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May 1, 2008 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

Readers Respond: New Supply Chain Lessons from Dell

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."

What do you say?

Send us your comments here

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.

Let us know your thoughts.

Want a printable version? Go to:


Dan Gilmore


Inventory Optimization Videocast Series

Session 1
of the 3-Part
Videocast Series

April 29, 2008


Featured Megatrend:
Supply Chain Alignment

Watch Gilmore, Tyndall, Collins Discuss and Debate the Issue

View Supply Chain Megatrends Focused Web Page, Download the Executive Brief


Integrated Supply Chain Planning and Execution Processes

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Integrated Planning and Execution Research


This Week’s Supply Chain News Bites – Only from SCDigest

May 2, 2008
Supply Chain Graphic of the Week - Multi-Modal Order Picking

May 1 , 2008
Supply Chain by the Numbers: May 1, 2008


In general, Wall Street investors didn't react despite record-setting oil prices and a continuing decline in new home sales. However, our Supply Chain and Logistics stock index had Richter scale aspirations.

In the software group, Ariba soared 23.8%, Manhattan was up 16.1%, and Logility was down 15.2%.  In the hardware group, Intermec was down slightly (0.9%), while Zebra climbed 6.1%.   In the transportation group, Yellow Roadway gained 16.3%, while others within the group saw little movement.         

See stock report.


Each Week:

-Global Supply Chain
-Distribution/Material Handling
-Trends and Issues

Weekly On-Target Newsletter
April 29, 2008

By Gene Forte
President, FORTE

Method-ologies and Technol-ogies to Optimize Picking

The Right Combination of Picking Methodologies and Technologies Can Drive Compelling Produc-tivity and Accuracy Gains, but Proper Application is Critical

By Don Gonzales
Director of Systems Sales, Remstar

Cost Effective Medium and Slower Velocity Item Order Picking and Consolidation Methods

Carousels and Vertical Lift Modules Often the Smart Choice for Medium and Slow Velocity Movers


Q. What were the top five countries in terms of logistics competitiveness as ranked in last year's World Bank report on the topic?

A. Click to find the answer below


Reader Question: Can Bucket Brigades Work with Mechanized Order Picking?

Reader Question: Is there a True Global RFID Standard?

See our expert answers at the links above. Share your knowledge or perspective.


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New feature - feedback is also published right on the story page, in near real-time. Take a look! Add your comments!

The Feedback continues to come in at high levels and we're really behind again - bear with us. But keep the letters coming!

Just catching up on a variety of reader letters this week.

We also received a significant amount of Feedback on the couple of pieces we wrote on the possibility of DHL leaving the US market, and one consultant’s perspective that it is important for US shippers to have that third competitor to UPS and FedEx (See US Market Needs DHL to Keep Parcel Shipping Costs in Line, Industry Expert Says.”  That includes our Feedback of the Week from Josh Howard, who agrees a duopoly would be bad for shippers here.

We will note that recently, DHL has confirmed its commitment to the US market.

Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the Week: On Do Shippers Need DHL in US Market?

Capitalism does notwork that great when you only have 2 players in the game. Economist call that a duopoly. And do not tell me that the USPS is a player in the game. If you really think that, you are lost.

If DHL pulls back, just think what UPS and Fed Ex will do. Rates and fees will go up. $5 for DAS fees? Maybe $6? Think about it.

Josh Howard
Houston, TX

More On Do Shippers Need DHL in US Market?

DHL in California is only competitive because of sweetheart deals allowing them to operate out of marginal terminal facilities for less than the true operating costs. Several of these facilities are former Air Force Base facilities surrounded by urban development, which are greatly affected by nightly lDHL flights. If DHL were to pay the full cost of doing business, including full landing fees, fuel charges, and costs for avigation easements over adjacent urban areas (something that lawsuits may soon require them to pay), they would certainly not be competitive with FedEx or UPS.

Other cargo carriers typically operate from airports with established air cargo infrastructure and with fees that are more representative of the true costs of the air cargo business. Seems to me that propping up DHL by shifting their true cost of business to local residents and local governments is not healthy competition and should not be desired by anyone (except DHL of course).

Alec C. Gerry, Ph.D.
Assistant Veterinary Entomologist/Extension
University of California at Riverside
Department of Entomology

What shippers pay for parcel service is a direct reflection of the service they receive. The service quality that this company exhibits has been in steady decline since the acquisition of Airborne Express. They once were considered the global leader in International Air Express. That was their core business and that was the foundation the company was built on.

Shareholders bring unique challenges, which unfortunately DHL has been unable to overcome. The question of support for DHL as a third player is doubtful. What incentive is there for a company to utilize a provider with a service level that is weak at best? You have a company who is sharing both the DHL legacy culture and the recently acquired Airborne culture. The poor company is unable to get a solid footing. DHL was built on very strong service quality and customer relations with stellar employee loyalty, while the Airborne network that has union representation has created an adversarial relationship within, with little incentive to do what it takes to be successful. It is not in their capacity, nor in their personal interest, to help the company succeed.

It is a shame because DHL was by far and away the best company I ever worked for. I was proud from the moment I walked in the door in the morning until the moment I left at night, knowing that myself and my fellow employees had done our best to make our customers happy and to contribute to the success of the company. The decision to disown 3000 legacy DHL workers and retain the Airborne employees and reputation has had a huge impact on the company. Businesses are extremely sensitive to the relationships they establish and maintain and DHL did not remain focused on the customer. Perhaps the company should listen to someone who helped establish the relationships on which this company was built. These are truly sad, sad, days for a company once considered great, not only by its customers, but by its employees as well.

Joseph Olson
Former PDX Service Lead and Weekend Supervisor

This logic makes little sense. If I am going to pay Express rates for less than stellar service, why support a foreign company? Priority Mail from the USPS is cheaper and just as reliable. Capitalism works - compete or die.

John Pifer

Comment from SCDigest Editor Dan Gilmore:

I do think generally there is a lot of evidence that a 3rd competitor in any market has a great influence on price versus a duopoly. Is the USPS the 3rd competitor? That is a debatable issue.

Dan Gilmore

Response Back from John Pifer:

Yes, a third competitor would, BUT the way DHL is bleeding money, are they able to sustain this much longer? This is not a competitor and Deutsche Post will not subsidize them much longer. Thanks for responding, I appreciate it.

John Pifer

We have used DHL in the past, and we had a great experience with them. My company ships around 100 packages a day, and we used DHL for 3 years. The only reason we switched to UPS is we were bought out by a bigger corporation who switched all of our vendors. To tell you the truth, I am not impressed with UPS. We have had to file way more claims with them than with DHL. I think DHL just needs to advertise more, you know, get their name out there.

We will never use FedEx. That whole mess with having a different driver for ground and express? What a disaster waiting to happen.

Dan Grand


Q. What were the top five countries in terms of logistics competitiveness as ranked in last year's World Bank report on the topic?

A. 1 – Singapore; 2 – Netherlands;  3 – Germany; 4 – Sweden; 5 - Austria

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