Fundamentals of Supply Chain Mgmt Assignment 2

SUPPLY CHAINS CUSTOMISATION28 29

I BELIEVE THAT the supply chain is the next wave of industrial revolution. The first wave was engineering. Engineering is still very important but it’s sort of ‘yesterday’. The second wave was quality – adding lean processes – and this is continuing. The next revolution is in the supply chain.

In the 1970s, when I started my career, I met the traffic manager, who dealt with outbound goods to customers. That’s what people focused on. Then, in the 1980s, there was the logistics manager, who dealt with outbound and inbound goods. When we got into the 1990s there was supply chain management – taking a view of

the entire supply chain. Now we’re into the next century, supply chain managers are focusing on inventory velocity, which is just-in-time, or how quickly your inventory can go out.

At Dell we are currently producing computers at the rate of three every two seconds. That’s 10 million computers a

quarter – and every single computer is uniquely identified as it goes through the system. Our global supplier is in Asia – everything starts there and is distributed to our different manufacturing facilities around the world.

In our business we spend more money on logistics than on assembly – we don’t actually

manufacture the products. But, despite having an annual turnover worth more than $58bn, we measure inventory turn in the factories in hours. It’s a very, very fast turnover. The wastage, the ‘excess and obsolete’, is 0.05 per cent of purchases.

The rate at which you sell your goods determines your

efficiency. But the effectiveness measure asks: did you turn everything you bought into something you sold? At Dell, 99.95 per cent of the purchase is sold.

SIMPLICITY Our supply chain is very simple. We have suppliers who keep the parts in their supplier �

Dell claims to be able to customise its products while also managing to assemble and deliver them only days after an order is placed. The computer giant’s self-styled ‘supply chain evangelist‘ Mike Gray explains how it is done.

revolving round the customer

Manufacturing December/January 2007/08 www.theiet.org/manufacturing www.theiet.org/manufacturing December/January 2007/08 Manufacturing

Dell’s executive suite, at its headquarters in Texas

SUPPLY CHAINS CUSTOMISATION28 29

I BELIEVE THAT the supply chain is the next wave of industrial revolution. The first wave was engineering. Engineering is still very important but it’s sort of ‘yesterday’. The second wave was quality – adding lean processes – and this is continuing. The next revolution is in the supply chain.

In the 1970s, when I started my career, I met the traffic manager, who dealt with outbound goods to customers. That’s what people focused on. Then, in the 1980s, there was the logistics manager, who dealt with outbound and inbound goods. When we got into the 1990s there was supply chain management – taking a view of

the entire supply chain. Now we’re into the next century, supply chain managers are focusing on inventory velocity, which is just-in-time, or how quickly your inventory can go out.

At Dell we are currently producing computers at the rate of three every two seconds. That’s 10 million computers a

quarter – and every single computer is uniquely identified as it goes through the system. Our global supplier is in Asia – everything starts there and is distributed to our different manufacturing facilities around the world.

In our business we spend more money on logistics than on assembly – we don’t actually

manufacture the products. But, despite having an annual turnover worth more than $58bn, we measure inventory turn in the factories in hours. It’s a very, very fast turnover. The wastage, the ‘excess and obsolete’, is 0.05 per cent of purchases.

The rate at which you sell your goods determines your

efficiency. But the effectiveness measure asks: did you turn everything you bought into something you sold? At Dell, 99.95 per cent of the purchase is sold.

SIMPLICITY Our supply chain is very simple. We have suppliers who keep the parts in their supplier �

Dell claims to be able to customise its products while also managing to assemble and deliver them only days after an order is placed. The computer giant’s self-styled ‘supply chain evangelist‘ Mike Gray explains how it is done.

revolving round the customer

Manufacturing December/January 2007/08 www.theiet.org/manufacturing www.theiet.org/manufacturing December/January 2007/08 Manufacturing

Dell’s executive suite, at its headquarters in Texas

SUPPLY CHAINS CUSTOMISATION

Manufacturing December/January 2007/08 www.theiet.org/manufacturing

30 31

www.theiet.org/manufacturing December/January 2007/08 Manufacturing

is for spares. We can’t take it any lower. It’s very important to engage the sales team because if there’s excess inventory in the supply chain, it’s Dell that pays for it as the sales team will charge for goods that can’t be sold.

EVOLUTION Our supply chain evolution was, firstly, about supplier manage ment. In our business, 70 per cent of our revenue centres on suppliers, and this is happening more widely with companies as they outsource more of their revenue with suppliers.

But you need to move from supplier selection to supplier development, which is what we did. There is a massive difference between the two. Supplier selection involves picking the supplier and pounding it into submission to give the lowest price, and if they don’t give you the terms you need to go somewhere else. But you cannot do this when you’re buying $40bn of goods from 30 global suppliers that represent 90 per cent of your spend.

Phase two of this evolution was factory management. As we grew our business we ended up with a global network of nine locations that were close to our customers. All of the plants have similar processes, using the same tools and methods, producing the same products, so that they can be compared with each other.

The plants that do best on quality and cost are highlighted and these plants are required to teach others how they do it, sharing best practice. We had arguments in the company as to whether this is the right thing to do, as it could stifle innovation. But it didn’t stifle innovation – it supercharged it. It’s about best practice driving innovation.

Stage three is a process going on right now. We manufacture products that are toxic if you put them in a landfill site. We have declared that we are going to be the greenest company among our competitors, and we are the

� logistics centres (SLCs) around the globe. Our philosophy is: we don’t need any inventory until we can do something with it; and we can’t do anything with it until after we’ve sold something that needs it.

We own the product only when it leaves the SLC. In most cases, SLCs are less than a kilometre away from our factories. And the transfer doesn’t take place until we’ve sold something to a customer.

We don’t need a complicated enterprise resource planning (ERP) system. In all our factories we run simple manufacturing systems that reschedule the workload every two hours for the next four hours of work. We go through the day like that. We also have a system that enables us to schedule the inbound supply chain every week.

The time from when we request the material needed to the time of delivery from the

SLC has to be less than 90 minutes. We then start the machines, and the takt time for client products (laptops and desktops) is less than six hours. Our value proposition to customers around the globe is that you will receive your order seven to ten days from the time you placed it. Most of that is outbound logistics. This also means our sales team has to put in a forecast every week – and the team is measured on the

accuracy of that forecast. The forecasts are monitored daily.

Dell had its only loss-making quarter in 1993. We approached the sales team and said: “We have 70 days of inventory – can you take it to 20?” They said they could, and by the time we got to 20 we’d proved to the organisa - tion how important it was to keep inventory low.

We then kept on going, and now we have five days of inventory, and three of those

only one that is currently offering free global recycling for our products.

CUSTOMISATION A lot of what happens with our technology involves us sending it to a business customer; and then something is done to it by an IT person or department; and then eventually it gets to a user’s desk. But Dell can do all of that. Where we’re now going with our supply chain is that we want to simplify things so that a customer doesn’t just get the product quickly, he or she is also able to just switch it on after it has arrived.

So what are the tenets of a well-managed supply chain? One is visibility throughout the chain, so that a customer can know where the order is. If you can’t tell your customer where the ordered product is when it’s on the way to them, then they might very well choose to buy from somebody else.

Another tenet is: coordination across the extended supply chain. You are no longer a company that does everything yourself. Vertical integration is dead. We have virtual integration, creating an organic global supply chain across many companies.

The third tenet is: constant and continuous adjustment. What makes this work is information. Information is the fuel to power this velocity. If you know where everything is and you can rely on your suppliers to deliver everything when they say they are going to, then the goods in transit become a virtual warehouse. Dell is not unique in this regard; it’s what major retailers such as Wal-Mart and Tesco do. ‘Setting it and forgetting it’ is no longer an option. �

� Mike Gray has been with Dell for over 15 years and has held posts including strategic commodity manager and production control manager. He currently holds the post of supply chain evangelist. This is an edited version of his presentation to the UK/US Summit in October 2007. www.ukussummit.com

1984 Michael Dell founds Dell Computer Corporation (later to be renamed Dell Inc) in Texas, United States of America. A year later, the company introduces the first computer system of its own design, and products are sold direct to customers by the manufacturer 1990 Manufacturing centre in Limerick, Ireland, opens to serve European, Middle Eastern and African markets 1996 Customers begin purchasing Dell computers via the Internet 1998 Company expands manufacturing facilities in the Americas and Europe, and opens a production and customer centre in Xiamen, China 2003 Dell launches Dell Recycling to enable customers to recycle or donate to charity computer equipment from any manufacturer 2005 Company tops list of ‘America’s Most Admired Companies’ in Fortune magazine 2007 The company now manufactures its computer systems in nine locations: three in the US, two in Brazil, one in the Irish Republic, one in Malaysia, one in India, and one in China

DELL: THE COMPANY THAT REACHED OUT TO THE CUSTOMER

So ur

ce : D

el l

‘We want to simplify things so that a

customer doesn’t just get the product quickly;

he or she should also be able to simply switch it on after it has arrived’

Dell chief Michael Dell now has a company reportedly producing three computers every two seconds

Dell’s promise is to have products with customers a week after they are ordered

All of the plants have similar processes,

using the same tools and methods,

producing the same products, so that

they can be compared with each other

SUPPLY CHAINS CUSTOMISATION

Manufacturing December/January 2007/08 www.theiet.org/manufacturing

30 31

www.theiet.org/manufacturing December/January 2007/08 Manufacturing

is for spares. We can’t take it any lower. It’s very important to engage the sales team because if there’s excess inventory in the supply chain, it’s Dell that pays for it as the sales team will charge for goods that can’t be sold.

EVOLUTION Our supply chain evolution was, firstly, about supplier manage ment. In our business, 70 per cent of our revenue centres on suppliers, and this is happening more widely with companies as they outsource more of their revenue with suppliers.

But you need to move from supplier selection to supplier development, which is what we did. There is a massive difference between the two. Supplier selection involves picking the supplier and pounding it into submission to give the lowest price, and if they don’t give you the terms you need to go somewhere else. But you cannot do this when you’re buying $40bn of goods from 30 global suppliers that represent 90 per cent of your spend.

Phase two of this evolution was factory management. As we grew our business we ended up with a global network of nine locations that were close to our customers. All of the plants have similar processes, using the same tools and methods, producing the same products, so that they can be compared with each other.

The plants that do best on quality and cost are highlighted and these plants are required to teach others how they do it, sharing best practice. We had arguments in the company as to whether this is the right thing to do, as it could stifle innovation. But it didn’t stifle innovation – it supercharged it. It’s about best practice driving innovation.

Stage three is a process going on right now. We manufacture products that are toxic if you put them in a landfill site. We have declared that we are going to be the greenest company among our competitors, and we are the

� logistics centres (SLCs) around the globe. Our philosophy is: we don’t need any inventory until we can do something with it; and we can’t do anything with it until after we’ve sold something that needs it.

We own the product only when it leaves the SLC. In most cases, SLCs are less than a kilometre away from our factories. And the transfer doesn’t take place until we’ve sold something to a customer.

We don’t need a complicated enterprise resource planning (ERP) system. In all our factories we run simple manufacturing systems that reschedule the workload every two hours for the next four hours of work. We go through the day like that. We also have a system that enables us to schedule the inbound supply chain every week.

The time from when we request the material needed to the time of delivery from the

SLC has to be less than 90 minutes. We then start the machines, and the takt time for client products (laptops and desktops) is less than six hours. Our value proposition to customers around the globe is that you will receive your order seven to ten days from the time you placed it. Most of that is outbound logistics. This also means our sales team has to put in a forecast every week – and the team is measured on the

accuracy of that forecast. The forecasts are monitored daily.

Dell had its only loss-making quarter in 1993. We approached the sales team and said: “We have 70 days of inventory – can you take it to 20?” They said they could, and by the time we got to 20 we’d proved to the organisa - tion how important it was to keep inventory low.

We then kept on going, and now we have five days of inventory, and three of those

only one that is currently offering free global recycling for our products.

CUSTOMISATION A lot of what happens with our technology involves us sending it to a business customer; and then something is done to it by an IT person or department; and then eventually it gets to a user’s desk. But Dell can do all of that. Where we’re now going with our supply chain is that we want to simplify things so that a customer doesn’t just get the product quickly, he or she is also able to just switch it on after it has arrived.

So what are the tenets of a well-managed supply chain? One is visibility throughout the chain, so that a customer can know where the order is. If you can’t tell your customer where the ordered product is when it’s on the way to them, then they might very well choose to buy from somebody else.

Another tenet is: coordination across the extended supply chain. You are no longer a company that does everything yourself. Vertical integration is dead. We have virtual integration, creating an organic global supply chain across many companies.

The third tenet is: constant and continuous adjustment. What makes this work is information. Information is the fuel to power this velocity. If you know where everything is and you can rely on your suppliers to deliver everything when they say they are going to, then the goods in transit become a virtual warehouse. Dell is not unique in this regard; it’s what major retailers such as Wal-Mart and Tesco do. ‘Setting it and forgetting it’ is no longer an option. �

� Mike Gray has been with Dell for over 15 years and has held posts including strategic commodity manager and production control manager. He currently holds the post of supply chain evangelist. This is an edited version of his presentation to the UK/US Summit in October 2007. www.ukussummit.com

1984 Michael Dell founds Dell Computer Corporation (later to be renamed Dell Inc) in Texas, United States of America. A year later, the company introduces the first computer system of its own design, and products are sold direct to customers by the manufacturer 1990 Manufacturing centre in Limerick, Ireland, opens to serve European, Middle Eastern and African markets 1996 Customers begin purchasing Dell computers via the Internet 1998 Company expands manufacturing facilities in the Americas and Europe, and opens a production and customer centre in Xiamen, China 2003 Dell launches Dell Recycling to enable customers to recycle or donate to charity computer equipment from any manufacturer 2005 Company tops list of ‘America’s Most Admired Companies’ in Fortune magazine 2007 The company now manufactures its computer systems in nine locations: three in the US, two in Brazil, one in the Irish Republic, one in Malaysia, one in India, and one in China

DELL: THE COMPANY THAT REACHED OUT TO THE CUSTOMER

So ur

ce : D

el l

‘We want to simplify things so that a

customer doesn’t just get the product quickly;

he or she should also be able to simply switch it on after it has arrived’

Dell chief Michael Dell now has a company reportedly producing three computers every two seconds

Dell’s promise is to have products with customers a week after they are ordered

All of the plants have similar processes,

using the same tools and methods,

producing the same products, so that

they can be compared with each other