Dell Supply Chain Management

Research yield Date 12 November 2010 ID Number G00208603 Case Study for affix grasp Leaders Dells Transformative Journey Through tot string naval division Matthew Davis Faced with ever-changing guest needs, product commoditization, unique global requirements and new, low-cost competitors, Dell embarked on a three-year journey to segment its planning strand response capabilities. The company designed its lend mountain kitchen stoves base on a mix of cost optimization, delivery speed and product choices that guests value, spell aligning internally across all functions to execute against this visual sensation.Key Findings Dells foodstuff and care strategies changed, requiring the company to move from a single contribute concatenation to a node segmentation supply chain approach. A unified, cross-functional business strategy with collaborative, decision-making processes across sales, marketing, product design, pay and supply chain is essential for segmentation. Segm entation is enabled by a cost-to-serve (CTS) methodology to dynamically allocate be to business decisions, highlight net profitability and drive the right actions for each supply chain.Supply chain segmentation is a multiyear journey enabled by the development and alignment of organizational skills to the needs of the journeys different phases. Recommendations Start with segmentation of your companys customers and channels to understand the different requirement rhythms and cycles. Focus on decreasing the time call for to sense or shape changes to end-customer demand. Begin the design of your supply chain portfolio by isolating and quantifying costs of an end-to-end supply chain that optimizes for operational efficiency.Repeat this analysis for supply chains that require different supply chain responses (for example, agility rather than efficiency). make use of a clear set of goals to align cross-functional prosody and incentives to your portfolio in order to drive the right busi ness decisions for each supply chain. 2010 Gartner, Inc. and/or its affiliates. either rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates. This offspring whitethorn not be reproduced or distributed in any form without Gartners prior written permission. The information contained in this publication has been obtained from sources believed to be reliable.Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information and shall have no liability for errors, omissions or inadequacies in such information. 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For further information on the independence and integrity of Gartner research, see Guiding Principles on Independence and Objectivity on its website, http//www. gartner. om/technology/about/ombudsman/omb_guide2. jsp Refine and govern your supply chain portfolio continually by establishing crossfunctional review processes between sales, marketing, product design, finance and supply chain. Publication Date 12 November 2010/ID Number G00208603 2010 Gartner, Inc. and/or its Affiliates. all(prenominal) Rights Reserved. page 2 of 11 WHAT YOU NEED TO KNOW Dell revolutionized supply chain management with its direct model, configure-to-order (CTO) manufacturing, just-in-time inventory model and impressive cash-to-cash conversion cycle.The company has been a staple in the top five of the AMR Supply Chain backsheesh 25 every year since it started in 2004. But demand for commoditized products, changes in customer channel preferences, emerging market growth, component cost declines, a more(prenominal) capable supply base and globalization have challenged the singular supply chain. In this case study, Gartner examines Dells period of transformative change as it segmented customer requirements to bring out a portfolio of supply chain capabilities that provided multiple offerings focused on cost efficiency, speed to customers, choice of features and personalization and/or services.We follow the journey from the locating of expose leadership within Dells supply chain transformation Annette Clayton, VP of global operations and supply chain Jennifer Loveland, disruptive strategy senior manager Perry Noakes, director of global business excellen ce and lean and Bruce Raven, global supply chain optimization senior manager. CASE STUDY Introduction Dell responded to changes in the market by find how different segments of customers derive value from its products and services. The companys analytics showed customer demand had live quite complex.The B2B market demands predictability, speed, customization, services and precision delivery. Consumers want multiple channel options, the ability to personalize for niche products, low-price options and devices that deliver content. This complexity will only increase as content and virtualization begin to drive the market. To address these issues, Dell segmented its supply chain as part of a multiyear transformation (see participate 1). Publication Date 12 November 2010/ID Number G00208603 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Page 3 of 11 strain 1. Dell Supply Chain Evolution Source Dell (November 2010) Historically, Dell was organized by products and/or re gion. As part of globalization, the company aligned organizations to customer value consistently across regions. In 2008, it began to leverage its partner network of suppliers where capability, quality performance and cost had improved. Dell would retain its in-house network where strategic specialism was valued by customers and provided a competitive advantage. This work was a precursor for and an enabler of supply chain segmentation.In this research, we review the Customer Value Segmented Supply Chain portion of Dells transformation. The Challenge Dell had three main challenges to solve in end-to-end segmentation Long-term demand sensing to continually go by dint of its portfolio Dells direct model provided extensive customer insights, with over two billion online customer visits per year. But the company overly had to figure out how to predict where the market was headed, define a three-year outlook of customer needs and support multiple global customer groups.Supply chain design for a new surroundings It had to address a changing business strategy, product commoditization and proliferation, emerging markets, global supply networks and multichannel sales and fulfillment. Publication Date 12 November 2010/ID Number G00208603 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Page 4 of 11 Complexity reduction Dell had to carve out an end-to-end, low-cost supply chain focused on efficiency, while maintaining its reactive heritage provided by its CTO capability. This required simplification of product designs, configuration management and planning processes.Approach The transformation moved through six different phases, resulting in a governance process focused on continued improvement and portfolio evolution Identify Customer Values Dell used historical customer knowledge from contracts, survey results, business intelligence (BI) data and platform sales to begin its customer-centric view of value. To provide a robust, outsidein eyeshot , Dell invested in resources to complete enlarge configuration profitability analysis, targeted surveys and external marketing insights from multiple industries.Understand Dells Strengths As Mr. Raven stated, We had to figure out what we needed to change and what we needed to retain based on what customers value. We were trying to aim what skills would be most important for long-term supply chain excellence. The company identified the following core competencies deep customer relationships, supply chain agility and a lean culture that continually improved and automated processes. Understand the External Environment An external perspective was provided through partnerships with Dr.David Simchi-Levi (then professor of engineering systems at Massachusetts Institute of Technology), Dr. John Gattorna (then a visiting professor at Cranfield School of Management), cross-industry leaders and various consulting firms. gibe to Ms. Clayton, The perspective of looking outside in is extremel y important. We learn from who we believe is doing things best from a variety of industries. Dells competitive analysis focused on price points by configuration, new market entrants, such as tablets and smartphones, emerging market requirements and supply chain services.Chart Clear Course and Benefit With a good understand of customer requirements and the direction of the market, Dell began to design the new supply chain portfolio. It started by defining the supply chain extremes of agility and efficiency (see Figure 2). Publication Date 12 November 2010/ID Number G00208603 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Page 5 of 11 Figure 2. Chart a Clear Course Align ware Strategy to Customer Values Source Dell and Dr. David Simchi-Levi (November 2010) This basic framework was the first step in creating a range of supply chain capabilities.The key was to define the right number of supply chains to fill the gap between most efficient and most agile. Dell went th rough an extensive usage to complete this analysis. The company defined 18 potential options, and then modify to six supply chains. The final result was a portfolio based on a mix of configurations predetermined by Dell and products configurable by customers, paired with need it now, planned and flexible delivery cycle times. Dell also aligned the stock warrant and services processes to its new portfolio for complete, end-to-end customer solutions.Engage the Entire Organization Segmentation of Dells supply chain required extensive cross-functional collaboration IT transformation had to find in tandem with supply chain transformation, supply chain had to work with finance to enable a CTS methodology and process, and supply chain capability had to be fully corporate with product design throughout the development cycle. Plus, aligning the go-tomarket plans with sales and marketing was essential to driving the desired demand patterns. Continue to grade and Refine PortfolioThe resu lt of Dells customer channel and supply chain segmentation was the creation of an endto-end model in which multiple capabilities can be arranged in unique configurations to satisfy specific customer requirements (see Figure 3) Publication Date 12 November 2010/ID Number G00208603 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Page 6 of 11 Figure 3. Engage the Entire Organization Transformation Is End to End Source Dell (November 2010) Dell used the voice of the customer value chain to identify the range of capabilities it would need in different functions.The different combinations of these capabilities is what creates the unique supply chain offerings. The company created a standard process to introduce new supply chain requirements. It has a dedicated center of excellence (COE) that intakes requirements from sales, marketing and operations, evaluates the customer benefit and business strategy, and then enables the right changes within product development and suppl y chain design. Critical to this effort is continuous improvement that utilizes lean methodologies to maintain a focus on what the customers value and conducts benchmarking to provide an outside-in perspective.Results Dells transformation yielded both financial and qualitative gains Stronger connection to customers In Ms. Claytons words, We knew we had to leverage supplier capability and scale, but still control the things that are most important to the customer. We redeployed our resources focused on unconditional imaging, delivery and parts of design. We enable best value solutions giving the customer the exact value they want. Complexity reduction Product options had become too complex. In response, Dell reduced configuration complexity in line with customer requirements.As Mr. Noakes stated, Product offerings had exceeded customer requirements and were adding unnecessary cost and responsiveness waste in the supply chain. Improved internal collaboration Identifying and man aging functional interdependencies have driven collaboration across product design, supply chain, marketing, sales and finance. Dell also change interactions by centralizing global operations, while aligning to customer verticals. Publication Date 12 November 2010/ID Number G00208603 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Page 7 of 11Cost reduction We have realized approximately $1. 5 billion of operational cost reductions between 2008 and 2010. This transformation was a critical factor in that reduction, said Ms. Clayton. Key drivers in this improvement were leveraging supplier capability and scale, building out new capabilities for the customer, simplified design and reductions in complexity. Improved consider accuracy The reduction in complexity and better connection to demand resulted in a three-times increase in forecast accuracy at the product, platform and configuration levels.Critical Success Factors Dell identified four critical success factors Start with customer value Historically, customers were segmented by verticals (e. g. , consumer, corporate, government and thin business) as well as regions and size. Dell had to look across an aggregated view of these existing groupings to identify shared values relating to product features and supply chain capabilities. A global view was critical to this process. As Mr. Noakes stated, Our growth markets are not in traditional regions.We need to adjust our model to the new requirements. A unified, end-to-end business strategy The Dell team stated this effort was truly a corporatewide transformation. Key to this was the ability to clearly articulate the need for change, the vision and the role of different organizations. To support this communication, several leaders started an internal blog to keep people up to date. Executive sponsorship The segmentation strategy and potential benefits were shared with the entire executive leadership team to drive cross-functional alignment .Vice Chairman Jeff Clarke was the sponsor of the effort throughout design and implementation. Ms. Clayton added, We conduct a weekly, cross-functional executive end product governance meeting where we spend two-thirds of our time on the future quarters and one-third of our time on how our current quarter plan is being executed. Our planning has become much more unified and strategic. Dedicated COE Dell identified 12 key work streams. Each has a VP sponsor, with small teams coordinating and program-managing the change.The company also integrated lean techniques to look across work streams, with four to five value streams to ensure the customer needs were being met by the proposed changes. Lessons Learned According to Mr. Noakes, Dells industry-leading supply chain history has given us the skills to be agile and flexible. Its this history that provides the framework and skills to reach the next levels of success and supply chain leadership. louvre lessons are critical for this e volution Implementation of Supply Chain Segmentation Is a JourneyDell recognized that the scope of this change would require a multiyear plan and investment. The company set short-term goals to show traction against the overall plan. A key component of the strategy was to pilot capabilities manually, while designing the automated, ascendable solution in parallel. This allowed quick wins to build momentum and mitigated risk during the transformation. Publication Date 12 November 2010/ID Number G00208603 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Page 8 of 11 Different Skills Needed Throughout the JourneyDell had to adapt the following COE skills Phase 1 vision/design The skills required are an outside-in perspective focused on customers, knowledge of market and other industries, end-to-end supply chain design and business acumen. Phase 2 change management The skills required are process design, lean/Six Sigma expertise, data analytics, systems optimization, pr ocess automation, program management, organizational influence and communication. Phase 3 orchestrating the ecosystem Phase 3 denotes a infinitely evolving organization focused on translating customer eeds to supply chain capabilities by coordinating and influencing internal and external partners. Cross-Functional Participation Very Necessary Communication across organizations can be difficult, so messages must be tailored to each group. As Ms. Loveland stated, The b pather the span of communications, the more simplified the message needs to be. For example, Figure 3, which mapped the portfolio, was simplified when shared across functions (see Figure 4). Figure 4. Engage the Entire Organization Target Messages by Organization Source Dell (November 2010)To ensure long-term, cross-functional collaboration, Dell integrated supply chain design into existing product design processes and created a phase-gate review process to standardize future changes to the supply chain. Phased relea ses drive step-function improvements, rather than unbroken adjustments, said Ms. Clayton. Finally, metrics across all functions were aligned to the goals of the supply chain portfolio. Transparency of Data Essential Dynamic visibility to customer requirements, demand, cost, materials, forecasts, product road maps, revenue mix and multiple views to margin are required to drive the right decisions.Publication Date 12 November 2010/ID Number G00208603 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Page 9 of 11 A Balanced Scorecard With Clear Accountability Required Ms. Clayton said, We are now able to better balance customer metrics with operational metrics. Were aligned to customer value. For example, we can even provide better green solutions for customers by balancing logistics nodes with cycle times to take advantage of low-carbon transportation and promotion methodology. The key for Dell is that end-to-end segmentation is an ongoing, evolving journey. Optimizati on is never done, but rather continuously realigned to changing customer values. RECOMMENDED READING Supply Chain Segmentation on the Increase, With High Tech Leading the Pack Supply Chain Strategy for High-Tech Manufacturers The Handbook for Becoming Demand Driven Supply Chain Segmentation Helps Plexus Evolve From Contract Manufacturer to Product Realization Partner pourboire Supply Chain Planning Processes Key Issues for Cross-Industry Supply Chain Leaders, 2010Publication Date 12 November 2010/ID Number G00208603 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Page 10 of 11 REGIONAL HEADQUARTERS Corporate Headquarters 56 Top Gallant Road Stamford, CT 06902-7700 U. S. A. +1 203 964 0096 European Headquarters Tamesis The Glanty Egham Surrey, TW20 9AW UNITED KINGDOM +44 1784 431611 Asia/Pacific Headquarters Gartner Australasia Pty. Ltd.Level 9, 141 Walker Street labor union Sydney New South Wales 2060 AUSTRALIA +61 2 9459 4600 Japan Headquarters Gartner Japan Ltd. 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