Dell was practiced product and region segmentation prior to attempting supply chain segmentation. It depended on the configure-to-order direct model which is based on the cash-to-cash conversion cycle and just-in-time model. This model of supply chain management was a one-size fits all which operated on a fixed cost structure that gave prime importance to processes at the regional level (Gartner, 2010). It was configured and designed with a cost advantage over its competitors and was exclusively owned and operated by Dell. This created a situation where the customer demand became quite complex as they wanted low-price options which defied the singular supply chain. The Dell model also suffered from the decline in component cost and changes in customer channel preferences. The supply chain management model was also affected by globalization that offered a more stable supply base.
Dell first had to curve out a low cost end-to-end supply chain and identify the customer value which was similar to the third step postulated by Godsell (Godsell, 2012, p. 4). Dell also had to identify the customer demand signal by looking outside. This focused on analyzing the price point’s configuration on new products such as tablets and smart phones. To buffer against demand, it had to re-evaluate its supply chain services and market requirements. It proceeded to conduct a demand profiling analysis in order to have a good understanding of customer requirements as well as determine the direction of the market. It embarked on a new supply chain portfolio by defining agility and efficiency in the supply chain and completing the process by identifying the key supply chain segments and developing practices that were tailored for each function of the segment.
The activities at Dell responding to the seven steps of Godsell include:
Step one – simplification of product designs, configuration management, and planning processes
Step two – identification of skills that are important for efficiency in the supply chain in the long term. This included supply chain agility, client relations and a lean culture (Davis, 2010, p. 5).
Step three – This involved identifying customer values by investing in resources that provide detailed outside-in perspective. This included an analysis of profitability configuration and external marketing insights.
Step four – Dell partnered with Dr. David Simchi-Levi to identify customer demand signals. This focused on new market entrants such as smart phones and tablets.
Step five – The company designed the new supply chain portfolio by defining supply chains of agility and efficiency by focusing on product variety, customization, forecast accuracy, volume by configuration, and cost of lost sales (Davis, 2010, p.5).
Step six – Dell identified six supply chain segments that were predetermined by the company itself. These six chain segments were configurable by their customers and paired with planned and fixed delivery cycles.
Step seven – Dell aligned its warranty and services to match its new portfolio in order to complete end-to-end customer solutions (Davis, 2010, p. 6).
Dell benefited qualitatively and financially by getting stronger customer connections. The firm managed to give customers the exact value they required and was also able to reduce the complexity of product offerings which had exceeded customer requirements. Moreover, it benefited from improved internal collaboration in product design, supply chain, sales and finance.
Christopher (2016) states that there was also the benefit of reduction in operating costs through leveraging supplier capability, providing a competitive price advantage. According to Davis (2010), the company benefited from the improved ability to accurately forecast demand three-fold at the configuration, platform and product levels. These improvements worked together to help Dell regain profitability as it sort to reestablish itself in the technology and telecommunication sector.
- Christopher, M. (2016). Logistics & Supply Chain Management. Harlow, UK: FT Publishing International.
- Davis, M. (2010). Case Study for Supply Chain Leaders: Dell’s Transformative Journey Through Supply Chain Segmentation. Gartner.
- Godsell, J. (2012). Thriving in a Turbulent World: The Power of Supply Chain Segmentation. Retrieved from http://www.som.cranfield.ac.uk/som/scrip