Tuesday, February 4, 2014

Dell Time – Too Good To Be True

I love this article – it inspires me to cut down on all the waste in my life, perhaps even give up eating and sleeping and start living in “Dell time”. But it all sounds just too good to be true. While I believe the article placed a little too much emphasis on Dell’s elimination of warehouses from its supply chain. However, in all fairness, the author did discuss how Dell forces its suppliers to bear its operating costs by holding inventory for it – in essence they are Dell’s warehouses. In my mind, merely removing the warehousing function out of your own operations into those of your suppliers does not necessarily imply that the entire supply chain has been streamlined – only a segment of it. And then Mr. Green starts gushing about Dell’s speed as the ultimate competitive weapon, living on knife edges, and how rivals can never catch up with Dell.

Having said that, none of this is intended to take anything away from the way that Dell thinks about its supply chain. After all, it was Dell’s revolutionary make-to-order, direct-selling, customer-centric model that made Dell the poster child for supply chain wizardry from the 1990s onwards[1], earning it the top spot on Gartner’s AMR Research group list of top supply chains from 2004-2006[2]. This is around about the time when this article was written at the end of 2004. So, it made me curious about how Dell was doing today. And it turns out, they have made some radical changes in the way that they do business.

According to William Hutchinson, Dell’s VP of global logistics, they found out that only one out of four of Dell’s customers were using the direct sales model anymore [1]. Furthermore, according to Byron Canady, Manager of Dell’s global supply chain operations, their customer base had also become more global, especially in emerging markets, and while customers still wanted their computers on time, at the lowest possible cost, customization was no longer as critical as it had been in the existing model. That and the fact that customers wanted to see and feel the machine before buying it [2]. From 2006-07, Dell saw its market share declining, while other computer manufacturers, such as HP actually grew to the point where it surpassed Dell as the world’s number 1 PC manufacturer[3]. A sign of the magnitude of the challenge that Dell faced, it replaced senior management in the company.

Changing customer preferences over time, market conditions, and staying relevant meant that Dell had to take a good hard look at its supply chain and reinvent it from the ground up. And reinvent themselves they did. In 2008, after nearly a quarter of a century of direct sales, Dell announced that it would make a foray into the retail channel. Essentially, it involved a strategic shift in Dell’s thinking. The key objectives of the new model, articulated by Annette Clayton, VP global operations and supply chain, given in an interview[4] were:

  • Move from a one-size-fits-all model to a segmented supply chain portfolio.
  • Create globally standard yet flexible processes that leverage partnerships.
  • Align to customer priorities around speed, choice, and cost.
  • Create infrastructure that is responsive to the changing needs of business.

Some of these strategic shifts have translated into solutions that involve keeping pre-built systems (such as system configurations that are most ordered) in stock, with a focus on quick delivery [2]. Quite a departure from before. And inventory holding costs also going up, perhaps?

The question is how has Dell’s supply chain been faring through all of this? From a high of number 1 on Gartner’s AMR Supply Chain Top 25 in 2006, Dell slipped to number 5 in 2010[5] (Apple at number 1), to number 11 this past year in 2013[6] (Yep, still Apple at number 1). What was that about rivals never being able to catch up?


[1] http://www.industryweek.com/supply-chain/supply-chain-and-logistics-dell-taps-innovation-reach-emerging-markets
[2] http://www.industryweek.com/blog/dell-reinvents-its-supply-chain
[3] http://www.crn.com/news/channel-programs/199600505/dell-to-diverge-from-direct-sales-with-major-channel-retail-push.htm
[4] http://johngattorna.com/documents/DellSCA.pdf
[5] https://www.gartner.com/doc/1379613
[6] http://www.industryweek.com/top-25

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