MartinNachev
MNG312
13January,2009
G.Anastasiadis
SuccessfulSupplyChains
Itseemsthatsupplychainmanagementhasbecomeoneofthemostessential,andyet,
verycontroversialtopicsinmodernbusinessplanninganddevelopment.Scholarsarguethat
wellmanagedsupplychainsarethedrivingforceofanysuccessfulcompany.Inthiscasewe
shallreviewanddiscussDellssupplychainmanagementtechniques.
InthiscaseDellcanbeviewedfromtwosides,representedbytwodifferenttime
periods.ThefirstisbeforeApril2008,andthesecondoneafterthat.WhatdoesApril2008
indicate?Itwasthebeginningoftheendofthemasscustomizationmodel.Asannouncedby
Dell,masscustomizationhasbeentheirguidinglightforalmost20yearsnow.However,it
seemsthataccordingtoMikeCannon,PresidentofGlobalOperationsatDellwhichis,in
essence,achiefsupplyofficerrole,Dellneedsachange.Thechangehastobenotonlyintheir
manufacturingmodel,butaswellasintheirsupplychain.
AccordingtoJayHeizerandBarryRender,asuccessfulsupplychainisonethatcan
enableeffectivecommunicationamongstmembersbysharinginformationandengaginginjoint
forecastingofsalesTherearethreeaspectsofasuccessfulsupplychain,whichare:forecast
sharing,realtimeorderstatusdetermination,andlastbutnotleast,partnerssharinginventory
data.ThesecriteriasuggestasocalledVirtualsupplychain.Thismeansthatthereareno
physicalfacilitiestakingcareoftherawmaterialsorsemifinishedgoods.Instead,theyget
delivereduponrequest.JeremyHammantoffersthefollowingdefinitionofavirtualsupplychain:
[Virtual]supplychains[are]madeupoflooseaffiliationsofcompanies,organizedasasupply
network,wherephysicalassetsarereplacedbyinformation.
Scholarssuggestthatwehaveenteredtheageofvirtualvs.vertical.Theirargumentis
thatitisnotaboutwhoisbigger,anymore,butratherwhoisfaster.OrasquotedbyMr.
Hammant,thefasteatstheslow.Dellhasproventhatitsbeenthefastestinthelast20years,
utilizingitsstateoftheartsupplychain.However,timeshavecomethatcustomerdemandsare
beingmetbycompetitionbecauseofthehugevarietyofmanufacturers,andthusproducts.
Therefore,Dellstopmanagementhaverealizedthatthecompanyshouldreducecosts.
McKinsey&Co.haveidentifiedseveralgraveproblemsaffectingthesupplychainof
almosteveryhightechmanufacturer.Whenbuildingalarge,andsophisticatedelectronic
informationexchangesystem,onecannotomitthefactthateventhoughthesystemisefficient,
itisnoteffectiveenough,fromemployeestandpoint.Thesystemsaresocomplex,thatvery
oftenemployeeshavetobeeducatedadditionallyhowtouseit,whichcostsmoneyandlabor
time.Dellhasautomatedeverythingtothesmallestresistor.Electronicsignaturecardsand
requestformsminimizethecomplexityofthesystem.ThearticleprovidedbyMcKinseyalso
suggeststhatlargehightechmanufacturersfaceaproblemwithforecastingprecision,whichis
causedbyeverincreasingvolumesandunlimitedarrayofcustomerpreferences.Dellhowever
isproudtoannouncethattheyspendtensofmillionsdollarsonresearchandforecasting.This
aidsthecompanybyensuringprecisionintheirforecastingmodels.R&DatDellalsotakescare
ofthedataqualityandseamlessexchangeofit.Forexample,Intelknowsexactlyhowmany
chipsDellisgoingtoneedeverysingleday,andtheyhaveknownitinadvance,sothatthey
canmeetthedemand.Thisofcourseeliminatesstorageandlargeinventoriesthatarehardto
liquidateifnecessary.Dellhasalsoestablisheddeepandtrustyrelationshipswithitssuppliers,
sothatanenvironmentoftrustandmutualunderstandingandanticipationcanbecreated,
whichalsomakesbothsuppliersandmanufacturersliveseasier.
Nevertheless,evenDellhasbeenexperiencingproblemsinthepastyear.AsI
mentionedearlier,April2008markedthebeginningoftheendofthemasscustomizationmodel.
MikeCannonannouncedthatthismodelisnowtoocostlyandthereissimplynotenough
demandforit.Onewoulddoubtfullyask,exactlyhowmuchhasdemandshrunkforDell?The
answeris:enoughtoclosetheAustin,TXplant,whichwasthelargestone,andmovethe
EuropeanstationfromIrelandtoPoland.MikeCannondoesnotrefutethesupplychainmodel
thatthecompanycurrentlyuses,howeverheclaimsthat[Dells]supplychainneedstochange
dramatically.Thepastsupplychainmodel,Canonsaid,costDellmorethan3billiondollars,
whichcouldbesavedifthesupplychaingetsredesigned.Inotherwords,topmanagershave
realizedthatverticalsupplychainisbad,condemningownershipofallsupplychainaspects,like
HenryFordsuggestedover100yearsago,buttheyhavealsorealizedthatpurelyvirtualsupply
chainisevenworse,becauseitistoohardtocoordinate,despiteofitsflexibility.Therefore,Dell
havedecidedtofollowtheircompetitorssupplychainmodels,whichisfrequentordersof
offshorelowcostcomponents,andmaintainingsomeinventories.MikeCannonhasannounced
thatDellisgoingtofollowacoststrategy,ratherthandifferentiation.[Dell]alsoseesitsfuture
growthtiedheavilytodevelopingmarketswheretheprice/coststructuremustberadically
different.Ofcourse,Dellisnotgivingupitsloyalcustomers;howeveritwillshrinkthismodel
from500,000separateconfigurationoptionstoabout150,000.Asmentionedabove,thisaction
willsaveDellmorethan3billionUSD.
Wehaveobservedaradicalchangeinsupplychainorganization.First,HenryFord
suggestedpurelyverticalsupplychainowningalltheresourcesneededforproduction.Later,

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