The Supply Chain Management of Dell, Toyotas Operations Management - Research Paper Example

Introduction According to the Council of Supply Chain Management Professionals, Supply chain management encompasses all the activities that take place in the sourcing and procurement, conversion, in addition to all logistics management activities (Maleki and Virgilio 2013, p.85). Nonetheless, SCM also incorporates coordination and collaboration of channel partners including suppliers, intermediaries, other third parties that provide services, as well as, the customers. The concept of Supply Chain Management is increasingly becoming significant in the corporate world especially given that competition nowadays is among networks of organizations known as supply chains rather than between individual companies in the usual sense. Operations management, on the other hand, refers to the activity of managing the resources and the coordination of the entire process through which organizations produce goods and services; effective operations management, like SCM, is an integral part of the organization especially because it is a source of competitive advantages. In this regard, every organization has an operations function which is held by an operations manager because each one of them is involved either in the production of goods or services. This paper will examine the supply chain management of Dell, Toyota’s Operations Management, as well as, the competitive advantages gained through strategic SCM and OM by the two companies respectively; it will also highlight the differences between lean and agile SCM. Supply Chain Management (SCM) Supply Chain, the structured network of organizations involved in the conversion of raw materials into finished products and delivery of the same to end users or customers (Janvier-James 2012, p.194), and Supply Chain Management, the optimization of activities across the whole system, are inevitably the most fundamental aspects of doing business in today’s corporate world. The liberation and globalization of international trade coupled with the sourcing of factors of production and the distribution of consumer products to destinations across the world is increasingly enhancing interdependence between players such as producers and wholesalers on global supply chains (Yu, and Thomas 2011, p.496). Eventually, the success and survival of every organization in the complex, highly competitive, and fast changing global market environment is dependent, not on the effectiveness of the individual organization’s supply chain strategies, but on the effectiveness of the entire network of players or the supply chain. Superficially, overall supply chains start with the raw materials or factors of production and combine several value-adding activities, then end with the delivery of finished products or goods to the end users; however, the extended view of Supply Chains integrate additional activities in the function of the Supply Chain such as information flows and other logistic management services. A Supply Chain consists of both the external and the internal connections of the organization, whose functions add to the value of the finished goods; survival in the face of competition in global markets heavily relies on the effectiveness of the supply chains and the quality of the goods (Olson and Wu 2011, p.401), to the satisfaction of customers. Customer satisfaction, for that matter, becomes a crucial yardstick for measuring the effectiveness of the supply chains, and the management of the linking processes; market uncertainties call for supply chains that are flexible and adaptable to changes, thus the need for effective supply chain management to achieve such flexibility. Overall effectiveness of the Supply Chain Management results to cost savings and enhanced customer service, while improving an organization’s competitiveness even in the wake of increasing competition and increasing consumer demands in the global corporate markets (Tan 2001, p.40). Supply Chain Management of Dell The Dell Computer Corporation is one of the global corporations that has successively leveraged on technology and information to blur the conventional boundaries between players including suppliers, manufacturers and customers, in their value chains, a revolutionary approach towards what is known as virtual integration (Magretta 1998, p.74). Dell is leveraging on technology in the coordination of all familiar strategies such as customer focus, supplier partnerships, mass customization, as well as, just-in-time manufacturing, across the organization’s boundaries to achieve greater heights of efficiency and productivity, in addition to high returns on investment. Dell’s direct business model that involves selling directly to end consumers and building products to order eliminates the reseller’s profit margins that hike price in addition to the costs and risks that could potentially arise from carrying large inventories of finished goods. Additionally, the direct business model promotes good relationships with the end users or customers thereby creating valuable information that allows Dell Computers Corporation to leverage its relationships not only with the supplies, but also with the customers. Technology, coupled with the information advantage has given the Dell Computer Corporation an infrastructure to revolutionize the fundamental business models in existence today; Dell’s shift towards Virtual Integration has enabled the company to harness not only the advantages of a tightly coordinated supply chain, but also benefits from focus and specialization. Dell has stitched together a business with a number of partners that are treated as if they are part of the company through virtual integration; by leveraging on their investments, Dell is able to focus entirely on delivering solutions and systems to customers, rather than putting resources on activities that do not add value to customers. Unlike vertical integration, virtual integration of the supply chain focuses only on those activities that actually create or add value for the customer, thus leading to the creation of an organization that is not only far more focused, but also more efficient. Through virtual integration, Dell does not have to create every piece of the value chain because there are specialized companies that produce specific components and by leveraging the relationships with both the suppliers and customers, the company achieves focus and coordination. Dell does not keep any inventory in its warehouses because it does not add value to the customers, instead, the company gets components directly from its supplies as soon as there is demand for them, and this reduces the time taken to deliver the finished products to end users considerably. In this regard, Dell substitutes information for inventory by shipping only when there is an actual demand for finished products from real end users, thus considerably shrinking the lead times between when an order is placed and when the finished goods are delivered considerably. Operations Management Operations management, the coordination of resources in the creation of value for customers, is the domain of the operations function of the organization, and it is usually under the direct mandate of the operations manager; the operations function is crucial to the success of every organization. The operations function entails fulfilling customer requests for service through value creation and delivery of finished products and services but it is not the only function within the organization; two other significant functions undertaken by the organization include the marketing and the product/service development functions. In addition to that, support functions such as the accounting, and finance function and the human resource function promote the efficacy of the core functions of the organization. Conventionally, there are no clear cut boundaries between both the core and support functions or among the three core functions of the organization, thus, a broad perspective of the operations management will incorporate each of the functions highlighted, whether core or supporting. In this regard, the operations function is understood in the sense of all the activities that are significant in the daily routine of meeting customer expectations through the creation of value and delivery of products and services. Operations management must work effectively with other parts of the organization to promote efficiency in internal processes, and it is a significant in all types of organizations; operations management in any type of organization uses resources to create outputs appropriately to meet clearly defined market requirements (Keah and Wisner 2003, p.1301). The operations management function in small or medium size organizations often overlaps with other functions, and the operations decisions are always the same irrespective of whether the organization is profit-making or not. Operations Management of Toyota The automobile industry has undergone inexhaustible transformations from craft production, which entails the use of highly skilled workers coupled with simple but flexible tools to create one item at a time according to customer specifications, to mass production that uses narrowly skilled professionals to design products by unskilled or partially skilled workers, to competitive lean production. Unlike craft production that produces goods that are too expensive to afford in limited capacity, mass production churns out large volumes of standardized products that are reasonably priced due to extra buffers, workers, and space that ensures smooth production. Today’s automobile industry is led by lean producers such as Toyota (Towill, Christopher and Denis 2007, p.406), which combines the benefits of both craft and mass production while zero-rating costs associated with the former and avoiding the rigidity associated with the later respectively. Toyota employs teams of highly skilled and multi-talented workers at all levels of production, in addition to the use of ever more automated machines that are highly flexible in the production of large volumes of products. Toyota’s operations management continually focuses on perfection by consistently reducing costs, in addition to ensuring zero defects, zero inventories, and creating products with a range of variety; insofar as the company has not yet achieved perfection, the relentless quest for the same has led to substantively excellent results. The company has groups of multi skilled workers working under a team leader, and together they follow a set of assembly steps, in addition to carrying housekeeping, minor tool repair, and quality checking. Unlike mass production where errors are passed on to the next level to keep the system continually running, Toyota’s operation management, workers can stop the whole assembly line as soon as errors are detected. The operations management is so effective because workers have amassed a lot of experience in identifying and tracing errors to their primary causes and devising permanent solutions, thus significantly reducing the number of errors. Instead of vertically integrating its suppliers into a single and large bureaucratic network, or leaving them to run as independent vendors, Toyota has turned its in-house supply operations into quasi-independent first-tier supplier companies. In this model, Toyota retains part of the equity; a similar relationship has been developed with other suppliers who traditionally have been independent, and gradually, the company’s first-tier suppliers have acquired much of the remaining equity in each other. The daily flow of parts in the supply chain is coordinated through a process called Kanban, where parts produced at each preceding step only serve the immediate demand of the next step. Toyota have incorporated their dealers into the production process such that instead of building cars in advance for unknown buyers, the company makes cars according to the order system in which the dealers become the first step of the process. Dell’s Competitive advantages The Supply Chain Management strategy for Dell Computer Company has been a primary source of competitive advantages that have continually placed the company strategically above competition in the marketplace. For instance, the company has eliminated intermediaries and getting closer to customers and suppliers thereby building close relationships; these relationships are a source of valuable information that the company leverages in the creation of value. By eliminating intermediaries in the supply chain, the company has not only eliminated the retailer profit margins that have the implication of increasing prices of finished products, but it has also reduced the time wasted through exchanging goods between intermediaries. In this respect, Dell achieves shorter lead times than its competitors do because the time gap between when an order is received and when the finished product is delivered to customers has been shrunk considerably. Nonetheless, the company’s supply chain strategy has enabled it to achieve remarkable focus and coordination that has led to surprisingly incredible results; by leveraging on the investments of other companies that make components, Dell is able to focus only on those activities that add value for the customers. Overall, Dell’s effective supply chain management has given it a number of competitive advantages including having the shortest lead times, competitive prices, and quality products due to focus and coordination. Toyota’s Competitive advantages Toyota’s operation management is also a source of competitive advantages to the firm; to begin with, the company enjoys continually declining costs of production, zero defects, and zero inventories, thus it is able to offer clients a wide variety of products, at competitive prices, and in short lead times. The company’s teams of multi-talented workers continually work to improve efficiency of the production process by finding the best ways of achieving optimum results on operations. The workers trace errors systematically to their ultimate cause and fix them permanently to avoid a repetition of the same, but the plant hardly stops because errors are detected long before they become serious; in this regard, the company runs smoothly achieving zero defects. Production by order system leads to zero inventory because all the parts produced at every preceding step supply the immediate demand of the next step, thus reducing wastage and costs of keeping large inventories. Ideally, the company does not have to produce cars in advance for unknown buyers because it has incorporated dealers into the production system, thus ensuring that production meets market demands effectively. Overall, the effectiveness of Toyota’s operations management has resulted into a number of competitive advantages including high quality products, competitive prices, a wide variety of products, and short lead times. Lean versus Agile Supply Chain Management A lean supply chain management strategy focuses on reducing waste in the form of overproduction, waiting, unnecessary transportation, inappropriate processing, unnecessary inventory, motion and defects, thereby achieving more with less (Bruce, Daly and Towers 2004, p.153). A lean production philosophy leads to a more cost-efficient utilization of resources through level scheduling to achieve an even flow and simplification of products and processes (Georgescu 2011, p.4). Unlike a lean Supply Chain Management approach, an agile Supply Chain Management approach seeks to achieve flexibility in manufacturing, especially through continually improving automation technology. Agility in the context of Supply Chain Management seeks to enhance an organizations capability to respond to actual demand in the marketplace rather than planning beforehand and making a forecast (Towill, Christopher and Denis 2007, p.406). Supply chain agility embraces the organization’s structures, information systems, logistics processes, in addition to perceptions and it aims at coping with market instability and indeterminate demand in the marketplace. Conclusion Ultimately, given the continually increasing interdependence between actors in the highly competitive and fast changing global marketplace has led to the emergency of highly structured networks of organizations involved in the conversion of raw materials into finished products and delivery of the same to end users or customers. Competition no longer exists between individual organizations but between these networks of organizations known as supply chains, and the optimization of activities across the chain, in addition to, coordinating resources in the creation of products and services for customers are integral parts of organizational management in today’s highly competitive and dynamic corporate world. Dell’s supply chain management eliminates intermediaries, thus giving it a number of competitive advantages including having the shortest lead times, competitive prices, and quality products due to focus and coordination. Toyota’s operations management achieves declining costs, zero inventories, and zero defects, thus, resulting into a number of competitive advantages including high quality products, competitive prices, a wide variety of products, and short lead times. Finally, whereas a lean production philosophy leads to a more cost-efficient utilization of resources, an agile Supply Chain Management approach seeks to achieve flexibility in manufacturing by increasing an organizations ability to respond to uncertain demand in the market. References Janvier-James, A. 2012. A new introduction to supply chains and supply chain management: Definitions and theories perspective. International Business Research, 5(1), 194-207. Georgescu, D. D. 2011. 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