem because it can forward the real time information from customers to their suppliers. Company and supply chain partners are linked together as a network. Thus, the suppliers can easily identify the exact components to deliver to the right factory for assembling to meet customers' delivery requirement (Klinker, 2006).

Besides, when the information of each party in Dell's supply network has been switched over, Dell can easily notify if there is something wrong in the system and identify the problem in their supply chain actively. For instance, virtual integration allows Dell solve the supply shortage by verifying with the suppliers to increase supply of particular components in the next shipment or search with alternative suppliers (CII Institute of Logistics, 2010). On the other hand, Dell can inform the sales and marketing department to move the demand to the specifications or products that are available in-stock. The value-added exchange of information gave the ability for Dell to quickly alter the pricing and product mixes.

3.2 Problems can be investigated quickly across the supply network and counter measures rapidly introduced

Trust in relationship is key factor to maintain the strategic integration of lean and agile supply chain. Gallivan and Depledge (2003) have defined trust as 'a willingness to make oneself vulnerable to potential harm from another party'. In business era, trust in relationship between partners is underpinned through several elements stated in Table 1. The supply chain will be more competitive than others if the company establish the trust with the suppliers through vast amount of information sharing in the supply network. It is because the information sharing enables each party in the network to quickly identify any problems and investigate the problems accordingly.

Table 1: Elements to achieve trust in relationship

Reliability and consistency

Openness and flexibility

Ability and expertise

Long-term orientation

Benevolence and commitment

Value congruence and social responsibility orientation

Source: Song and Chatterjee, 2010.

As the virtual integration leads to full integration of the supply members into one global organisation, the supply network will be completely transparent to every single department across the chain. Openness and flexibility of information transfer establish trust relationships across the network. For instance, Dell is working with their service providers to set quality measures and build data linkages that give real time information on the supply operations and productions. Michael Dell has pointed out that when there is a problem taking place, they will stop shipping products while the service providers fix the design fault in real time (Magretta, 1998). Dell can also inform the suppliers exact daily production requirements through real time information sharing and the flexibility of information transfer.

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In terms of the customers' service consideration, Dell has contract with third-party maintainers (TPMs) to make the service calls. Kevin Rollins, vice chairman of Dell Inc had declared that when they receive complaints from customers, information of the initial call will generate two electronic signals (Magretta, 1998). According to Kevin Rollins, the signal will transmit the needed parts directly from Dell to the customers' sites and also send out to the TPMs to the customers. The visible information facilitates the TPMs' work by making sure the accurate parts will be on-site when they arrive.

Furthermore, Gallivan and Depledge (2003) has suggested that organisations should develop a relationship management review framework such as 'supply chain relationship in action' (SCRIA) code of practice in the real world business practices to observe operation performance outcomes and comparing these with the expectations set prior on agreement. It is because poor quality can affect and slow down the overall supply chain. This review measure can help to develop commitment trust and communicate effectively between the parties in order to maintain the strategic supply network.

Dell can consider applying this SCRIA code of practices to review the suppliers' performance and quality outcome. Currently, Dell is intending to capture information across the supply network and fix the problems. When they diagnose the fracture part, they will transfer the information to their suppliers so they can redesign the component. Regarding this, Dell has followed a strategy to have as few partners as possible in the network to improve the quality management and speed up the execution in their system (Magretta, 1998). This long-term close relationships with fewer suppliers will continue to last longer as they maintain control in technology and quality.

Within the organisation itself, The Ken Blanchard Companies (2010) has introduced the ABCD Trust Model (Table 2) for leaders to build the trust within the working environment. Wang, Tai and Wei (2006) and Abebe (2007) have agreed the virtual integration encourages flexibility in the supply chain by allowing decentralisation in operational decision making and faster response to any problem. Therefore, building trusts with the employees enable them to have greater sense of self responsibility, greater interpersonal insight, and more contributions toward achieving organisation goals. Empowerment policy has been adopted in Dell's supply network to increase the employees' commitment. If the problem takes place at any point of the working or operations procedure, the employee has no other way but to address it and solve it immediately.

Table 2: ABCD Trust Model

Able:is about demonstrating competence

Believable:means acting with integrity

Connected:is about demonstrating care and concern for other people

Dependable:is about reliably following through on what the leaders say that they are going to do

3.3 Solutions are disseminated and adopted locally within the supply network

Management of trust through the large amount of information flow leads the global supply chain innovations. Each channels in the supply network is learn new process and adopt new technology along with the collaborate organisations to ensure the agility of the supply chain. The most popular adoption of technology model in broad of variety of business areas is the 'Diffusion of Innovations' by Roger (2003). He defined the process which an innovation is communicated through certain channels over time among members of a social system as 'diffusion'. As the description, the four key elements of 'Diffusion of Innovations' is divided to (1) Innovation; (2) Communication Channels; (3) Time and (4) Social System.

The model also involves a process of individual decision making for the adoption after considering the uncertainty about the benefits and tradeoffs of an innovation. According to Rogers (2003), this process involves five steps which shown in Figure 4. Through the process, it helps individual to decrease the uncertainty about the innovation.

Figure 4: A Model of Five Stages in the Innovation-Decision Process

Source: Rogers, 2003.

We suppose Dell has adopted this framework across its supply network to improve the value and reduce cost of entire supply chain. It is because the virtual integration between the channels often enables the visibility of information exchange; collaboration for guaranteed business operation and provide assistance whenever problem is identified. Dell has introduced its innovative strategy of 'build-to-order' model which need the integration of information technology and suppliers' collaboration to ensure the inventory that customers require is available for assembly plant (Kumar & Craig, 2007).

Before this, suppliers used to hold the power of ownership for mass productions. However, they begin to realize the shift from suppliers-driver to market-driver in current marketplace. Thus, Dell's 'build-to-order' model gives an opportunity for the suppliers to adopt new practices which utilise the information technology to communicate and build close relationship across the network to streamline the supply chain. One of the relative advantages through this relationship is enhance the quality of components. The shared environment allows the suppliers to manage inventory and enhance quality management.

Besides, the suppliers can gather demand information to control uncertainty from Dell's demand management. Researchers (Wang & Lalwani, 2007; Buxmann et. al., 2004) agreed that effective information about demand change and help to minimise the Bullwhip effect in the supply chain management. Dell has refined its demand management over the years to control demand uncertainty and inventory fluctuations. Consequently, Dell has implemented the i2 Technologies (Figure 5) which can provide latest and accurate information for demand management. By using the systems, Dell is able to profile customers' preferences and buying patterns. This helps Dell to eliminate inventory problem because the systems can forward the real time information from customers to their suppliers. Thus, the suppliers can easily identify the exact components to deliver to the right factory for assembling to meet customers' delivery requirement (Klinker, 2006).

Figure 5: Dell's i2 Architecture

Source: i2 Technologies, Inc., 2002

After a certain period of implementation, each supply channels are engaged as a social system for problem solving and to accomplish common goal within the supply network. They continue to adopt this strategy to maximise the supply chain value through reductions in total costs and inventories across the supply network.

3.4 People at all levels of the organizational supply network are taught to have empowerment, with the help of coaching, mentoring and training

People at all levels of the supply network should learn and work together for lean thinking. In the study which done by Hong (2010) have proven that lean practice is positively related with the mass customisation performance. An organisation with lean thinking is applying practices to maximise profit by producing according to customers' demand whilst minimise waste in all supply chain's activities (Womack and Jones, 2003). This can achieve in the supply chain through flexibility, worker empowerment and reducing the level of management (Hong, 2010).

Dell has implemented a vendor-managed inventory (VMI) system (Figure 6) to manage the order replenishment cycle and maintain its lean inventory level. VMI is an approach where the supplier is taking over the responsibility to manage and replenish stock based on the sales information. Dell shares the sales information with the suppliers to ensure the components are available in assembly plant whenever they need them. The direct model also helps reduce the distance between demand and the source of supply through information sharing across the supply network. Furthermore, suppliers setup the warehouse nears Dell's assembly plant to reduce the lead times fluctuations (Kumar & Craig, 2007).

Figure 6: An example of vender managed inventory process for one of the Dell's assembly plant

Source: Kumar & Craig, 2007

In addition, supply chain learning among all the people in the supply network also suggested by Song and Chatterjee (2010) in achieving global supply chain competitiveness. From their study, they found out different aspects of coordination and learning to enhance the overall supply network. Firstly, organisation can get customers involvement on their new products and services development. This can facilitate the activities between upstream and downstream of the supply chain. Then, direct communication with other channel members and joint problem solving can help the organisation learn and find solutions for their operation issues.

Dell has organised a number of forums and regional meeting such as Platinum Councils (Magratte, 1998) to meet with their customers to have direct communication and information sharing. These forum involve the senior executive, top technicians, engineer and most important, the customers. In the forum, Dell will explain to the customers about their flow of technology and how it translates into specific products. Simultaneously, Dell can listen to the customers' opinions and expectations which help in their demand forecasting as well as new product development. Dell will not only be able to learn and develop new ideas from the forums but also enhance the relationship with customers.

Michael Dell said in the interview that their goal is to be one or two steps ahead of change (Magratte, 1998). In such a fast changing environment, Dell is facing the challenge of the capabilities of supply manager to respond to the market change quickly. Virtual integration does help Dell to be efficient in supply chain and respond to the changes. However, people at all level of the organisation are also expected to adopt the changes over the time in order to keep track with the company's strategy. For instance, managers are expected to respond to the rapid shift effectively, process latest information quickly and are able to make real time decisions.

4.0 Conclusion

To survive and grow in today's competitive marketplace, many companies have considered various approaches and concepts within the supply chain to create greater synergistic efficiencies both with suppliers and customers. Strategic partnership and relationship management has used by many world class company to help organizations creates competitive advantage in the supply chain and achieve customers service excellence.

From the case study of Dell, it has given wider knowledge of the best practices and how it benefits the supply chain of the company in order to create competitive advantages. Dell has created its own 'best practices' scenario to streamline its supply network. The innovative strategy by combining the various business approaches which fit in their supply chain management has driven Dell to be a global leading company in the PC industry.

Nevertheless, several threats and weaknesses have been identified by Kumar & Craig (2007) in a SWOT analysis (Appendix 1) which recommended Dell should give more attentions on the specific areas and implemented continue improvement in order to sustain in the competitive marketplace.