Wednesday, May 25, 2005

Building for velocity - Dell @ Planet 2005

Every practitioner of supply chain planning should listen to Dick Hunter from Dell speak at Planet 2005 (free registration required). Dick talks about the core principles that they follow in their supply chain. Even though each of us might have read about the Dell supply chain in different forums, I am sure that we will hear something new about the Dell supply chain in this speech.

Some of the highlights:

  1. Nearly 85% of revenues for Dell comes from selling to enterprises and governments and only 15% from consumers. Even an enterprise order for 100 computers is built as 100 orders of 1 computer each!
  2. Their long term goal is to increase market share. Tactically, they might chase margins but the focus is on increasing market share. Increasing market share increases procurement from suppliers, which decreases costs which decreases the price to the consumer which increases volume. A virtuous cycle.
  3. They are the only large manufacturer of computers building computers in the US. They have their factories strategically located such that most of their next day delivery orders are shipped by ground transport rather than air transportation.
  4. If they can not expedite and keep supply in synch with demand, they aggressively go after demand shaping to balance demand and supply.

Long time back there was a debate on whether focus on quality will mean less focus on cost reduction. Companies now understand that focusing on quality actually indirectly reduces costs. Now there is a debate on whether companies should focus on velocity of supply chain or focus on cost reduction. Dell proves that focusing on velocity of supply chain actually makes them the lowest cost manufacturer. They do not do the usual steps to reduce cost - consolidation into larger orders, outsourcing production to China etc. They focus on velocity and that indirectly results in huge cost advantages for them against their competitors.

For many companies, the first reaction when they hear the Dell story is that, their business is very different from Dell's business. But the core concepts of advantages of focusing on velocity of material and speed of decision making applies to every company.

What do you think?

Karthik Mani

1 comment:

  1. Managing supply chains for parts is so 20th Century. The services industry is the future and the supply chains of the future are going to need to manage employee talent and skills.

    The strategy is simple enough, in a growing services based business how can a company efficiently manage the skills and talent of hundreds of thousands of employees and contractors, particularly when every day your employees learn new skills or leaves the company?

    This is a new reality and to continue its rapid services revenue growth IBM is taking some of its best practices that it learned as an asset based company and is now applying them to the skills of its employees. In January 2004 IBM launched its Workforce Management Initiative (WMI) to develop a common expertise taxonomy to request, identify, assess and fulfill client resource needs. For example, if a client needs a French and Italian speaking consultant with a PhD in nanotechnology to be in Rome on June 25, WMI can find the best available IBMer or contractor as quickly as your can say Google. The US DOD is doing the exact same thing.

    WMI will enable IBM to increase profitability and create a flexible resource pool and allow us to adapt to changing business conditions and market needs in a much more efficient and structured manner. Already well underway, this past year it has reduced the cost of our services business by more than $2.4 billion and has increased the visibility of resource deployment resulting in a 3-5 percent improvement in utilization.

    According to Bruce Richardson, Vice President, AMR Research, he believes this is a one of the seven supply chain trends AMR is tracking for the future. So stay tuned.