Chain Reactions

Dell Reinvents Its Supply Chain

It’s a good time to check back in with Dell, the company that pioneered the “direct model” for its personal computers back in the 1990s and in the process became the poster child for supply chain management. Dell’s make-to-order philosophy once stood out remarkably from the make-to-stock processes of the other computer makers. Dell famously avoided retail channels, instead offering every customer the opportunity to order a unique product built to their specifications. The genius behind the “direct model” is that every PC that Dell built had already been sold, a concept that proved attractive to other companies and industries as well, such as consumer packaged goods and automobile manufacturers.

That’s the “old Dell” story, though, one which has been updated rather significantly in recent years. Part of the need for the update has been Dell’s slippage from its reign as the most successful PC maker to being just one of several high-tech giants (Apple and HP, to name two, have become supply chain leaders themselves in recent years). As Kevin O’Marah, group VP, supply chain research with Gartner’s AMR Research group, observed in his report on the Top Supply Chains of 2010, although Dell still excels at inventory turns, “competitive challenges in the PC market still undermine Dell’s ability to grow revenue and deliver strong profitability.” (Dell, by the way, came in at number 5 on the 2010 list, which would be a great result for just about anybody else; however, Dell had been ranked number 1 on that list for three years in a row, from 2004-2006, so number 5 represents a bit of a slide).

Which goes to explain, in part, why Dell has set out to reinvent itself in the past couple years. According to Byron Canady, manager of the company’s global supply chain operations, “The industry and world we grew up in changed, and so did our customers’ wants, needs and expectations.” Dell’s customers used to want the exact PC they imagined, delivered right away, and at the most competitive price, Canady explains, but today, customers have shifted in their needs. While customers still want their computers right away and at the best price, the customization angle is no longer a crucial part of the model.

Speaking recently at the University of Akron’s Supply Chain Forum, Canady pointed out that the world has gotten a lot more global, which has led to a shift in thinking at Dell. Yes, Dell still stays close to its customers, but they also now stay close to their supply base, too. The company’s customers have said in increasing numbers that they want to see and touch their computers before they buy them, which ultimately led Dell’s recent foray into retail.

Today, retail is the fastest growing business in Dell’s history. According to Canady, it took the company 13 years to reach $6 billion in sales; it took only six quarters to reach $6 billion in sales from retail channels.

Dell now focuses on what it calls a “segmented supply chain,” offering solutions to various groups of customers depending as much on what they need as what they’re willing to pay for. These solutions include:
● Ready-made, in-stock systems, where the key is quick delivery
● Standardized offerings, which include the most frequently purchased configurations
● Customizable configurations
● Value-added solutions that go “beyond the box” (such as asset tagging).

Canady also offered some “lessons learned” which he says are industry-agnostic and can be applied to all supply chains:
● One size almost never fits all.
● Provide customers choices that they value.
● Create solutions tailored for the customer.
● Simplify your products.
● Eliminate complexity from your processes.
● Get better, faster and simpler.
● Focus on continuous improvement.

Referring to the last-named item, Canady noted that Dell takes all of its employees into a week's training on lean to solidify lean culture throughout the organization. What's more, that culture is shared with suppliers.

TAGS: Supply Chain
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