Today we hear more about supply chain management. It is different from supply chain strategy which refers to how the supply chain is operated. Supply chain management refers to controlling the supply chain operations to reduce cost. The supply chain represents the value of a delivery system. To be a successful, firm should also maintain a good supply chain. “A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request. The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers, and customers themselves. Within each organization, such as manufacturer, the supply chain includes all functions involved in receiving and filling a customer request.” (What is the supply chain, 2004).
DELL – An overview of the supply chain management
Dell is a pioneer and role model in supply chain management. Dell’s supply chain strategy was ‘Direct Sale’ and they have stick to the strategy and they become a success in the computer manufacturing field. Dell was established in the year 1984 by Michael Dell. By competing with giants such as IBM and HP they can become the most admired company in the US and also become the third most admired company in the world.
Dell introduced DSi2 for demand and supply planning, parts procurement, build-to-order production schedule, customer order intake, and product delivery process. “The DSi2 initiative utilizes Web-based communication to address what is arguably the most formidable challenge to Dell in its build-to-order business model — the challenge of supply and demand balancing in an environment of fluctuating customer orders over time. Although supply and demand balancing confronts all manufacturers, most companies address this problem primarily through inventory management. DSi2 represents a new set of planning and logistical innovations by Dell to increase the efficiency of burst capacity and to achieve a more favorable balance of supply and demand within its just-in-time procurement and assembly system. The DSi2 project has two principal elements. The first element consists of what Dell calls, Global Supply Planning. The second element is Demand Fulfillment.
The first element, as its name implies, focuses on planning processes. The second is concerned with the execution and logistics of moving parts, semi-finished, and finished goods through the Dell procurement, production, and distribution network. This separation of planning from execution is one of the single biggest changes implemented by the DSi2 project.” (Hunter, & Dell, (n.d), p.36). Global supply planning involves two planning processes: creation and management of data for forecasting the general demand; a system of information exchange between the company and its suppliers. The global supply planning has centralized the process of procurement planning and created a single procurement system of record for all the regionally decentralized operations of Dell. The supply of materials in the Dells production sites for assembling into finished products is referred to as demand fulfillment. “The core element of demand fulfillment consists of “pulling material to order” every two hours into Dell factories. Customer orders released to the factory floor for configuration into finished PC systems provide the input that initiates these material pulls. Dell schedules these orders to be built in two-hour cycles and pulls only those components required to fulfill orders for the given two-hour period.” (Hunter, & Dell, (n.d), p.41).
The value chain and i2 tools of supply logistics chain transfer information every hour to Dell about the changing inventory of components of Dell and submit a material requisition form. The information to replenish the inventory is sent to the supplier factories by the supply logistics chain at the same time.
When the customer orders are received on the website or phone, the credit department downloads them to the factory every twenty seconds and is transformed into a matrix of material requirements. The factory planner module of i2 develops a 2-hour production schedule with this matrix which organizes the kitting of parts for assembly as per order and a schedule for orders is build in the 2-hour window. “At the same time, the schedule from Factory Planner is converted to a different output within the i2 suite called “Rhythm Collaboration Planner” which sends an automated feed to the supply logistics chain on the components needed in the Dell assembly site for the upcoming 2-hour build schedule.” (Hunter, & Dell, (n.d), p. 43)
Differentiate at least two-to-three key elements for each of the four primary forecasting techniques and how they apply to DELL
Forecasting methods are mainly classified into two: quantitative methods and qualitative methods. The quantitative method is time series analysis in which demands are plotted on the time scale based on the past data and depicts the future demand. The qualitative method is based on the judgment about the causal factors underlying the sales and the effect of these causes in the future. Since Dell follows the JIT system, they are not pre-producing by anticipating the demand and thus the demand forecasting is not relevant in Dell. As per Lance St. Clair, director of supply chain and material materials management for Dell, “We are not a great Company at forecasting because we do not build our business model around forecasting,” (Hunter, & Dell, (n.d), p. 38). But they have to carry out the material planning effectively since some of the suppliers take 8-12 weeks for production and delivery.
Analyze the impact of production plans, master production schedules, rough-cut capacity planning, workforce size, and carrying inventory as they relate to budgets of DELL
Dell follows the strategy of the Build-to-order method in which the production will start as soon as an order is placed by the customer. Based on the configuration required by the customers the assembling will begin. They are using lean manufacturing and JIT system to facilitate speedy operation and once the computer is ready and software is downloaded into the system, it will be dispatched to the customers. Since they are using the JIT system, the level of inventory will be less and it will reduce the inventory cost also. At the same time, it also enables Dell to respond quickly as per the demand. E.g., when there is a need for a new version of computers, it can start the work since there is no bottleneck of inventory. The order content to the suppliers is also given specific details such as, “tomorrow morning we need 6.795 to be delivered at door A3 (of the warehouse) by 7 am.” (Manataki, 2007, p.24).
Another business model 05, of Dell, is the inventory Velocity. It means minimizing inventory and thus maximization of speed. Dell holds an inventory for less than 6 days on average while the competitor’s average inventory holding period is 6 weeks. To maintain the speed, Dell ensures that all the suppliers are nearer to the Dell plant.
Supply chain management has helped to controlling the cost and improving customer service. The retail strategy of Dell is processing the orders directly from customers in time by building the computers with customer specifications. For this, suppliers were asked to keep inventories within the manufacturing locations. The suppliers supply materials every two hours according to the specifications of the factory planning system. With zero inventories in the factory, the company made an excellent working capital advantage. “Dell also sells computers that are about two months newer than the competition! In an industry where component prices fall about 20% per year, this means significant cost-of-goods-sold advantages for Dell” (Supply Chain Strategy thee Importance of Aligning your Strategies, 2005, p.5)
Compare and contrast the supply chain of the service sector
Now even the service sector uses supply chain management to enhance customer service. The financial supply chain is due to the established concept of the physical supply chain in the manufacturing concern. The financial supply chain includes payment and everything connected to it. “As one of the world’s major global payments banks, Deutsche Bank, for example, is getting a head start on the competition in the space. Deutsche Bank’s Sugirin explains that the bank takes a two-pronged approach to financial supply chain management — supply chain financing, which delivers an automated financing solution using different supply chain event triggers; and supply chain services, which are delivered across the supply chain offering process optimization services such as reconciliation services.” (Banks Starting to Embrace Concept of Financial Supply Chain Management, 2007). In the service supply chain, a significant component is a human labor and the main focus is on the management of capacity, flexible resources, information flows, service performance, and cash flow management.
Compare and contrast the use of Material Requirements Planning (MRP) system concepts of DELL
The MRP system minimizes inventory cost and improves customer service, in responding to the changing environment through re-plan and reschedule. The three basic MRP inputs are Master Production Schedule, Bill of Material and orders, and lead time information. Dell has a 12-month Master Production Plan which forecasts the operations in the next 12 month period which is continually updated by the changing market conditions. Master Production Plan is prepared with the help of historical data of products, market regions, and customers and through purchasing plans of its largest relationship customers.
Thus prepared master production plan is converted into material requirement and the material requirement plan is one output of the global supply planning. “The material requirements plan divides a projected level of output into a matrix of different components, automated for Dell by the i2 “Trade matrix” module. In certain ways, this matrix resembles a transactions table in what is known in regional science as input/output analysis. It provides Dell with the material requirements by component type for a certain level of final demand.” (Hunter, & Dell, (n.d), p. 39). Through the material requirement plan, Dell can respond to the changing requirements and match with the customer order. An exception action report is generated with the i2 tools which help to set up an order with the supplier.
Irrespective of the nature of business every organization either the manufacturing or service industry adopts supply chain management to increase their customer service and reduce cost. Now the main focus is on the customer than cost focus as customers are an integral part of the supply chain. The supply chain is started when an order is placed by the customer and it ends when the customer is satisfied. The master production schedule, material requirement planning, etc helps a firm to adapt to the changing demand environment.
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Hunter, Richard.L., & Dell, Michael. (n.d). Chapter 6: The internet and the production network of dell computer: Operations: Global supply Planning. 39. Web.
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