Organisations are constantly looking at ways in which to become leaner, greener, and more agile. Employing Lean Principles to streamline a business and support its supply chain is integral to achieving this. Nicky Hartery gives Dell’s perspective on a direct to customer approach.
The traditional notion of the supply chain as simply the movement of goods from one company to another no longer gives an adequate picture. Th true definition should refer to more than justcomponents; it involves the flow of information. The application of Lean Principles – the elimination of activities and assets throughout the supply chain, which are wasteful and therefore do not pass on any value to customers – can help businesses become more efficient and in turn, profitable.
Lean Principles compliment the already inherent efficiencies of the direct model. Companies that do not use distributors or sales channels (resellers), but instead sell directly to customers, adopt what’s known as a Direct Model – Dell is one of them. The direct business model works on a direct relationship between buyer and seller, allowing a company to provide customers with excellent value through reduced third part costs, and products.
For Dell, the Direct Model starts and ends with its customers and allows Dell to provide excellent customer experience, great value and customised systems. The five tenets of the model include a more efficient path to the customer, single point of accountability, built to order, low-cost leader and standards based technology.
Because of this direct relationship, the Direct Model, needs to run efficiently, as it is business-critical for a supply chain to be flexible and able to react quickly. With the Direct Model, customers can have the first and last say on product specification, for example, socompanies don’t have issues like price protection or price discounting further down the line, as you might encounter with the indirect model.
Applying ‘Lean Principles’ – a systematic approach to identifying and eliminating waste through continuous improvement – is one of the key ways to enhance environmental performance.
With the Direct Model, all the computer systems Dell ships to customers are built-to-order, providing customers with what they want through easy custom configuration and ordering tools. Build-to-order means that a company doesn’t maintain months of aging andexpensive inventory, or build surplus systems that may never be sold and eventually thrown away.
There are multiple lean benefits from an environmental perspective of the Direct Model including limitation of over-production as all systems are built after they are ordered. Other benefits include the reduction of obsolete equipment and the ability to provide efficient logistic systems without large warehouses of finished goods, thereby reducing both energy and material usage.
Having a reliable and effective supply chain process helps customers too. At Dell, each machine carries its own ID-tag, which means customers can keep track of the product. This is done online and customers can be assisted swiftly according to their own customised system. This allows us to provide a smooth service from beginning to end.
Keeping it together
Like an ID-tag, companies can also now take advantage of the benefits of RFID (radio frequency identification) technology. When a manufacturer, like Dell, builds to order, this mechanism helps ensure the right chassis stays with the corresponding components; they have tocommunicate with each other to ensure they get to the correct build cell at the designated time.
In total, a truly lean manufacturing process, from order to delivery, is all about a company holding on to its stock for as little time as possible, keeping costs to an absolute minimum, and ensuring that thecustomer receives the freshest components in a timely manner. In addition, any cost savings made in the form of reduced component costs are passed on to the customer.
Increasing efficiencies means that customer experience is improved. There is a real advantage to both the business and the customer in driving Business Process Improvements (BPI) into all elements of manufacturing operations.
Dell sells products in 180 countries globally, and our non-US sales account for 43 percent of our revenue. Within Europe, Dell employs more than 17,000 people. At Dell, a cross-functional teams of more than 60 people are dedicated to keep up the pace of change. Their sole function is to re-define what Dell is doingtoday in order to help the company adapt to the future. Part of being efficient in processes is to never be happy – change is a constant.
Similarly the Business Process Improvement team (BPI) look at end-to-end repeatable processes. This is with a view to improving the customer experience, eliminating waste, reducing cost and increasing efficiencies. We educate our employees to think fromthe customer perspective and to use a methodology and toolset to improve everything they do. Closely managing these aspects of our business contributes to a favourable cost position for us, driving profitable share gains across all products. It is a combination ofexceptional personnel, integrated supplier relationships (which allows us to review requirements in certain areas) and industry-leading processes such as BPI and the application of lean principles, that gives Dell the edge and flexibility we need to do business differently.
On an average day, Dell locations around the world process from our suppliers approximately 250 containers and lorries, by sea and ground, as well as three-and-a-half 747s worth of parts. We depend on hundreds of suppliers, for hundreds of thousands of different parts. Therefore it’s critical that we communicate in real-time via a tightly integrated value chain as this enables products to flow freely from company to company and across internationa borders.
Within one minute of receiving an order, whether by phone or over the internet, a signal is transmitted to suppliers that tells them what to deliver to Dell’s manufacturing facilities. New shipments arrive at these facilities every two hours, bearing the materials needed to fulfil new orders, so products can be built and shipped. The appropriate speakers, printers and monitors are matched to that specific customised order and are synchronised with the computer at hubs at central points in Europe. (There is no value add to bringing monitors etc. into the factory only to ship them back out again with no touches added).
Direct feed-back on demand
The direct-to-customer model means a company knows exactly what the demand is like in the market place at any given time and can feed this information back up the supply chain to its suppliers. This allows suppliers to adjust their scheduling accordingly.
It is also vital to design, optimise and operate processes from receipt of order through to customer delivery as a single integrated system. The primary goal of this is to minimise order-backlog and maximise order velocity.
A fundamental goal for many large companies is to minimise the environmental impact while maintaining quality of service for all businesses and therefore achieving best practice power resource management across the data centre. Significantly reducing energy consumption can yield environmental benefits as well as business benefits.
The main environmental benefit for many companies is the reduction of a carbon footprint – the amount of carbon dioxide and other harmless emissions a company is responsible for producing – as well as thecorresponding reduction in power costs. Many companies are now looking at ways to improve carbon emissions and go carbon neutral – limiting the carbon footprint will appeal to IT directors under pressure to cut electricity costs and improve their environmental records.
A recent independent laboratory test of various IT hardware by environmental pressure group Greenpeace found several highly toxic chemicals were in a number of products from some of the world’s leading manufacturers. The report also found that Dell was found to be leading the way in environmental practices having agreed a timetable for when reducing the use of hazardous chemicals.
One solution for this problem is virtualisation technology: a practical and cost-effective route to consolidation that reduces the number of physical servers in a room.
The development of less power-hungry products is a core part of a wider environmental commitment which global companies must take responsibility for, as part of Corporate Social Responsibility (CSR) initiatives. A new generation of servers and blade servers now available incorporate high performance processors with significantly reduced power consumption and reduced complexity.
By adopting Lean Principles, businesses can eliminate or reduce wasteful processes that can slow down the manufacturing procedure and add to costs. Dell believes that as industries mature, supply chain management innovation will become more important as a source of competitive differentiation and that customerexperience, quality, cost and velocity will be critical factors in execution.
Nicky Hartery is vice president of manufacturing operations at Dell
- Drive BPI and Lean from the top down, with all senior management either certified or undergoing certification and having either worked directly on, mentored or sponsored a project
- Set annual improvement goals of 25-50 per cent for all key business and operations metrics to drive revolutionary, rather than evolutionary, change
- Introduce BPI into partner companies to share best practice and the associated productivity and cost benefits. This will help develop them to the same rigorous standards that you work to
- Meet with suppliers every quarter to review their performance and upgrade their practices, which are based on six criteria: accountability, cost, continuity of supply, technology, quality and corporate social responsibility