Well, we certainly stirred up some interest from my column a few weeks ago on “The New Supply Chain Lessons from Dell.”
| Gilmore Says: |
"The focus on Dell as being the best in supply chain management by and large never was qualified with “until it needs to go into retail,” or something. I really do believe it is the end of an era - the era of seeing Dell as something really different."
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To get everyone up to speed, that column reacted to the incredibly interesting presentation Michael Cannon, Dell’s President of Global Operations, made to Wall Street analysts in early April. He announced Dell was closing its legendary Austin, TX computer factory, and substantially changing its reliance on the “build-to-order” model that had made the company and the Dell supply chain so prominent. The high costs of that model for some markets, and Dell’s changing distribution strategy (retail), made it necessary to move to a more make-to-stock model, and greater use of contract and offshore manufacturers. My main point: Dell had always been held up as perhaps the world’s number 1 supply chain, a level of “demand driven-ness,” if you will, that was held as the future for most supply chains. But as I said in my column, it’s “Back to the Future” now.
We received dozens of letters from that column, many very interesting, and would like to share a few highlights of those letters here.
Many reflected the same basic theme: Dell is just doing the smart thing by adapting to new market realities. For example, a letter from someone that works for a Dell competitor (and hence asked to remain anonymous), noted that “The Dell business model and go-to-market strategy have both changed with their mass entry into the retail channel. As any good supply chain strategist knows, supply chain strategy is subservient to a company business model and go-to-market strategy.”
He added: “Kudos to Mike Cannon for having the guts to go after such a sacred cow. I would imagine that one of his biggest challenges is to convince Dell employees that the supply chain model they helped perfect and the one that has been put on a pedestal year after year has got to change.”
Consultant Art Brown took a similar track: “I am not so sure the term blown up is the best description of the changes being made in the Dell supply chain model,” he wrote. “To me it is more like they have learned to do the Michael Jackson moonwalk and although appearing to be going forward, they are actually going back in time to realign.”
He added: “Many practitioners working in mass customization have posited for over a decade that, in most cases, one supply chain archetype simply cannot deliver all products that are offered by a global enterprise. Marshall Fisher wrote a very good article published in Harvard Business Review in the March-April 1997 edition entitled What is the Right Supply Chain for your Product? The message is simple, but profound. In it, he describes two basic supply chain archetypes - Responsive and Efficient. He states that the primary determinant of which type a company should use is based primarily on how predictable customer demand is for the product. What many assumed is that you had to choose one archetype or the other. That is a bad assumption.”
Steve Murray of Supply Chain Visions in part agrees with me: “What I find interesting is that Dell has had so much trouble with their supply chain. You would understand a push model manufacturing stubbing their toes trying to transition to a lean model. But here we have one of the leanest, if not the leanest model of manufacturing known to man trying to transition to some kind of a push model (yes, I said push-- the consumer did not actually place demand-- it was a retailer forecast) and failing badly,” he wrote. “On the surface it would seem that managing the supply chain to build 10,000 customized units to customer order would be way more difficult than for building 10,000 similar configurations to release against a forecast order the customer gave you last month.”
Lamar Johnson, a former Procter & Gamble executive and now at the University of Texas, notes that meeting retail supply chain needs won’t be easy for Dell.
“Dell indeed is rethinking its supply chain model, at least in part because it now has to supply retail customers like Wal-Mart, in full trucks, on pallets, with ASNs (or RFID), which much of its make to order, ship to the end user did not require,” he wrote. “Back to the Future, for Dell, means trying to catch up with world class manufacturer to retail supply chains that efficient retailers require today. B-to-B is significantly different than B-to-C from a supply and planning perspective.”
Herb Shields, a consultant and part-time professor, was one of several academics who wrote in with comments like these: “I have been using the Dell supply chain model in several classes that I teach at the Illinois Institute of Technology. This will cause me, and I hope, other teachers of supply chain best practices to re-think some of our material. Big news indeed.”
Sue Makarov of General Mills had this to say: “Perhaps this is a reminder to all of us: Inventory is an effective tool when optimizing supply chain costs. The challenge is to find the sweet spot.”
John Kirkegaard of DCRA Solutions had this interesting idea: “Instead of scrapping their build to order Austin facility, they should look to insert a product line into it that customers want built to order? Blade servers, storage systems, high-end servers, maybe something that is not a direct computer and use their great build-to-order capabilities and skills profitably.”
Scott Brown of Plexus sent these interesting thoughts: “What is needed is the ability to segment your markets into the needs of those markets and design the supply chain that provides the value the customer is looking for. Be careful NOT to assume that this means the Dell model is dead. It needs, as always, to be employed where it adds the right value. It never was, nor could it have been, as inexpensive as other models, but those models would not have produced the value the Dell customers used to value more - flexibility.”
So, I will end it here. We had many more letters, which we will publish in full over coming weeks. My thoughts can be summarized as follows: Yes, Dell needed to adapt to changing market conditions. But the focus on Dell as being the best in supply chain management by and large never were qualified with “until it needs to go into retail,” or something. I really do believe it is the end of an era - the era of seeing Dell as something really different, as a state most of us should be trying to get to (even some CPG companies are still talking about getting to something like build-to-order). I do think on a supply chain timeline, this will be a noticeable inflection point.
What’s your take on our reader Feedback on the supply chain changes at Dell? Do you agree that the Dell model had been held up as the future of supply chain management? Let us know your thoughts at the Feedback button below.
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