Corporate Strategy- Supply Chain Management- Dell Case Study

8/3/2019 Corporate Strategy- Supply Chain Management- Dell Case Study

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Page 1

Corporate Strategy

vis-a-vis

Supply Chain Management

Prof. Rushen Chahal



Page 2

Fit Between Corporate andFunctional Strategies (Chopra &

Meindl)Corporate Competitive Strategy

Supply Chain

or Operations

Strategy

Product

Development

Strategy

Marketing

and Sales

Strategy

Information Technology Strategy

Finance Strategy

Human Resources Strategy



Page 3

Corporate Mission

The mission of the organization ± defines its purpose, i.e., what it contributes to society

± states the rationale for its existence

± provides boundaries and focus

± defines the concept(s) around which the company can rally

Functional areas and business processes define their

missions such that they support the overall corporate

mission in a cooperative and synergistic manner.



Page 4

Corporate Mission Examples

Merck: The mission of Merck is to provide society with superior products and services-innovations and solutions that improvethe quality of life and satisfy customer needs-to provideemployees with meaningful work and advancementopportunities and investors with a superior rate of return.

FedEx: FedEx is committed to our People-Service-Profitphilosophy. We will produce outstanding financial returns byproviding totally reliable, competitively superior, global air-ground transportation of high-priority goods and documents thatrequire rapid, time-certain delivery. Equally important, positivecontrol of each package will be maintained utilizing real time

electronic tracking and tracing systems. A complete record of each shipment and delivery will be presented with our requestfor payment. We will be helpful, courteous, and professional for each other, and the public. We will strive to have a completelysatisfied customer at the end of each transaction.



Page 5

Defining the Corporate Strategy

Differentiation (Quality; Uniqueness;

e.g., Luxury cars, Fashion Industry,

Brand Name Drugs)

Cost Leadership (Price;

e.g., Wal-Mart, Southwest

Airlines, Generic Drugs)

Responsiveness (Reliability; Quickness; Flexibility;

e.g., Dell, Overnight Delivery Services)

Competitive Advantage through whichthe companymarket share is attracted



Page 6

Defining the Corporate Strategy

Corporate Strategy: The organization¶s positioning in terms of

± responsiveness,

± cost leadership and

± product differentiation

requirements, i.e., the sought competitive advantage(s).

The corporate strategy dictates the detailed strategies for eachfunctional area (i.e., Operations, Finance, Marketing) but it is

also affected by those areas.

Collectively, all these strategies seek to exploit (external)opportunities and (internal) strengths, neutralize (external)threats, and address (internal) weaknesses



Page 7

Factors affecting Corporate Strategy

External ± Emerging strengths and weaknesses of competitors => newthreats and opportunities, respectively

± New industry entrants

± Development of substitute products

± Development of new technologies

± Legal developments (e.g., environmental concerns andregulations)

± Economic and political developments (e.g., new internationalagreements, political crises)

Internal ± Company politics and restructuring

± Modified relationships with customers and suppliers

± Product Life Cycle



Page 8

Strategy and Issues during a Product¶s

Life(J. Heizer & B. Render, ³Operations Management´, Prentice

Hall)Introduction Growth Maturity Decline

Time

Sales

Best period toincrease marketshare

R&D engineering

critical

Frequent product

and processchanges

Short production

runs

High production

costs

Limited models

Attention toquality

Practical to

change price or

quality image

Strengthen

niche

Forecasting

criticalProducts and

process reliability

Increase capacity

Shift towards

product focus

Enhance

distribution

Poor time to change

image, price or

quality

Competitive costs

become criticalDefend market

position

Standardization -

minor productchanges

Optimum capacity

Process stability

Long production

runs

Cost control

critical

Little product

differentiationOvercapacity in

the industry

Reduce capacity

and eventually

prune line to

eliminate items not

returning goodmargin



Page 9

The ³Zone of Strategic Fit´

ImpliedUncertaintySpectrum

CertainDemand

UncertainDemand

EfficientSupply Chain

ResponsivenessSpectrum

ResponsiveSupply Chain

Implied Demand Uncertainty: The uncertainty that exists due to the portion of

Demand that the supply chain is required to meet.



Page 10

Operations Frontier, Trade-offs,and Operational Effectiveness

Differentiation

Cost Leadership

Responsiveness



Page 11

Expanding the Operations frontier:

Dell¶s ³revolution´ in the PC market

Dell¶s competitive advantage: Provide customized PC

configurations, with short delivery times and affordable

prices.

Dell¶s success in PC market:



Page 12

Supporting Dell¶s competitiveadvantage through a new operational

model Focused on strategic partnerships: suppliers downfrom 200 to 47

Suppliers maintain nearby ship points; delivery time15 minutes to 1 hour

Suppliers own inventory until used in production Demand pull throughout value chain ± ³information

for inventory´ substitution

Demand forecasting is critical ± changes are sharedimmediately within Dell and with supply base

Customers frequently steered to ³recommendedconfigurations´ with high availability to balance supplyand demand

External logistics supplier used to manage inbound

supply chain



Page 13

V i r t u a l I n t e g r a t i o

n

Customer

Dell

Suppliers

Dell Supply Chain

PUSH

PULL

PC SUPPLY CHAINS

Typical PC Supply Chain

(Compaq, HP, IBM, etc.)

Customer

Distr ibutionChannels

Manufacturer

Suppliers

PUSH

PULL



Page 14

The CSF¶s underlying Dell¶s

competitive advantage

Very high product (configurable) variety ± masscustomization!

Direct fulfillment - no intermediaries

No production launch until customer order booked(pure pull!)

Very low finished goods inventory (costs) ± highinventory turns (raw material inventory influenced by³recommended configurations´)

High velocity material flows & fulfillment



Page 15

Dell performance



Page 16

Emerging factors and trends

enablingD

ell¶s strategy The commoditization of the PC industry

± Standardized and interchangeable components

± Emergence of reliable manufacturing service providers

Recent advances in Supply Chain Management ± Information Technology (IT) platforms that allow the effective and

efficient information exchange and coordination across the entire

supply chain

± 3rd party logistics service providers

± Emerging emphasis on virtual rather than vertical companyintegration



Page 17

The Primary ³drivers´ for achieving strategic fit in Supply

Chain Strategy

Corporate Strategy

Supply Chain Strategy

Efficiency Responsiveness

Facilities Inventory Transportation InformationMarket

Segmentation



Page 18

The Role o Facilities

Facilities: The locations where inventory is

± processed and transformed into another state (manufacturing) or

± staged before being shipped to the next stage (warehousing)

In general, centralization boosts efficiency, while decentralizationboosts responsiveness (but not always«)

Primary decisions:

± Location

Proximity to the customer

Proximity to resources

Access to markets (ability to circumvent quotas and tariffs)

Infrastructure

Operational costs and tax incentives

± Capacity

Capital cost vs. responsiveness

± Operations Methodology for Manufacturing Facilities

Product vs. functional focus

Flexible vs. dedicated capacity

± Warehousing methodology

SKU-based storage

Job lot storage

Cross-docking



Page 19

The Role o Inventory

Primary inventory components:

± Raw Material ± Work In Process (WIP)

± Finished Goods

It exists because of the finiteness of the production and transportationrates (Little¶s Law: I=TH*T)

Types of Inventory

± Cycle Inventory: It is incurred in an effort to control the impact of ³fixed´ordering and set-up costs.

± Safety Inventory: It is used to deal with the randomness in theexperienced demand; it is set so that it meets the supply chain to meetsome ³service level´ (i.e., control the probability that no stock-out will beexperienced at any replenishment cycle).

± Seasonal Inventory: It is used to help the supply chain deal withpredictable variability in demand.

± Opportunistic Inventory: Takes advantage of ³bargains´.

Sourcing: Determine the set of suppliers / subcontractors to be used,and develop the contracts that will govern the relationship.



Page 20

The Role of Transportation

Transportation: The SC element that moves product between itsdifferent stages.

Primary decisions:

± Mode(s) of Transportation

Air: fastest but most expensive

Truck: Relatively quick, inexpensive and very flexible mode Rail: Inexpensive mode to be used for large quantities

Ship: Slowest but often the most economical choice for large overseas

shipments

Pipeline: Used (primarily) for oil and gas

Electronic transportation: for goods as music and movies

± Route and Network Selection ± Inhouse or Oursource to some 3PL provider



Page 21

The Role of Information

Information exchange is necessary for the most extensive modes of

coordination sought in contemporary supply chains. It allows the supplychain to improve simultaneously its efficiency and responsiveness.

Information-related decisions

± Push vs. pull

± Extent and modes of information sharing and coordination

± Forecasting and Aggregate Planning schemes

± Pricing and revenue management policies

± Enabling Technologies:

Electronic Data Interchange (EDI): Enables paperless transactions, primarily for

³backend´ operations of the SC.

The Internet and the WWW.

Enterprise Resource Planning (ERP): enables transactional tracking and global

visibility of information in the SC.

Supply Chain Management (SCM) software: decision support tools.



Page 22

Current Trends and Challenges in the SCM

Increasing variety of products Decreasing product life cycles

Increasingly demanding customers

Fragmentation of Supply Chain Ownership: vertical vs.

virtual integration Globalization and Market Segmentation

³Closed Loop´ SC

Production Distribution Consumption Retrieval

Disassembly/

ReprocessingDisposal

R everse Logistics and

R e-manufacturing network

Documents

Corporate Strategy- Supply Chain Management- Dell Case Study