|CASE STUDY ON SUPPLY CHAIN MANAGEMENT | REPORT ON: SUPPLY CHAIN MANAGEMENT SUBMITTED BY INFORMATIVE ABSTRACT This case study is based on the supply chain management of two notable PC manufacturing MNCs, Hewlett-Packard and Dell. The objective of this case study is to compare the effectiveness of the standardized process followed by HP to the innovative process of Dell, The Direct Model. DESCRIPTIVE ABSTRACT A comparative case study was done between two electronics giants Hewlett-Packard (HP) and Dell. inc, on their supply chain management.
HP was taken first as a base for their effectiveness in supply chain management as can be seen by their success throughout the years. They have continuously refined the process repeatedly until they could finely tune the entire process to suit the needs of the customer as well as to not pose a hindrance to product demand forecasting, which enabled them to grow from a simple 500$ investment to a multi-billion dollar MNC we see today. Then, Dell’s innovative addition to the management process, namely the “Direct Model” was taken into study and its effectiveness in the field was analysed, both positive and negative.
The Direct model aimed at personalizing the entire placing-order process so as to cut off the extra processes required in between the supply chain. This helps in maximizing the profits for the company. Virtual Integration is the side-by evolution of the Direct model, which allows more power and options to the customer. The customer can now personalize the configurations for his order of PCs, starting from the screen type and make to the specific details required for graphics processing and motherboard chipsets.
This flexibility of choice has allowed Dell to become much more preferred in the computer industry by customers as compared to already existing electronics companies, which prefer selling standardized products that were made by the companies demand forecast and studies. Though, as with every innovation, there are also disadvantages posed by the Direct model that sets back Dell in certain fields and processes as compared to the supply chain management of HP. All severe and important threats to the field have been analysed and put forth in this case study.
An interview with representatives from both HP and Dell was conducted regarding the supply chain and the information provided by them was presented in the report. A questionnaire was prepared and the representatives were interviewed in their respective offices. The questionnaire is also produced in the report. ACKNOWLEDGEMENT This report is one of hard work and dedication. Along the course of this project we have learnt the value of team spirit and how to work hand in hand with people who share a common goal. First of all, we would like to thank our associative Dean Prof.
S. G. Rakesh for providing us with all required facilities essential for the completion of this project. We would like to thank our lecturer from the department of English Ms G. S. Jyothsna and Dr. Sukhanya Saha for their constant support and guidance, without whom the project would never have reached its stage of perfection. We sincerely wish to thank everyone who has helped us in this venture. This project is the result of team work and co-operation provided by teammates, friends, family and the guidance of all our lecturers. We also like to thank Mr.
Siddharth Sreekumar from Dell for guiding us and parting knowledge about the new idea that Dell is come up with. We also thank Mr. Subbu T of the Supply Chain Group of HP for letting us know the structure and working of the Supply Chain Group. TABLE OF CONTENTS INFORMATIVE ABSTRACTii DESCRIPTIVE ABSTRACTiii ACKNOWLEDGEMENTv TABLE OF CONTENTSvi 1. INTRODUCTION1 1. 1 HEWLETT-PACKARD COMPANY (HP)2 1. 2 DELL3 2. SUPPLY CHAIN MANAGEMENT5 2. 1 OBJECTIVES OF SUPPLY CHAIN MANAGEMENT6 2. 2 SUPPLY CHAIN PLANNING7 3. DIRECT BUSINESS MODEL15 3. 3. 1 Forecasting Demand21 . 2. 2 Information Flexibility21 3. 3. 3 Research and Development23 3. 4 DISADVANTAGES OF DIRECT MODEL24 4. TERMINOLOGIES USED IN SUPPLY CHAIN26 5. PERSONAL INTERVIEWS29 6. CONCLUSION32 7. BIBLIOGRAPHY33 LIST OF FIGURES FIGURE 16 FIGURE 27 FIGURE 38 FIGURE 410 FIGURE 511 FIGURE 613 FIGURE 714 FIGURE 817 1. INTRODUCTION This project focuses on how Dell Inc. has further refined the supply chain management with their new idea termed as “Virtual Integration” and conduct a comparative study on its effectiveness against Hewlett-Packard Company (HP).
A brief introduction of our topics has been supplied as follows. What is Supply Chain? A Supply chain is the system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer i. e. activities that transform natural resources, raw materials and components into a finished product that is delivered to the end customer. Example: planning, purchasing, manufacturing, logistics, distribution etc. It can be divided into 4 main parts • Planning • Procurement • Manufacturing • Logistics 1. 1 HEWLETT-PACKARD COMPANY (HP)
Hewlett Packard was named after its founders Bill Hewlett and Dave Packard, both who graduated in electrical engineering from Stanford university in 1935. The company originated in a garage in nearby Palo Alto during a fellowship they had with a past professor, Frederick Terman at Stanford during the Great Depression. Terman was considered a mentor to them in forming Hewlett-Packard Company. In 1939, Packard and Hewlett established HP in Packard's garage with an initial capital investment of just over US$500. HP incorporated on August 18, 1947, and went public on November 6, 1957.
The company was originally rather unfocused, working on a wide range of electronic products for industry and even agriculture. Eventually they elected to focus on high-quality electronic test and measurement equipment. From the 1940s until well into the 1990s the company concentrated on making electronic test equipment: signal generators, voltmeters, oscilloscopes, frequency counters, thermometers, time standards, wave analyzers, and many other instruments. A distinguishing feature was pushing the limits of measurement range and accuracy; many HP instruments were more sensitive, accurate, and precise than other comparable equipment.
Following the pattern set by the company's first product, the 200A test instruments were labelled with three to five digits followed by the letter "A". Improved versions went to suffixes "B" through "E". As the product range grew wider HP started using product designators starting with a letter for accessories, supplies, software, and components. HP has successful lines of printers, scanners, digital cameras, calculators, PDAs, servers, workstation computers, and computers for home and small business use; many of the computers came from the 2002 merger with Compaq.
HP today promotes itself as supplying not just hardware and software, but also a full range of services to design, implement, and support IT infrastructure. On August 6, 2010, CEO Mark Hurd resigned. Cathie Lesjak assumed the role of interim CEO, and on September 30, 2010, Leo Apotheker became HP's new permanent CEO and Ray Lane, Managing Partner at Kleiner Perkins Caufield ; Byers, was elected to the position of non-executive chairman. Both appointments were effective November 1, 2010. On September 22, 2011, Hewlett-Packard Co. amed former eBay Inc. chief executive Meg Whitman its president and CEO, replacing Leo Apotheker, while Raymond Lane became executive chairman, having previously served as non-executive chairman of the company. Whitman pledged on October 28, 2011 to prevent the spinning-off of the company's personal computer division. 1. 2 DELL Dell traces its origins to 1984; when Michael Dell created PCs Limited while a student at the University of Texas at Austin. The dorm room headquartered company sold0 IBM PC compatible computers built from stock components.
Michael Dell started trading in the belief that by selling personal computer systems directly to customers, PCs Limited could better understand customers' needs and provide the most effective computing solutions to meet those needs. Michael Dell dropped out of school in order to focus full time on his fledgling business, after getting about $300,000 in expansion capital from his family. In 1985, the company produced the first computer of its own design the "Turbo PC", sold for US$795.
PCs Limited advertised its systems in national computer magazines for sale directly to consumers and custom assembled each ordered unit according to a selection of options. The company grossed more than $73 million in its first year of trading. The company changed its name to "Dell Computer Corporation" in 1988 and began expanding globally first in Ireland. In June 1988, Dell's market capitalization grew by $30 million to $80 million from its June 22 initial public offering of 3. 5 million shares at $8. 50 a share.
In 1992, Fortune magazine included Dell Computer Corporation in its list of the world's 500 largest companies, making Michael Dell the youngest CEO of a Fortune 500 company ever. In 1996, Dell began selling computers via its web site, and in 2002, Dell expanded its product line to include televisions, handhelds, digital audio players, and printers. Dell's first acquisition occurred in 1999 with the purchase of ConvergeNet Technologies. In 2003, the company was rebranded as simply Dell Inc. Recognize the company's expansion beyond computers.
From 2004 to 2007, Michael Dell stepped aside as CEO, while long time Dell employee Kevin Rollins took the helm. During that time, Dell acquired Alienware, which introduced several new items to Dell products, including AMD microprocessors. To prevent cross market products, Dell continues to run Alienware as a separate entity but still a wholly owned subsidiary. Lackluster performance, however, in its lower-end computer business prompted Michael Dell to take on the role of CEO again. The founder announced a change campaign called "Dell 2. ," reducing headcount and diversifying the company's product offerings. The company acquired Equal Logic on January 28, 2008 to gain a foothold in the ISCSI storage market. Because Dell already had an efficient manufacturing process, integrating Equal Logic's products into the company drove manufacturing prices down. 2. SUPPLY CHAIN MANAGEMENT Supply Chain is a set of activities E. g. planning, purchasing, manufacturing, logistics, distribution, and marketing That performs the function of delivering value to end customer. Supply chain is broadly classified into 4 main parts Planning It’s an effort to achieve the primary goal of producing and distributing the goods at the right quantity, to the right locations, and at the right time. • Procurement Logistics is the management of the flow of goods between the point of origin and the point of use in order to meet the requirements of customers or corporations. • Manufacturing It’s the use of tools and labor to make things for use or sale. Or in other words raw materials are transformed into finished goods on a large scale. • Logistics It’s the acquisition of goods and services at the best possible total ost, in the right quantity and quality, at the right time, in the right place and from the right source. [pic] Figure 1: Supply Chain 2. 1 OBJECTIVES OF SUPPLY CHAIN MANAGEMENT • Revenue: Quarterly Revenue Targets • Inventory Goals: Cost effective • Speed: ;SRT (Supply Chain Response Time) ;DTFC (Delivery to First Commit) ;STFC (Ship to First Commit) ;OCT (Order Cycle Time) Supply chain response time: Supply Chain Response Time is nothing but the time measured from the clean order date to PGI Date. Figure 2: Supply Chain Management Objectives 2. SUPPLY CHAIN PLANNING This process is the initial step in supply chain management, where the entire chain is planned and verified with statistics and logistics on different levels before being executed. Therefore, the Supply chain planning take decisions which involve – 1. Supplier Selection 2. What Products to Produce 3. Which Plants to Produce them 4. Location, Number, Capacity of Plants 5. Customer Allocation 6. Distribution 7. Warehouse Allocation 8. Procurement 9. Manufacturing 10. Production Schedule 11. Workload Balancing 12. Finished Goods Inventory 3. Vehicle Routing 14. Fleet Size 15. Inventory Decisions [pic] Figure 3: Supply Chain Planning 2. 3 TYPES OF PLANNERS IN SUPPLY CHAIN The Planning process is normally undertaken by three Planners – 1. Demand planner • The demand planner works on materials as per the orders or for the orders which are already present. • It’s also his or her responsibility to Forecasts the material for future it can be for next quarter or for next month. • The Planner coordinates with the category team who will study the market trend and will give the requirement for the planner. Planner will keep track of the EOL (End of Life) products and will ensure that there will be no orders placed on this product. • Planner will be responsible to maintain low inventory. He will push the category team to sale the excess inventories. 2. Production planner • Production planner works on the interaction with shop floor to follow up and executes critical orders at the shop floor level. • He interacts with Order Management team to check for future orders. • He interacts with Logistics team for material delivery which is required for production. • He plans for production according the Plant capacity. hich products needs to be produced at which plant in which quantity to be on-time available to fulfill customer demand and at which line do we need to produce in which order whereby which raw materials need to be available at what time. 3. Execution planner • He is responsible for executing the existing orders by dropping DN (Delivery Note). • He will interact with category team to know about the forecast and he will plan accordingly. • He will interact with Marketing ; OM team on existing backlog orders. • He will position the materials at required location as per the orders placed by doing stock transfer for various locations. He will interact with Logistics for delivery of the orders to customer and also for in awarding of the materials into warehouse. • He interacts with PDM team to extend materials to plants. • He is also responsible to maintain low inventory. [pic] Figure 4: Supply Chain Planning Process 2. 4 PROCUREMENT Procurement is the acquisition of goods or services in the most economical manner, from reliable sources in adequate quantity within the deadline set for orders already placed or for orders that may be placed in the future. • It involves choosing the suppliers that will deliver the goods and services you need to create your product. Develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships. • Put together processes for managing the inventory of goods and services you receive from suppliers, including receiving shipments, verifying them, transferring them to your manufacturing facilities and authorizing supplier payments. Procurement of raw materials and resources is generally done in a careful and calculated manner, so that as to avoid excess and wastage of unused raw materials that cannot be stored, as well as not being short of resources to meet current orders placed.
The finances involved are calculated and verified with Forecasting to be ready to meet the demands of the customers with minimum time delay and maximum quality. 2. 5 MANUFACTURING Manufacturing is the use of machines, tools and labour to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale.
Such finished goods may be used for manufacturing other, more complex products, or sold to wholesalers, who in turn sell them to retailers, who then sell them to end users the "consumers". [pic] Figure5: Manufacturing 2. 6 LOGISTICS Logistics is the management of the flow of goods between the point of origin and the point of destination in order to meet the requirements of customers or corporations. Logistics involves the integration of information, transportation, inventory, warehousing, material handling, and packaging, and often security. Logistics is a channel of the supply which adds the value of time and place utility.
Today the complexity of production logistics can be modelled, analyzed, visualized and optimized by plant simulation software, but is constantly changing. This can involve anything from consumer goods such as food, to IT materials, to aerospace and defence equipment. As observed, HP goes through all the complexities of supply chain management and meets with customer and market demands very effectively. Michael Dell on the other hand, began in 1984 with a simple business insight: He could bypass the dealer channel through which personal computers were then being sold.
Instead, he would sell directly to customers and build products to order. In one swoop, Dell eliminated the reseller’s markup and the costs and risks associated with carrying large inventories of finished goods. The formula became known as the direct business model, and it gave Dell Computer Corporation a substantial cost advantage. [pic] Figure 6. Logistics [pic] Figure 7. Order Flow 3. DIRECT BUSINESS MODEL The direct model turned out to have huge benefits that even Michael Dell claimed that he didn’t foresee.
The suppliers actually get to have a relationship with the customer, and that creates valuable information, which, in turn, allows companies to leverage their relationships with both suppliers and customers. If the obtained information is merged with technology, one obtains the infrastructure to revolutionize the fundamental business models of major global companies. Dell is using technology and information (Direct model) to blur the traditional boundaries in the value chain among suppliers, manufacturers, and end users. In so doing, Dell Computer is evolving in a direction that Michael Dell calls virtual integration.
The individual pieces of the strategy customer focus, supplier partnerships, mass customization, just in time manufacturing may all be familiar. But Michael Dell’s insight into how to combine them is highly innovative: technology is enabling coordination across company boundaries to achieve new levels of efficiency and productivity, as well as extraordinary returns to investors. Virtual integration harnesses the economic benefits of two very different business models. It offers the advantages of a tightly coordinated supply chain that have traditionally come through vertical integration.
At the same time, it benefits from the focus and specialization that drive virtual corporations. How has Dell pioneered a new business model within the computer industry? During the time of the industry’s inception, the founding companies essentially had to create all the components themselves. They had to manufacture disk drives and memory chips and application software; all the various pieces of the industry had to be vertically integrated within one firm. So the companies that were the stars ten years ago, the Digital Equipments of this world, had to build massive structures to produce everything a computer needed.
They had no choice but to become expert in a wide array of components, some of which had nothing to do with creating value for the customer. As the industry grew, more specialized companies developed to produce specific components. That opened up the opportunity to create a business that was far more focused and efficient. As a small start up, Dell couldn’t afford to create every piece of the value chain. Dell decided the company should be more selective and put our capital into activities where we can add value for our customers, not just into activities that need to get done.
The activities that Dell undertake involve much less items and fields to manage, and yet helps in its growth at an exponential rate. This is because fewer things require management. Here, instead of actually manufacturing all the individual components of the products themselves, Dell relies on suppliers from different areas, such that, even if one supplier crashes, Dell can lean on the other to maintain its growth. Outsourcing, at least in the IT world, is almost always a way to get rid of a problem a company hasn’t been able to solve itself . hen a company outsources IT to a service provider, and hopefully they’ll fix it. But on future forecasting it’s not necessarily a pretty picture. Dell avoids this problem, and focuses on how it can coordinate its activities to create the most value for customers. With their service providers, Dell’s working to set quality measures and, more important, to build data linkages that Allow observations in real time on progress when parts are dispatched, for instance, or how long it takes to respond to a request for service. Dell realized that partners are required to facilitate the effectiveness of the direct model.
They commit long term relationships with their suppliers themselves, and thus effectively making them as partners. The workers and engineers provided by the suppliers become part of the company, and help in fixing problems in Dell products in Real Time. The catch behind this scheme is that the number of partners required is always a process of trial and error, though it’s preferred to have as few as possible. In the direct model, though most partnerships are long term, others can be more volatile based on the terms and services required.
But regardless of how long these Relationships last, virtual integration is basically stitching together a business with partners that are treated as if they’re inside the company. Information is shared among them in a real-time fashion. This allows Dell to place daily orders that are more specific than a standardized number that has to be expected and followed week after week regardless of demand or productivity. This is generally absent across company boundaries. The reason being that the buyer tries to protect himself from utter transparency, such that the seller can’t really add a lot of value.
Government purchasing, is the extreme case with its overly structured procurement system. Protecting the buyer usually ends up disabling the seller and both lose. The technology available today really boosts the value of information sharing. Design databases and methodologies can be shared with supplier partners in ways that just weren’t possible five to ten years ago. This speeds time to market often dramatically and creates a lot of value that can be shared between buyer and supplier. So technology enhances the economic incentives to collaborate. pic] Figure 8: Business Model 3. 1 CHALLENGES INVOLVED IN ESTABLISHING COLLABORATIONS The key challenge and the biggest change from business as usual is changing the focus from how much inventory there is to how fast it’s moving. Assets collect risks around them in one form or another. Inventory is one risk, and accounts receivable is another risk. In Dell, with 70% of our sales going to large corporate customers accounts receivable isn’t hard to manage because companies like Goldman Sachs and Microsoft and oracle tend to be able to pay their bills.
But in the computer industry, inventory can actually be a pretty massive risk because if the cost of materials goes down, say, 50% a year and one has two or three months of inventory versus 11 days, you’ve got a big cost disadvantage. And one is vulnerable to product transitions, when you can get stuck with obsolete inventory. Inventory velocity is one of a handful of key performance measures is watched very closely. It focuses the company on working with our suppliers to keep reducing inventory and increasing speed.
For example, with a reliable supplier, says Sony, which provides Dell with monitors; Dell does not even check for defects of the supplied monitors as they have already received the number of defects to less than a thousand per million monitors. So instead having a monitor put on a truck to Austin, Texas, and then taken off the truck and sent on a little tour around the warehouse, only to be put back on another truck, Dell directly ships them off to potential buyers and avoid a wastage of both time and money, thereby effectively reducing the time gap from purchasing to marketing.
The direct model allows Dell to place orders in lesser quantity, but in a higher frequency, thereby becoming a consistent and reliable buyer form the supplier, winning a higher preference to the supplier than the other customers. This way, There is an effective coordination between the supplier, the assembler and the marketer. Though this does require sophisticated data exchange. An example of a data exchange procedure followed by many companies is the usage of information links with the thousands of retailers that sell its products.
Example, in a company like Black and Decker, when a customer in Omaha buys a drill from his local hardware store, the system immediately tells Black ; Decker to send another unit of that particular drill to that particular store. So their system has to replenish supply, unit by unit, to thousands of outlets. From the supplier’s point of view, Dell is dramatically simpler. Our orders are typically for thousands of units, and they need to go to only one of three manufacturing centres: Austin, Ireland, and Malaysia. It’s almost ideal from a supplier standpoint because real-time nformation is provided on what the demand is, and all the supplier has to do is get the product to Dell. Dell builds accordingly to its customers’ order, typically, with just five or six days of lead time, hence suppliers don’t have to worry about sell through. The company only maintains a few days in some cases a few hours of raw materials on hand, and communicate inventory levels and replenishment needs regularly with some vendors, hourly. In the computer and electronics industry, Companies generally stuff the channel to get rid of old inventory and to meet short-term financial objectives.
Dell on the other hand substitute information for inventory and ship only when they have real demand from real end customers. 3. 2 BENEFIT OF DIRECT MODEL TO SUPPLIERS The direct model allows more transparency in Dell. Their orders to their suppliers become more predictable and consistent because the distance between the demand and the source of supply is totally shrunk. The longer that distance, the more intermediary channels present, the less likely it is one will receive good information about demand so the company will end up with more variability, more inventory, higher costs, and more risk.
Another factor that helps keep Dells demand for computers level is the mix of customers they serve. No customer that represents more than 1% to 2% of the company’s revenues. 3. 3 DIRECT MODEL AND CUSTOMER STRATEGY The customer strategy is one area in which the direct model has evolved. Dellhas Become efficient in developing what is called "scalable" businesses that is, those in which a company can grow revenues faster than expenses. Dell closely observes the financial measures like gross margins by customer segment and focuses on segments which can be serve profitably as they achieve scale. 0% of Dell’s sales go to institutions business or government and 70% to very large customers that buy at Least $1 million in PCs per year. When a company tries to target profitable segments, averages obscure a lot, and aggregate financial statements aren’t reliable. Dell’s direct model approach to segmentation is to take really big numbers and "diverge" them. The market was being cut into finer and finer segments over the years it allows more flow of unique opportunities and economics and also facilitates the management by giving more focus and attention.
Segmenting lets you tailor your programs to the customers’ needs. If diverse customers are just lumped together, it’s a 100% certainty that some of them will come last on some manager’s list, and he may never get around to solving their problems. That’s serving one segment is made the manager’s only job. Segmentation gets the customer closer to the company/seller. It allows the seller to understand their needs in a really deep way. This closeness gives us access to information that’s absolutely critical to Dell’s direct model strategy. It helps Dell forecast what they’re going to need and when.
And good forecasts are the key to keeping production costs down. This increases the diversity and complexity of the product line for Dell, and yet is maintained efficiently as the direct model allows them to have a straight relationship with the customer and produce products according to His or Her need instead of making the customer adjust to the standardized product. Dell’s rapid growth in recent years has been accompanied by ever finer cuts at customer segmentation. This is an important element of Dell’s virtual integration with Customers.
The finer the segmentation, the better able Dell is to forecast what its customers are going to need and when. Dell then coordinates the flow of that strategic Information all the way back to its suppliers, effectively substituting information for inventory. 3. 3. 1 Forecasting Demand Forecasting is a critical sales skill. In Dell, the sales-account managers are taught initially to lead customers through a discussion of their future PC needs. The customer is made to explain and provide information about every department of his company, asking him to designate which needs are ertain and which are contingent. And when they’re contingent on some event, the salesperson will know what that event is so he can follow up. This is generally with large accounts, which make up the bulk of Dell’s sales business. With smaller customers, Dell receives have real-time information about what they’re buying from our direct telephone salespeople. And it’s also possible to steer them in real time, on the phone, toward configurations that are available, hence making it another way to actually fine-tune the balance between supply and demand. 3. . 2 Information Flexibility There are countless information links maintained by Dell with it and its customers. This ensures that even if they receive a complaint from an individual in a different country complaining that is system isn’t working; they do not need to waste time in finding out the system’s configuration and then analysing the problem, as they would already have the details of the purchase stored in their database. Hence they would be able to come to a solution at maximum speed without requiring product details from the customer himself.
The Direct model aims to reduce the distance between seller and customer. The idea is to use technology to free people up to solve more complicated problems. For example, a customer like MCI can access Dell’s internal support tools on-line in the same way Dell’s own technical support teams do, saving time and money on both sides. They simply go to www. dell. com, enter some information about their system, and they have immediate access to the same information that we use at Dell to help Customers. These tools are used by internal help-desk group’s at large companies as well as by individuals.
Dell has developed customized intranet sites called Premier Pages for well over 200 of their largest global customers. These exist securely within the customers’ firewalls, and they give them direct access to purchasing and technical information about the specific configurations they require. This allows the customers to have freedom of choice in their purchases to specifically suit their needs. In a direct business like Dell’s, by definition the seller and the customer have a straight forward relationship.
And also, Dell has setup a number of forums to ensure the free flow of information with the customer on a constant basis. Our Platinum Councils, for example, are regional meetings - in Asia-Pacific, Japan, the United States, and Europe - of our largest customers. They meet every six to nine months; in the larger regions, there’s one for the information executives - the CIO types - and then there’s one for the technical types. In these meetings, our senior technologists share their views on where the technology is heading and lay out road maps of product plans over the next two years.
There are also breakout sessions and working groups in which our engineering teams focus on specific product areas and talk about how to solve problems that may not necessarily have anything to do with the commercial relationship with Dell. The councils are another way that allows Dell to be able to play an advisory role, trying to help the customers understand what the flow of new technology really means how it will translate into specific products. These meetings help the customer anticipate what’s happening and be ready. And that helps as well, with Dell’s own demand forecasting.
Michael Dell himself apparently spends three days at each of them. In the normal course of business, Dell has lots of opportunity to talk to customers one on one, but there is this kind of forum has its own level of effect on the customers. Customers tend to speak more openly when they’re with their peers and they know that the sellers are present and attentive to their needs. At every Platinum Council, Dell reviews all the issues presented in the previous council and the measures taken by the company in assuaging the problems while maintaining an ongoing record of the issues.
The following is an issue raised at a platinum council a few years ago. The engineers responsible for our desktops were operating on the theory that customers really wanted performance from these products - the faster the better. But what the customers actually put forth at the Platinum Councils was an emphasis not on speed, but on product stability, such that they do not need to constantly update their systems once every few weeks or a couple of months. This showed that the engineers were initially off-track about the customers’ demands. It took the direct feedback from the Platinum Councils to spotlight this failure to communicate.
Dell responded by building product with intergenerational consistency over many years. The same feedback has helped shape the creation of the company’s brands also. For both the desktop and notebook businesses, the company created different brands designed to deliver greater stability to corporate customers, as opposed to the fast technology changes that consumers demand. 3. 3. 3 Research and Development R group focuses on process and quality improvements in manufacturing. Before industry standards came into play, the proprietary computing environment bred a kind of technical scheme isn’t followed anymore.
Once standards were established, the customer started to define what was going to be successful, and it didn’t matter what a company’s engineer invented or how good it was or how fast it was. Increasingly, what matters is what the customers want and whether it works with all their other benchmarks and assets and other resources. This ensures that companies have to stay on top of our customers’ needs, and also have to monitor and understand the innovations in the material science world - everything from semiconductors to polymers to liquid crystal displays.
A customer may not be knowledgeable enough to be able to give technical specifications for his needs in a computer. So HeShe may provide only information relating to their needs, such as length of battery life, or graphics benchmarks etc. The whole idea behind virtual integration is that it lets a seller meet customers’ needs faster and more efficiently than any other model. With vertical integration, one can be an efficient producer - as long as the world isn’t changing very much. But virtual integration lets the company be efficient and responsive to change at the same time.
Dell’s Internet commerce is a logical extension of its direct mode 3. 4 DISADVANTAGES OF DIRECT MODEL As with all schemes, there exists certain disadvantage with the direct model that affects Dell and reduces its efficiency as well. So on the production/distribution side of the PC business; Dell's direct model has given it a big cost advantage, which in the past enabled it to make lots of money selling machines at prices that competitors could match only by taking a loss. The main disadvantage posed by the direct model is too much complexity in its product line and its pricing system.
What is observed is that, once a customer places an order through Dell, say an Alienware laptop, He’s provided with a vast amount of flexibility in customizing his laptop to the specifications he requires. This may provide the customer power and allows him to receive his desired product, but he faces a time delay in receiving his product. If he were to purchase s standardized product form other companies, his order would already have been manufactured and ready for shipping as soon as payment or initial instalment is received.
Whereas in the direct model, Only AFTER his order is completely configured and information exchanged would its production begin, to meet his/her unique specifications. This makes the customer wait for a more extended time period before receiving his order. So on the production/distribution side of the PC business; Dell's direct model has given it a big cost advantage, which in the past enabled it to make lots of money selling machines at prices that competitors could match only by taking a loss. But there's another side to the PC business: the support side.
And here, the direct model looks less attractive. If, after all, you're selling directly to customers, you have to shoulder all the related support costs, from handling information requests before the sale to taking and tracking orders to handling service inquiries after the sale. You can't offload any of those costs onto resellers or retailers or other distribution partners because there are no distribution partners. The direct sales model provides a cost advantage on the production side, in other words, but brings a cost disadvantage on the support side. Now, as ong as most of the costs (for you and your competitors) lie on the production side, you're golden. If, however, the balance of costs shifts toward the support side, The Company begins to face losses. 4. TERMINOLOGIES USED IN SUPPLY CHAIN Forecast Forecasting is the process in which companies are able to forecast into the future to determine what future demands may be. This is important to businesses due to the fact that it enables them to be sufficiently prepared, in terms of inventory, for their customers or in simple words A prediction of future conditions by analysis of data
For example, if a retail store chain decides to offer a promotion on Cadbury chocolate bars in a certain week, this will tend to increase the demand for those bars as prices will be discounted. In order to assure customers of an adequate supply, the manufacturer needs to know when the promotion will take place and make adjustments to its manufacturing and production capacity to meet those needs. In addition, wholesalers must have adequate inventory on hand to meet the retailer’s needs. All too often, retailers do not share their strategic plans with supply chain partners, which results in stock-outs.
Purchase order A purchase order (PO) is a commercial document issued by a buyer to a seller, indicating the type, quantities and agreed prices for products or services the seller will provide to the buyer. Sales order A sales order is an internal document of the company, meaning it is generated by the company itself. A sales order should record the customer's originating purchase order, which is an external document. Clean order An order from the customer which does not have any Hold, i. e. , once the customer raise a PO - Order Management will enter the order into system.
If the order does not have any issues like Road Permit, Credit, IT etc. then the order can be called as clean order where in order automatically drop to production SO TAT Sales Order Turn Around Time SRT Supply Chain Response Time DTFC Delivery To First Commit STFC Ship To First Commit Inventory Inventory is a list for goods and materials, held available in stock by a business. FGI Finished Goods Inventory which is ready for shipment Backlog Customer orders received but not shipped WIP Work in Process, The inventory under assembly in an assembly plant. Transit
The materials which are lifted from the factory but not reached the Destination or customer, in other words the goods which are on the way to customer. Direct Orders Orders Received from customers directly. Indirect Orders Orders Received from Channels/Partners or Distributors. Distributor or Channels The one who takes the materials from vendors and stock the materials and sell to the end customers. Example: Ingram, Redington, RP tech, Synnex etc. Manufacturing Plants The factory or location where Assembling of the parts Example: XG10 Plant (HP) CDO Plants or Warehouse Stocking and Supplying of finished goods
Example: XG03 – XG09 (HP) 5. PERSONAL INTERVIEWS 5. 1 An Interview with one of HP’s Supply chain employee - Mr. Subbu T Mr. Subbu was kind enough to spare some time for us and answer our questions about the company and about their Supply chain management methods. Q1) Could you tell us why HP has one of the best supply chains? Mr. Subbu : Well, It’s no big surprise that HP would’ve never reached the stage it’s in right now without attaining near perfection in all its levels. And supply chain is one the most crucial parts of a company in managing the flow of goods from supplier to customer. In HP, we took risks at certain points.
Our demand forecasting is not always perfect, at times the supply outruns the demand, and at times the demand outruns the supply. But our experts recognize that it’s always better if the former takes place, though only up till a certain safe level. As It’s not good fpor the company’s image to keep a customer waiting. Q2) Could you just brief us about the supply chain process? Mr. Subbu : Well, to put it in a nutshell, First we have the customer, who places the order with us. Then, once we get all necessary details, we transfer the order to the suppliers, whom I shall classify as internal and external.
The internal Suppliers are all owned by HP. The external include the ODMs (Original Design Manufacturers), the specific manufacturers (for example sony monitors) etc. These ODMs receive our demand forecast beforehand and prepare X number of products and stored in the warehouses. When the order for Y number of products reaches them through us, they ship the products to either the customer or us, along with invoice details specified accordingly. Q3) But that sort of seems to put HP as just a medium for transaction, does it not? Mr. Subbu : Not at all! It may seem so, I understand.
But actually, HP does much more work by itself to the supply chain where it can. Only some processes and managed by the ODMs and other partners of HP, such as manufacturing and logistics. And even logistics can be maintained by HP if required, but generally ODMs prefer to keep records themselves. Supply chain planning, procurement, demand forecasting etc. are all done by HP Q4) So the ODMs don’t come under HP, but come beside it? Mr. Subbu : Exactly. They’re like business partners. These ODMs are also MNCs who work hand in hand with us, and at times, even with other companies at the same time.
Example, Sony produces monitors for both Dell and HP. Q5) You mentioned an “internal” classification in the supply chain previously? Mr. Subbu : the internal classification refers to those that work directly under HP. HP also maintains its own factories, manufacturing plants, warehouses etc. We cannot be totally dependent on outside HP for our demands. Q6) Wouldn’t that be more advantageous to HP if they had more of their own plants and such, instead of having business partners? Mr. Subbu : It may seem so, but it depends on the market and is very risky.
If at one time, the demand drastically reduces, HP would have to bear ALL the cost and manufacturing and transportation losses by itself and suffer huge decreases in income. To avoid this scenario, we have partners who can help us to bear this by sharing the profits as well as the losses. Q7) Does HP also sell products in the online market, which is becoming quite common? Mr. Subbu : HP tends to avoid that field. We prefer the hands on approach and add the personal touch to the customer when he enters our showrooms and outlets.
Many people prefer buying the laptops and desktops when they could test the product themselves before purchasing it. HP outlets have such sample designs available in every outlet to help the customer refine his choice to see if he prefers this model or that. Q8) Though online trading can bring more profits can it not? Mr. Subbu : True. Online trading is speedily evolving these days and HP plans on keeping up by stepping up the pace. But we’ve seen that when it comes to laptops and desktops, majority of the customers do not trust the online market as they’re afraid of various factors, including shipping damage and misplacement.
Also the product will be shrouded to them until they receive it, as they mostly wouldn’t know EXACTLY what they’re purchasing. Q9) HP’s supply chain process seems to standardize the goods it manufactures. Mr. Subbu : Correct. While we allow a certain degree of personalization, the standardized goods helps us maintain a certain level and flow of our products. We also allow some custom personalized products, but the majority of orders we receive are all standardized. As many other companies order laptops and desktops in bulk, and prefer a stable system as compared to an advanced high end GPU system. . 2 An Interview with one of Dell’s Supply chain employee- Mr. Siddharth Q1) Could you tell us in brief about the idea of the direct model? Mr. Siddhath: Of course. The direct model is an upgrade to the already existing supply chain process that most companies follow these days. Michael Dell came up with the idea when he was pondering on how to maximize profits. Basically, he decided to give more power to the customer, thereby enabling more personalized products that the customers can purchase. Q2) So it aims in making the customer have more choice in his purchase and taste of configurations?
Mr. Siddhath: Yes. The customer is allowed to be able to choose his own set of configurations for his system. Screen size, GPU, motherboard, screen make, extra fittings etc. This makes the customer feel more attached to his purchase and attracts more as the personal touch we provide helps. Q3) But there are also some disadvantages to the direct model? Mr. Siddhath: Sadly, yes. Nothing is perfect. One disadvantage to note is complexity in its product line and its pricing system. The personalization we allow makes production much more complex as not all orders match.
Hence, we deviate from a standardized production scheme and our rate of bringing out goods decreases, since we need to wait for the specific order to be placed. Its pricing also varies as each of the customized system part has its own pricing. Q4) Could you give us an example of how the Direct model benefits the supply chain? Mr. Siddhath: The direct model mainly gives power to the customer without compromising the company profits. It helps us to understand the needs and demands of the customers better and allows us to help them in placing orders.
Take Alienware for example, only high end graphics users generally purchase Alienware. When customers wish to place orders for an alienware laptop, they generally prefer to customize the entire product so as to suit their specific needs, such as battery life, screen size, GPU chips, accessories etc. Dell helps them in choosing all these options and also provides them with payment options that can be more convenient to them. Though production and transport of the product only takes place after the customer places the order. Q5) Wouldn’t that make producing goods en masse less profitable? Mr. Siddhath: No.
You see, not all of our orders are so sporadic and customized. Many MNCs purchase products from us in bulk. And they have made it clear to us that they prefer a stable system that does not require regular upgrades over a high end GPU system. So a lot of our produced goods are standardized products. Q6) What about Demand forecasting? How is that affected by the Direct model? Mr. Siddhath: Demand forecasting is pretty much the same for every company. Here, though some constraints have to be maintained, as no one can accurately forecast a purchase of specific configurations that a customer may place.
However, what we can do is to forecast what components of the PC that the customer is 90% going to purchase, like the OS windows 7 Home or business, or Li ion battery for longer life. Those are common configurations that almost every customer prefers. So on the whole, as with every company, demand forecasting is done with great care. Q7) Can you tell us a bit about “Virtual Integration”? Mr. Siddhath: VI is basically the use of the Internet to replace the physical components of a company with information. A business engaged in virtual integration like Dell, owns only their brand and their clients.
This eliminates the need to physically produce, ship or handle any products as they are now outsourced. Q8) That makes it sound like Dell just acts as a medium of transferring orders from customers? Mr. Siddhath: No. Dell is more than that. It helps co-ordinate all the orders and the processes that take place behind the management process. Though some elements of the process remain exclusive to the company’s partners and Dell does not interfere with them. Q9) One final question sir, If Dell follows the direct model and VI, doesn’t that cut off essential features of the supply chain?
Mr. Siddhath: It cuts off some parts, yes. But that improves the system for us as there are much fewer things to manage at once. It allows us to broaden our vision on one certain field. So on the whole, the process has improved the system for Dell by a great deal. Survey A Survey was conducted on Desktop and laptop preferences to customers who are planning to and already purchased goods from the companies. The questions provided to them were simple, direct and to the point – Q1) Would you prefer personalized laptops or standard configurations?
Personalized [ ] Standardized [ ] Q2) How do you prefer to purchase your laptop? Online [ ] From a Showroom [ ] Q3) If purchase is online, does delivery time matter to you? YES [ ]NO [ ] Q4) If delivery time can be compromised, would extra cost matter to you? YES [ ]NO [ ] Q5) Would you prefer to test your laptop before purchasing the model? YES [ ]NO [ ] Q6) Would you prefer a exclusive laptop manufacturer or a general electronics manufacturer for purchasing your laptop? Exclusive laptop manufacturer [ ]General electronics manufacturer [ ]
Q7) Which laptop brand do you prefer? Dell [ ]HP [ ]Acer [ ]HCL [ ] Many customers kindly obliged to spend a few minutes of their time to answer our survey and revealed their personal preferences to us. For the question regarding personalized laptops or standard configurations, an astonishing 88% preferred personal configurations. 55% of customers who took the survey prefer to purchase the laptop through showrooms and the same percentile admitted to the expectation of a preferable deadline for delivery date. 0% of customers admitted that they would be concerned about the extra cost charged for a faster delivery ahead of schedule, though 70% are more eager to receive their product even at the cost of extra charge, up to a reasonable amount. Nearly 77% of all customers who took the survey prefer to test the laptop model they are purchasing before placing the order regardless of the company’s reputation. Around 70% of all customers surveyed prefer exclusive laptop manufacturing companies rather than general electronics companies, as they believe the exclusive manufacturer would take extra attention and care in modeling and finishing their order.
As for laptop brands, Nearly 90% of all customers surveyed have opted as Dell the best laptopdesktop company out of the 4 options given, which won Dell the crown as most trusted laptop and desktop manufacturer among the 4 giants included in this survey. Conclusion based on survey – From the above results obtained from the survey, it’s safe to assume that out of the two computer giants, Dell is noticeably more respected and sought after for computer purchases, which can be attributed to its steadfast dedication to the field and strategic and decisive advertising as well as dedicated customer support. . CONCLUSION A case study was done on the Supply Chain management of two MNCs, Hewlett Packard and Dell. The study helped our team understand and learn many interesting and informative aspects about the key features and distinctions involved in the supply chain. The study also gave us a good exposure on how to work as a team and how to make interviews and exploring for knowledge exciting and interesting.
Also, the personal interview sessions with the Representatives of the companies gave us more insights on various aspects like how organized and crucial it is to maintain the supply chain for a company’s very existence in the market. Overall the case study proved to be a great experience in all aspects. 7. BIBLIOGRAPHY Reference books and magazines: G Raghuram, N. Rangaraj. (2000). Logistics and Supply Chain Management. Macmillan Publishers India. Websites: HP Timeline, HP Website: Dell < http://en. wikipedia. org/wiki/Dell> HP < http://en. wikipedia. org/wiki/HP> Supply Chain Management