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How does the company strategy influence the Supply Chain model?

Article written by: PhD. George Ogrinja, Supply Chain Director, Associate Professor Faculty of Economic Cybernetics, Statistics and Informatics, ASE Bucharest


Second part of the article Generic Supply Chain strategies for competitive businesses


In order to understand how a company competitiveness strategy can practically influence the Supply Chain model, we present you below the new concept of customer value driven supply chain strategy using the DELL case study.

Dell has become Best in Class for its “DIRECT TO CONSUMER” Supply Chain model through which the PCs were sold directly to customers, without the use of the dealer. All PCs until 2007 were manufactured by DELL on the basis of orders received electronically from customers using the components available on the market (Figure 1).

scm supply chain management

Figure 1. DELL: SC model DIRECT TO CONSUMER

Analyzing the market segments of the IT industry, Dell has observed, based on marketing studies, that there are different customers categories, especially at global level, who wish to buy in different ways, other than online. To meet these categories of buyers, DELL decided to change its sale and supply chain strategy at least for the following reasons:

a) The growth in turnover that has led to a very complex Supply Chain Management, especially in the case of products with a very short life cycle.
b) Decrease of the products delivery time in the market: consumers have started to move towards promotions because of the crisis, changing their buying behavior.
c) The existence of standard products in the demand structure, for which the customization is not so important and the delivery time becomes a priority.

“When Dell announced in 2008 that it was moving towards the retail business and making other changes related to its supply chain, it really did seem to me like the end of an era”, said Dan Gilmore (2011) Chief editor at SupplyChainDigest.

Aware that the transition from DIRECT TO CONSUMER to CHANEL RETAILER involved on stock manufacturing, long before the appearance of real demand and aware that:

  • price fluctuation
  • short delivery deadlines
  • orders size and their fluctuation (sales cycles are: spring, beginning of the holiday time and academic year), all because of the retailers demands but also
  • multiple chain forecast rely on sales and not on real demand and
  • limited information share between partners
    can be causes of the bullwhip effect

What did DELL do to keep the BEST in CLASS in Value Chain status?

„Dell has aligned its Supply Chainresources (people, processes and technologies) to the life cycles of the customer needs (requests that come from multiple sales channels) using the „end-to-end” Voice of the Customer”, said Annette Clayton, Vice President Global Supply Chain and Operations.

An “END TO END” transformation model of Supply Chain DELL is presented in Figure 2.

supply chain management

Figure 2. SC Dell: the “END TO END” model

The image in Figure 2 shows the suggestive manner in which DELL has managed to implement all kinds of generic competitive strategy that we’ve previously discussed, namely:

a) Differentiation strategy (mass customization, value added services, customer relationship management and customer behaviors, innovative products, etc.).
b) The strategy based on flexibility (Responsivness) in relation to individual and corporate online clients.
c) Efficiency Strategy (Cost Leadership) – retail oriented, adding new facilities to the Supply Chain to serve customer requests for standard products through retail sales channel.
How did DELL succeeded to efficiently serve the new customers of the new channels with new types of products?

The answer is: Dell has created more Supply Chains, as shown in Figure 3, each dedicated to a different customer segment of the PC industry (see the Customer Segment of the table).

SCM supply chain management

Figure 3. DELL: Supply Chain strategies

To reduce the complexity of the general Supply Chain model and to benefit from the scale economy principles, David Simchi-Levi, Annette Clayton and Bruce Raven (2012) emphasize the importance of identifying, defining and using common processes for carrying out the activities within all SCs created at organizational level.

For DELL, they were:

  • supply: to obtain volume discounts and a reduction of the purchase prices
  • design of products: using standard components in all SCs and thus reducing product portfolio
  • manufacturing/assembling: the same for all SC types for consolidating the manufacturing capacity
  • planning scheme of sales and operations common to all SC segments for aligning demand with supply needs and the stock levels and allocation of production capacities on the basis of current and forecast demand
  • the process of orders fulfillment – using the same distribution infrastructure for all types of SC

For example, for any delivery orders in North America, regardless of the type of Supply Chain, DELL uses the same distribution network resources (Los Angeles and Chicago centers along with personnel serving these centers). The transport of these products may be different, depending on the response time for each SC (see the Lead Time associated with each segment in Figure 2).

Because the operational improvements always have a significant impact on the financial performance, after implementing the “END-TO-END” SC model, DELL has obtained the following results, considered to be outstanding:

scm

About Dell strategy in the supply chain domain and best practices of its strategy we will discuss in our next articles, because DELL remains indisputable a WORLD CLASS for the next two decades and a great example for any Supply Chain model ” No One Size Fits All “, that is one SC cannot always cover efficient and flexible all customer requirements of a company.

PhD. George Ogrinja, Supply Chain Director, Associate Professor Faculty of Economic Cybernetics, Statistics and Informatics, ASE Bucharest

 

 Next: Third part: How to design a competitive Supply Chain

 

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