TAILORED SUPPLY CHAIN TO INCREASE CUSTOMER BASE & TO DELIVER

CUSTOMER DELIGHT A Dell Case Study

“A customer is the most important person in the business; he is not dependent on

us. We are dependent on him. He is the purpose of the business. He is doing us a favor
by giving us an opportunity to do so.” - Gandhi

Lean thinking is focused on the customer. This quote helps reinforce this perspective.

Preface:

Customer demands are increasing in step with rapidly evolving technology. Customers
want their technology partner to make the complex simple, affordable and sustainable, so they
can harness technology for innovation and achievement. They want more, they want it faster
and they want it to be easier.

Compounding this challenge is the exploding number of people using technology — an

estimated 1 billion new users over the next three years. Many new customers will buy their
computing products in different ways that best satisfy their varying needs and preferences for
simplification and solutions. Demand for lower-priced notebook and desktop computers is
growing three times faster than for client systems overall. Consumer demand in emerging
economies is growing twice as fast as in developed-economies.

To satisfy changing requirements Dell changed its approach to client systems. This is a
major driving factor behind Dell to align what customers value most, cost leadership, eliminate
waste and complexity, and do all of this while delivering great quality at competitive prices.
Success now means leading by differentiating in all segments, rather than getting stuck in
between low-cost competitors and high value solutions-oriented competitors.

Migration from sellers’ market to buyers’ market poses great challenges to any
organization. Organizations are addressing these challenges by transforming their supply chain
to be more agile and lean. Being a pioneer in the direct to customer model Dell till recently has
confined its customer base by operating only in the direct to customer model. The direct to
customer model has reached its stagnation and Dell started exploring the non-direct customer
base which is reflecting in its refreshed purpose ’Delivering technology solutions that enables
people everywhere to grow and thrive’.

Dell wants to achieve its purpose along with attaining its commitment to our planet. To
address this, Dell is focusing on lifecycle approach to green technology involving product
design, manufacturing, logistics, customer experience and asset recycling. Dell is making many
conscious moves to achieve carbon neutral status, reducing energy consumption, offering take
back programs to promote recycling and reusing electronic products at the end of their useful
lives. Dell is striving to position itself as a thought leader and role model for our customers,
suppliers, other organizations to protect the environment and create a more energy-efficient
society.

Dell has been embarked on the following ‘green supply chain’ implementations to achieve the
leadership position:

• Powering eight facilities in the U.S. and Europe with 100 percent renewable energy.
• Increasingly use innovative ways to power the facilities, such as our PC power-down
program and the solar-panels.
• Improving the utilization of ocean shipments in both up and downstream based on the
tailored supply chain.
• Implemented bamboo based degradable packaging material and product cushions.

Dell helps customers thrive:

The purpose of Dell is to make technology accessible to everyone. Examples of making

technology work for diverse sets of customer segments include helping enterprises redefine
industries, communities organize to meet challenges, small businesses grow bigger, parents
teach children something new every day and doctors to dedicate more time to providing better
patient care. Reaching out to different communities and the customer base requires making
product available in indirect channels in addition to direct to customer channels. Indirect
channels includes,

• Value added resellers (VAR)1

• Organized retail – Shop in shop / Direct +
• Dell deployed sales force model, etc.

The direct to customer model would be a great aid to execute a program like “Take Your
Own Path (TYOP) “with the small and medium business (SMB). This campaign is to drive
paradigm shift from price, product-centric to value-based, solution-centric marketing with SMB’s
across globe irrespective of the geographic constraints (India, France, China, Japan, Germany,
US, and UK). Most importantly, these business owners have stepped forward to become Dell’s
brand ambassadors and boldly affirm that their success is partly attributed to their association
with a technology partner of choice – Dell.

In a nutshell, Dell is intended to serve both the direct and indirect demands effectively
to attain its purpose and to drive the growth agenda. This will address the intense competition
prevailing in the indirect space as well. Hence, the above mentioned factors (Purpose, growth
agenda and competition) drove Dell to make over its supply chain strategies to reach and suit
various customers and their needs.

Direct Vs Indirect customer’s demands – Supply chain perspective:

Meeting the demand from direct and indirect customers require different supply chain
strategies and capabilities. This is because the demand drivers, solution & fulfillment
requirements, cost and value requirements are different for divergent sets of customers. The
below mentioned table describes the differences between them from a supply chain
perspective:

Supply chain Direct Customers Indirect Customers

drivers
Demand capturing Direct from the customer and it’s a From the 3rd party who will
confirmed sales. intern fulfill the end customer.
Inventory ownership On sales to the customer Shared responsibility of Dell
and 3rd party till selling it to
customer
Bullwhip effect No Yes
Type of customers Transactional / Relationship Relationship
Level of Order level customization Batch customization
customization
Lead-time of Standard across customers Customer defined & depends
fulfillment on level of customization, etc
Manufacturing Close to customer base ; Higher Can utilize low cost
footprint manufacturing cost manufacturing destinations
Transportation cost High as it is air shipped or Comparatively low and can
manufactured close to customer utilize low cost manufacturing
location centres and transportation
modes.

Tailored Supply Chain

The supply chain drivers are different for addressing the needs of direct & indirect
customers. The objectives of designing right supply chain include higher fulfillment/service level,
lower cost & required level of customization (from no customization to high level of
customization) of products. Hence the one fit for all supply chain will not help an organization to
achieve the above objectives. This gives raise the need for designing multiple supply chains
which are operating together to deliver the above stated objectives.

Meeting different customer needs at optimal total delivered cost (TDC) 2 makes the
supply chain as a truly lean one. Customers can buy from Dell or its partners what they place
value on, i.e. variations in terms of speed, customization, personalization, cost or security. This
in turn drives the supply chain strategies of Dell towards a tailored approach resulting in various
sets of lead-times, TDC & replenishment policy requirements. The development of the tailored
supply chain keeps this choice with its customers. Customers choose how they want to buy
from Dell, which in turn will drive an associated supply chain to meet the needs. Tailored supply
chain is all about designing & deploying multiple supply chains for customers based on what is
important to them.

The tailored supply chain approach will allow an organization to align to the right
definition of 'value' for each and every customer. For example, if one customer defines value as
the lowest cost, the manufacturer will be able to compete at a cost point to win their business
through fixed configurations and ocean shipments. However, another customer may define
'value' as getting a product that is tailored to meet his exact needs and the product is delivered
in the fastest possible time. Another customer may define 'value' as meeting a total system
solution and requires high level of customization in which the Custom Factory Integration (CFI) 3
/Custom Fulfillment Services (CFS) 4 model would support. In a nut shell, tailored supply chain
provides the flexibility to Dell to differentiate the service level and customization needs of
various customer segments and meet them at optimal TDC.

This paper tries to elicit the challenges faced by Dell to meet the all customer needs and
how the tailored supply chain solution is designed to address the same. The tailored supply
chain solution based on the lean principles has been meeting the customer expectations at
optimal supply chain cost. Tailoring the supply chain design calls for innovations and radical
reengineering in the supply chain without impacting the existing business.

Tailored Supply chain – Strategy:

Dell determines the optimal competitive positioning, portfolio of tailored supply chains,
physical footprint, and set of functional capabilities required for their global supply chain
customers. It has deployed a set of leaders to oversee the strategy development and
deployment. Tailored supply chain leaders are responsible for ensuring the capabilities across
all functions combine to meet customer needs for a particular supply chain. Any changes to, or
new capabilities required, across globe will be prioritized and resourced on the corporate
planning process (CPP) 7.

CPP will be a central body to oversee tailored supply chain initiatives and change
management. This body will authorize the changes in the tailored supply chain policies by doing
a ‘what-if analysis’ & It will act as a central repository of supply chain information’s.

Below are the 4 pillars of the tailored supply chain approach and these pillars are
supported by an organization:

• Design of an advantaged, best-in-class, global tailored supply chain portfolio of

solutions. Activities in this pillar determine the optimal competitive positioning, portfolio
of tailored supply chains, physical footprint, and set of functional capabilities required for
global supply chain customers. This pillar devises the supply chain planning processes
(forecasting, CODP 8, replenishment, etc) and ensures that these processes are
compatible in the real time scenario to execute the orders.

• Program Management to enable supply chain capabilities using Regular Review

Process (RRP) 9 & defined program management. This pillar provides expertise in cross-
organization coordination to deliver the capabilities defined by the tailored supply chain.
The resources of this pillar will lead cross-functional teams through deliverables outlined
for each phase of RRP - Define, Plan, Develop, Launch and Sustain. This pillar will hand
off enabled capabilities to the sustaining functional owner.
 • Tools and Business Process Improvement will focus on the IT tool set of the future,
and skills such as Lean and BPI through the Business Excellence team. These tools and
processes will be supporting the supply chain planning & execution elements effectively.

• Logistics Execution of global fulfilment networks, including logistics procurement, inter-

regional fulfilment, finished goods fulfilment, reverse logistics, and trade compliance.

Business Unit Supply Chain teams champion the voice of customer and the Functional
Teams provide deep knowledge in execution excellence. The Logistics Execution component
will provide deep technical knowledge in managing the transportation within Dell’s supply chain.
The Strategy component will provide the bridge between the voice of the customer and
technical expertise by specializing in the design and definition of Dell’s portfolio of tailored
supply chains.

The objective of the CPP is to:

• Fulfilling products through a cost-advantaged multi-facility footprint across the globe;

• Reducing transportation and fulfilment costs while meeting customer delivery
requirements;
• Focusing on speed, precision, quality, and cost and the associated metrics;
• Clear, actionable vision of the portfolio of capabilities needed across Global Operations
functions and partners to meet our customer needs and provide a competitive
advantage.
• Delivering delight to the customers by meeting and exceeding their expectation.

The Supply Chain Strategy team is tasked to ensure CPP is utilized as a governance
process to determine where and how we make investments that drive Dell’s supply chain
advantage. This team uses CPP to support the creation of a world class supply chain which is
adaptable to customer preference, driven by cost sensitivity and responsive to evolving
business needs while improving Dell’s overall competitiveness. It is imperative to combine Dell
and industry best practices while remaining cognizant of the voice of the customer.

How is CPP managed?

• Inputs: All the ideas for changes to our supply chain that come from employees,
customers, and by assessing business strategy. Best practices from other industries
also will be an input.
• Owners: CPP is coordinated by the Supply Chain Strategy Team.
• Outputs: Targeted start date for a program to change the supply chain. This includes all
implementation resources and first cut scope.
CPP and the tailored supply chain:

1. Any request for a new supply chain or supply chain capability will require CPP approval.

2. CPP is meant to ensure the focus on limited resources on the most impactful ideas. As such,
instituting standard work with multiple check points.

a. There are 4 steps in CPP

i. Identify Concepts
ii. Prioritize Concepts
iii. Scoping
iv. Executive Decision
b. Steps 2-4 are led by the Supply Chain Strategy team
c. Not all concepts will be scoped and scoping for an average program will take several
months
d. Programs added to the roadmap will be timed based on enablement resources within
Dell, IT, and with our supply chain partners.

3. Implementation & monitoring the impacts of the tailored supply chain implementation as a
part of the CPP governance process.

Using the resources most effectively to help Dell grow and thrive is an important ongoing
challenge. CPP is a major milestone in this tailored supply chain journey.

Tailored supply chain – Design & Execution:

The design element in the tailored supply chain develops the right supply chain processes to
address the needs of the various set of customers. This design phase considers the supply
chain drivers of both direct and indirect customer needs so as to imbibe those imperatives in the
processes. The key processes in the tailored supply chains are:

a. Offer management
b. Demand planning
c. Distribution resources planning (logistics & fulfilment)
d. Cost & Value management

Enablers such as IT systems and the third party logistics (TPL) service providers are
also key success factors in this journey. IT tools play a potential role in integrating these
processes and deliver a synergy out of it. These supply chain processes will support all the 3
types of fulfilment strategies of the tailored supply chain which are Build To Plan (BTP), Build To
Stock (BTS) & Configure/Build To Order (CTO).These fulfilment strategies are aligned to certain
group of customers so as to meet their defined set of requirements.

Understanding these supply chain processes will help one to visualize the
implementation aspects of the tailored supply chain and appreciate it. This section will elicit the
details of the processes and deploying it to deliver delight to the customers.
a. Offer management:

The offers are categorized based on the level of personalization / customization offered
by the organization which is aligned with the various set of customer need. The offers broadly
grouped in to fixed and configurable offers. Fixed offers are the one that allow none or limited
level of customization of products. The configurable offers will provide flexibility to customers to
personalize the products using the listed components which are meant for the platform 10. Both
these offers can be delivered through 3 fulfilment strategies (BTP/BTO/CTO) as a result of
which the organization can deliver final product to customers in six different tailored supply
chains.

Though the objective of these offers is to fulfil various needs of the customers, the
overriding principle is to remove the inefficiencies from the system which are all presenting in
the form of availability of no to limited configuration SKU demand, multi touches in supply chain,
long lead time for customizations, etc. These inefficiencies are addressed through regular SKU
rationalization & postponement strategy. Customization can be carried out as a part of the
manufacturing facility or at a third party location (facility / warehouse) based on the factors as
mentioned above. The decision on where to customize is based on the factors such as process
capability, nearness to the demand node, etc.

One of the important steps in this process is to finalize and execute the supply chain
network for the customization fulfilment. Customization cost is getting apportioned at this step
and the same will get loaded in to the product cost. It measures the customer experience /
satisfaction of those delivered customization.

This process requires information’s from the Customer Relationship Management (CRM)
11
regarding the customer behaviour while buying a product, Fast/Slow/Medium moving
configuration, Demographic elements of the customer, Volume per customer, etc. This
information is used to perform the above mentioned tasks effectively.

b. Demand planning:

Forecasting and demand planning in the tailored supply chain environment is a

challenging task and it requires collaborated effort from each of the business units. Forecasting
for both the offers done at various levels of Bill of Material (BOM) 12 and will get integrated to
get a unified forecast. This calls for understanding of various levels of BOM and the notations
used which are mentioned below:

Final product assembly (FPA) = Fixed hardware configuration (FHC) + Attached component
(AC).
• FHC consists of basic chassis, CPU, memory, hard drive & battery.
• Attached components are colour, software, monitor, packaging & labelling.
These all are optional/selectable components or services.

Similar type of FPA’s are grouped in to platforms and the platforms are rolled up in to the
family/parents.
 As mentioned in the offer management, there are six different tailored supply chain
solutions to reach out to the customers at optimal cost and right lead times. The table below is
a depiction of these 6 tailored supply chains:

Segment BTP BTS CTO

Fixed offer Fixed configurations Fixed configurations built Fixed configurations
built to forecast. to forecast and held in built/shipped to order via a
Shipped via a customer various regions as FPA customer order. (Some
order ability to ‘personalize’)

Target : Direct - high Target : Direct - low

Target : Retailer / VAR volume volume
Configurable Configurations built to Selected configurations Customer selected
offer forecast based on built to forecast and held in configurations built &
customer order plan. various regions as FPA shipped to order via a
Shipped on customer customer order. Fully
confirmation. configurable.

Target : Large Accounts Target : Next day shipment Target : high

personalization

Fixed offer will have a lean BOM and the forecasting for the fixed offers will be done at
FHC-platform level. This is because BOM at FHC level is a fixed one and AC can be added on
top of it without adding much of lead time. Configurable offer are will have a full BOM and the
forecasting for the configurable offers will be done at FPA-family/parents. This allows the
customer to do a complete configuration using the attach rate fundamentals (the probability of a
component to be a part of the order. This is calculated using the historical order patterns.).
Forecasts for both the offers (at FHC & FPA level) will be integrated after applying the
concern attach rate so as to come up with the final material requirement plan (MRP). This MRP
will be communicated the suppliers as a purchase intend against which they will commit the
supply quantity.

c. Distribution resources planning (logistics & fulfilment) :

Dell will monitor the shipments against the ship to commit (STC) 13 timelines and the
orders will get expedited based on the same. Timelines will be committed based on the tailored
supply chain stream the order and it will be calculated based on the associated lead-time
elements. This will give leverage to the organization to use the right type of transportation to
meet the lead-time and logistics cost objectives.
Due to the visibility created by the tailored supply chain on lead-time of order fulfilment,
organization can take an advanced decision to ship the components in a cost effective
transportation mode (Ship / Road). This advanced and segmented planning approach will help
the organization to reduce component shortages by deploying them to the right orders (based
on segment it falls) and thereby reducing the cycle time fulfilment.
d. Cost & Value management:

This process manages the cost associated with tailored supply chains and the relevant
value delivered to the customers. It captures the order management, manufacturing,
customization and logistics cost and attribute it to the concern supply chain deployed. These
inputs will be used in the pricing function to decide on the price of a configuration.
It also manages value delivered to the customers and the risks associated with the
execution of a particular supply chain. It oversees values such as customer response time,
fulfilment cycle time, level of customization and volume of offerings. This provides feedback to
the design process about value delivered to the customer and the gap from the expectation.
Reengineering will be done on such processes so as to narrow the gap. Risks like utilization of
investment, operational risk, adherence to STC, etc will be managed through this process and
the mitigation plans are developed in this phase.

Benefits – Tailored supply chain:

Tailored supply chain delivers bottom line and top line improvements for the organization
by increasing customer base and delivering delight to the customers. Below are the benefits
which can be realized by the organization by embarking in the tailored supply chain journey:

• Unleashing a wonderful capability of providing choice and assigning cost to choice.

• Great position to be in as being looked upon to provide differentiated value to customers.
• Creates visibility in the supply chain and helps organization to manage cycle time & lead
time.
• Lighten the number of touches in supply chain and applying lean thinking to everything.
• Tailored supply chain help an organization take the advantage of opportunistic buys.
• Helps the organization to manage top level assemblies instead of a bag of parts.
• This will be a great driving factor for an organization will design, build and sell products.

About the Author :

Dr.Raghava Rau

Currently is the program manager – Analytics in Dell and is based at Bangalore Head Office.
Working with supply chain analytics and other analytics domain (pricing, customer,etc) in
various key projects.

P.Murugan

Currently is the Consultant – Analytics in Dell and is based at Bangalore Head Office.
Working with Continuity of Supply (CoS) & Retail management team.