Supply Chain for Competitive Advantage: Dell Company - Example

Supply Chain for Competitive Advantage: Dell Company Name: Tutor: Course: Date: Table of Contents 1.0 Introduction 4 1.1 Supply chain strategies and competitive advantage: Theoretical perspective 4 2.0 A Case study of Dell Company 5 Figure 1: Aligning product strategy to customer values 7 Figure 2: Engaging the entire organization 8 2.2 Results of Dell’s SCM transformation 9 2.3 Critical success factors in SCM 9 2.4 Failures in the SCM strategies 10 2.5 Implementation of SCM strategy at Dell 11 Figure 3: Target messages by organization 11 3.0 Key findings and recommendations 12 3.1 Findings 12 3.2 Recommendations 12 4.0 Conclusion 13 References 14 List of figures 1.0 Introduction 4 1.1 Supply chain strategies and competitive advantage: Theoretical perspective 4 2.0 A Case study of Dell Company 5 Figure 1: Aligning product strategy to customer values 7 Figure 2: Engaging the entire organization 8 2.2 Results of Dell’s SCM transformation 9 2.3 Critical success factors in SCM 9 2.4 Failures in the SCM strategies 10 2.5 Implementation of SCM strategy at Dell 11 Figure 3: Target messages by organization 11 3.0 Key findings and recommendations 12 3.1 Findings 12 3.2 Recommendations 12 4.0 Conclusion 13 References 14 1.0 Introduction Firms leverage their supply chains to achieve competitive advantages. They do so by identifying their core and non-core competencies in their areas of operation despite increasing complexity, competition, and geographical scope. Most firms outsource non-core competencies to their supply chain partners while pursuing their core competencies to achieve competitive advantage. Moreover, data exchange and communication have been enhanced by the internet and electronic mail to facilitate information flow along the supply chain (Davis & Spekman, 2004). There are significant reduction in cycle time and cost among companies that exploit supply chain management strategies. Dell Company is one firm that has understood the effect of information, visibility and supply chain integration in overcoming many supply chain problems (Davis, 2010). With the advent of information technology, globalization and outsourcing, Dell operates a solid coordinated networks based on new strategic activities. Through mutual trust and collaboration, Dell Company has been able to make significant improvements in supply chain scheduling and planning. This report analyzes the successes and failures of Dell’s supply chain management strategies. 1.1 Supply chain strategies and competitive advantage: Theoretical perspective Supply chain strategy is a set of customer interests or needs, of which in a competitive way, suppliers attempt to satisfy their services and products (Gebremichael & Rao, 2014). Supply chain decisions relate to place of facilities, distribution channel and the production system of supplier. This decision is influenced by the need to minimize cost and achieve the overall objectives of the organization. In the recent past, there has been dramatic change in outsourcing trends and the global market competition. This has prompted organizations to align customer market division and appropriate value propositions with their established supply chain strategies. The preference of competitive scope and competitive advantage determines the relative position and market share of the organization within a specific sector or industry (Davis & Spekman, 2004). At the broadest and simple levels, an organization showcases their position through the main competitive strategies. The scope and type of competitive advantage informs the kind of decisions that a firm makes. Cost leadership position is one advantage in producing services and goods when compared to rivals in which a firm can establish a strong competitive advantage. On the other hand, Colins and Porter (2003) argue that differentiation is where, with similar price with competitors, a firm has outstanding and better service delivery. Under a focused approach, the firm concentrates not on a wide but a narrow competitive advantage. According to Jacoby (2009) an organization develops competitive advantages by creating defensible position over its rivals. Critical competitive capabilities comprise time-based competition, flexibility, delivery, quality, and cost or price (Hines, 2004). Companies are keen to have their supply chains aligned towards production innovation, dependable delivery, value-to-customer quality, premium and competitive pricing. Earning maximum profit from high market share is not enough in the global competitive market. To ensure profitability, organizations need to focus on their competitive capability. Satisfaction of end users or customers is the ultimate goal of many modern organizations (Shin, et al., 2000). It becomes a critical to satisfy the customers through inter-organizational linkage and their dominance in the market. With available mass customization, customers want high quality products and services with lower price. In the marketing system, competitive advantage is achieved if distributors, retailers, wholesalers and the chain of suppliers are committed. Technology information system at global level alongside globalization is making organizations to compete favorably. The blind interest of profit making among suppliers is not tolerated by this system. According to Blanchard (2010) firms lack the requisites for success and total resources as they globalize regardless of their size. Therefore, it is necessary that they partner with other organizations as they view the complete supply chain for producing value. Communication and information technology are the most influential and intense changes affecting companies directly. Highly bureaucratic companies at the advent of modern communications and computers began to lose grip of their market share. Modern information system and fast communication connects all functions from distribution to production channels in the globalized market. With integration and cooperation of firms, the supply chain system has become more effective. They can now derive competitive advantage in customer satisfaction, cost leadership and continuous improvement. In the supply chain, time delays in the network are reduced, cost is minimized and information resource availability allow for easy linkages. 2.0 A Case study of Dell Company Dell is one of the technology companies manufacturing and distributing computers and its accessories. The company segmented its supply chain response capabilities by embarking on a three-year journey. This was after facing a number of challenges such as low-cost competitors, unique global requirements, product commoditization, and the ever-changing customer needs. Based on a mix of cost optimization, the company designed its supply chain to reflect product choices and delivery speed that create customer value (Davis & Spekman, 2004). Again, this was internally aligned throughout all functions to implement its vision. The company adopted a supply chain management based on an impressive cash-to-cash conversion cycle, just-in-time inventory model and Configure-To-Order (CTO) manufacturing. According to the AMR Supply Chain Dell has appeared at the top five of the top 25 companies annually since it began in 2004 (Davis, 2010). However, the company has always faced a number of challenges such as globalization, building a more capable supply base, component cost declines, emerging market growth, changes in customer channel preferences and fall in demand for commoditized products. Yet, the company responded to changes in the market by evaluating all the segments and how they derive value from its services and products. Customer demand had become complex according to the analytics of the company. On the contrary, a B2B market requires precision and services delivery, customization, speed and predictability. Consumers want devices that deliver content, low-price options, the ability to personalize for niche products and multiple channel options. As virtualization and content start to drive the market, this complexity will increase. As part of a multiyear transformation, to address these issues, Dell segmented its supply chain. Ordinarily, firms apply a range of methods to manage their supply chain such as developing strategies to allow smaller batch sizes, revising price structures and innovating information flow for forecasting demand (Chen & Paulraj, 2004). These firms overcome many challenges through visibility and information and understanding the effects of supply chain integration. 2.1 Dell’s SCM approach Dell transformed its supply chain in six different phases; customer values, understanding its strengths, core competencies, external environment, chart clear course and engage the entire organization. Understanding customer values led to portfolio evolution and a governance process based on continued improvement. Similarly, Dell was able to identify unique customer values using its platform sales, business intelligence (BI) data, survey results and historical customer knowledge from contracts (Blanchard, 2010). To obtain insights from multiple industries, Dell invested in external marketing, targeted surveys, detailed configuration and profitability analysis resources. While understanding its strengths and customer value, Dell needed to change as they retain what is good for the company. In long-term supply chain excellence, skills were identified as the most critical. The core competencies as identified by the company include automated and continually improved processes, a lean culture, deep customer relationships and supply chain agility (Davis, 2010). In the external environment, an external perspective was enabled through partnerships with various consulting firms, cross-industry leaders and university professors. Strategic management unit considered a unique perspective of looking outside the company to understand best practices and learning points. The competitive analysis of Dell concentrated on supply chain services, new market entrants on smartphones and tablets, emerging market requirements and configuration price points. Dell understood well the direction of the market and customer requirements by designing a new supply chain portfolio. It did so by defining the supply chain extremes of efficiency and agility as shown in fig.1 below. Figure 1: Aligning product strategy to customer values From the figure above, the initial step was to create a number of supply chain capabilities. Second, there was need to fill the gap between most agile and the most efficient by defining the right number of supply chains. By extensively completing this analysis, Dell simplified to six supply chains after defining 18 potential options. The final results were products configurable by customers and a portfolio based on a mix of predetermined configurations (Blanchard, 2010). Dell then paired with flexible delivery cycle times, planned and ‘need it now’ protocol. For complete end-to-end customer solutions, Dell aligned the service processes and warranty to its new portfolio. Segmentation of Dell's supply chain demanded engagement of the entire organization and extensive cross-functional collaboration. For example, IT transformation needed to occur alongside supply chain transformation. On the other hand, supply chain needed to work with finance in enabling the CTS process and methodology. Throughout the development cycle, product design required full integration with supply chain capabilities. Moreover, driving the desired demand patterns aligned well with the go-to market plans in sales and marketing (Davis, 2010). Dell also adopted the Govern and Refine Portfolio in which supply chain segmentation and its customer channel were created through end to-end model. Here, satisfying specific customer requirements demanded that multiple capabilities be arranged in unique configurations as shown in fig. 2 below. Figure 2: Engaging the entire organization In identifying the range of capabilities, Dell used the ‘voice of the customer’ value chain needed in the different functions. The unique supply chain offerings originate from the different combinations of these capabilities. To introduce new supply chain requirements, Dell created a dedicated center of excellence (COE) and standard process and those intakes requirements from operations, marketing and sales. The aim was to evaluate supply chain design, business strategy, customer benefit, and enable the right changes within product development (Blanchard, 2010). Dell conducts benchmarking to provide an outside-in perspective, maintain a focus on what customers value and utilizes lean methodologies. 2.2 Results of Dell’s SCM transformation Dell made financial and qualitative gains after the transformation with stronger connection to customers. Although the company management leveraged supplier scale and capability, it still had to control the aspects that are most critical to the customer (Williams, 2006). After redeployed its resources, it found focus on controlling parts of design, delivery and imaging. Offering customer the exact value they want is through enabling best value solutions. Product options which had become too complex facilitated complexity reduction. In line with customer requirements, Dell was able to reduce this configuration complexity. Product offerings were adding responsiveness waste and unnecessary cost in the supply chain as it had exceeded customer requirements (MacMillan, 2009). Managing and identifying functional interdependencies has witnessed improved internal collaboration across sales and finance, marketing, product design, and the supply chain. While aligning to customer verticals, Dell centralized global operations through simplified interactions. Between 2008 and 2010, an estimated $1.5 billion of operational cost reductions at Dell was as a result of transformation. The key drivers in the transformation were reductions in complexity, simplified design, building out new capabilities for the customer improvement and leveraging supplier scale and capability. Better connection to demand and reduction in complexity led to improved forecast accuracy. Consequently, there was three-fold increase in forecast accuracy at the configuration levels, platform and the product. 2.3 Critical success factors in SCM Critical success factors for Dell have been identified as: customer value, executive sponsorship, dedicated CEO and end-to-end business strategy. Historically, customers were segmented based on regions, size and verticals such as small business, government, corporate and the consumer. Dell had to look across the supply chain capabilities and product features to identify shared values along an aggregated view of existing groupings (Gebremichael & Rao, 2014). Despite the global position being critical to this process, Dell’s growth markets were not found in the traditional regions. An end-to-end business strategy then was needed to adjust its model to meet new requirements. A corporate wide transformation by Dell’s team extolled the role of different organizations, its vision and the ability to clearly articulate the need for change (Davis, 2010). To keep suppliers up to date, Dell started an internal blog to support communication. The potential benefits and the segmentation strategy were meant to drive cross-functional alignment where executive sponsorship was shared across the entire executive leadership team. The design and implementation of supply chain management were conducted weekly. Moreover, production governance meeting by cross-functional executive spend one-third of its time implementing current quarter plan and two-thirds of its time on future quarters. Since then, supplier planning has become much more strategic and unified. In pursuing quality supply chain, Dell Center of Excellence (COE ) became dedicated and identified 12 key work streams in which each stream had a VP sponsor, with the small teams program-managing and coordinating the change. Across work streams, Dell integrated four to five value streams with lean techniques so as to ensure the proposed changes met customer needs. 2.4 Failures in the SCM strategies Despite the success associated with Dell supply chain, there were challenges such as managing long-term demand, supply chain design and complexity reduction. In the end-to-end segmentation strategy adopted by the firm, there was need to continually refine its portfolio by sensing long-term demand. With over two billion online suppliers and customer visiting annually, Dell's direct model provided extensive supplier and customer insights (Davis, 2010). While predicting where the market was headed, the company supported multiple global supplier groups and defined a three-year outlook of customer needs. In a new environment, the supply chain design had to focus on changing proliferation, product commoditization and business strategy. Other issues of interest were multichannel sales and fulfillment, global supply and networks emerging markets. Supply chain focused on efficiency and low-cost needed to be carved out end-to-end so as to allow for complexity reduction. Provided by its CTO capability, Dell had to maintain its responsive heritage. This required simplification of planning processes, configuration management and product designs. 2.5 Implementation of SCM strategy at Dell Dell embarked on a journey to implement Supply Chain Segmentation and recognize the scope of changes on its investment and the multiyear plan. To show traction against the overall plan, Dell developed short-term goals and manually piloted capabilities, while in parallel designing the scalable and automated solutions. This allowed quick wins, during the transformation, to mitigate risk and build momentum. Throughout the Dell journey, a range of skills were required to adapt the COE skills. In the first phase, pursuing vision/design require business acumen, end-to-end supply chain design, knowledge of market and other industries and outside-in perspective focused on customers. In the second phase, change management requires organizational influence and communication, program management, process automation and design, systems optimization, data analytics and lean/Six Sigma expertise (Davis, 2010). In the third phase, orchestrating the ecosystem is about continuous evolution of the organization that focus on supply chain capabilities translated from customer needs by influencing and coordinating external and internal partners. It is necessary t have Cross-Functional Participation where messages are tailored to each group given that communication across the organization can be difficult. Messages need to be more simplified with the broadening span in communications. As shown in fig.3, when shared across functions, the mapped the portfolio is simplified. Figure 3: Target messages by organization Dell integrated supply chain design to ensure cross-functional collaboration in the long-term. The company created a phase-gate review process and integrated into the existing product design processes. The future changes to the supply chain are standardized rather than constant adjustments as they drive step-function improvements. Finally, the goals of the supply chain portfolio metrics were aligned across all functions. Data transparency is essential for dynamic visibility in meeting forecasts, materials, and cost, demand and customer requirements (Davis, 2010). Other aspects required to drive the right decisions include multiple views to margin, revenue mix and product road maps. The company’s supply chain is currently better placed to balance operational metrics with customer metrics as well as align to customer value. For example, Dell can advocate for 'green' solutions in the supply chain customers by balancing packaging methodology, take advantage of low-carbon transportation and logistics nodes with cycle times. Therefore, Dell has begun an evolving and ongoing journey using an end-to-end segmentation strategy. By realigning to changing customer values, optimization is continuous and never done. 3.0 Key findings and recommendations 3.1 Findings As Dell's business strategies and market changed, customer segmentation supply chain approach was designed from the single supply chain (Handfield, 2014). The cross-functional business strategy that is unified is essential for segmentation since it incorporates finance and supply chain, marketing and product design and decision-making processes with collaboration (Davis, 2010). To dynamically allocate costs, segmentation enables business decisions by a cost-to-serve (CTS) methodology and highlights the drive to right actions and net profitability for each supply chain. The alignment and development of organizational skills has been a multiyear journey that reinforces supply chain segmentation. 3.2 Recommendations To understand the different demand cycles and rhythms, there is need to establish the segmentation of Dell’s supply chain channels and customers. Dell should focus on reducing the time required to shape or sense changes in demand at the end-customer. The supply chain portfolio design should quantify and isolate costs that optimize operational efficiency at the end-to-end supply chain. For supply chains that need different supply chain responses such as agility and not efficiency then this analysis should be repeated. Drive the right business decisions for Dell’s supply chain through use of clear set of goals to align portfolio incentives and cross-functional metrics. 4.0 Conclusion Dell implemented the end-to-end implementation strategy in its supply chain. Supply chain decisions relate to place of facilities, distribution channel and the production system of supplier. The company adopted a supply chain management based on an impressive cash-to-cash conversion cycle, just-in-time inventory model and Configure-To-Order (CTO) manufacturing. Critical success factors for Dell have been identified as: customer value, executive sponsorship, dedicated COE and end-to-end business strategy. A corporate wide transformation by Dell’s team extolled the role of different organizations, its vision and the ability to clearly articulate the need for change. However, the end-to-end segmentation strategy adopted by the firm, there was needed to continually refine its portfolio by sensing long-term demand. In a new environment, the supply chain design still needed to focus on changing proliferation, product commoditization and business strategy. References Blanchard, D. (2010). Supply Chain Management Best Practices, 2nd. Edition, John Wiley & Sons. Chen, I.J. & Paulraj, A. (2004). Towards a theory of supply chain management: the constructs and measurements. Journal of Operations Management, 22(2): 44-53. Colins, J. & Porter, M.E. (2003). Strategy and competitive advantage. New York: Free Press. Davis, E. W. & Spekman, R.E. (2004). The Extended Enterprise: Gaining Competitive Advantage through Collaborative Supply Chains. New Jersey: Prentice Hall. Davis, M. (2010). Case study for supply chain leaders: Dell’s transformative journey through supply chain segmentation. Gartner Publications. Gebremichael, B.A. & Rao, P.M. (2014). 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