Learning from Dell - the faithful implementer of 'Just in Time'

June 25, 2007 As the world changes and China’s dragon stirs, new names will join the big consulting names we are all familiar with. With a clear goal of becoming the world’s number one consulting company, CCID Consulting is the first Chinese consulting firm listed in the Growth Enterprise Market of the Hong Kong Stock Exchange and a direct affiliate of the China Center for Information Industry Development. The company’s take on how local Chinese companies have tried to implement business models based on those from Dell makes fascinating and worthwhile reading for anyone even vaguely interested in understanding the evolution of Just-In-Time manufacturing and supply chain management.

The following article is by You Zeng of CCID Consulting’s Enterprise Strategy Consultancy Center:

Dell has gained outstanding sales achievements by resorting to the unique direct business model and highly efficient supply chain management systems. As a result, many domestic IT enterprises began to study and imitate Dell. However, their market performances have certain disparities with that of Dell, no matter whether they are the manufactures that are learning from Dell's direct business model, or whether they are like Lenovo, who is learning the supply chain model of Dell. CCID Consulting, China's leading research, consulting and IT outsourcing service provider, and the first Chinese consulting firm listed in Hong Kong, believes that by simply copying the model of Dell without fully understanding the management theory behind it is the decisive factor that leads to their failure.

Lenovo has also tried to make great efforts in promoting direct business models, however, different from other manufactures, Lenovo focused on learning the advanced supply chain management system of Dell and found huge areas of development in their supply chain management, which greatly reduced the lead production time and the level of inventory control, and it also improved the level of satisfaction from customers.

Also, Lenovo has poached many senior managers from Dell, after merging the PC department of IBM in order to integrate the supply chain system of Lenovo and IBM efficiently. But the inventory hour remained 18 days less than Lenovo, and with a higher efficiency of 90%. And, from a global point of view, the supply chain of Lenovo is obviously suffering losses compared with that of Dell -- Dell has consigned the production outsourcing to Taiwan manufactures that have strong manufacturing capacities and low costs from an early stage and also first finished the overall arrangement of their global supply chain. Lenovo's superiority is very much confined to China.

Dell model; born from JIT

''Just in Time'' was a production model which was implemented by Toyota Motor Corporation in the 1960s. It emphasized the need to have just the required accessories, just the required quantities and just the required time need for production and distribution. In the 1980s, many American enterprises copied the JIT model, however, with little effect.

JIT exposes all kinds of problems in management though reducing different sorts of inventories, and it analyzes the reasons before resolving the problem to make improvements. And, the pulling production that arranges the production according to customer demand is one of the most effective ways to reduce inventory.

CCID Consulting believes that the direct business model and the supply chain management system of Dell are acting as one. The two are supplementing each other with no weak area.

First, the direct business model is continuing of the pulling production. The traditional IT sales model makes use of distribution channels to finish the terminal production sale. Under these kinds of circumstances, IT manufactures mainly rely on market predictions and the sales data to arrange production, which is typical pulling production.

Though the domestic manufactures such as Lenovo, TCL and Hansee also explore direct sale channels, this is only an accessory attempt; the traditional channels are still the main approach. However, the direct model of Dell faces directly to the terminal customers.

It is typical pulling production which embodies at the taches such as receiving initial orders from the customers, assembly and logistics. Certainly, the production of Dell bases on the difference delay but not only randomly relying on waiting for the orders of the customers.

Second, direct sales promote the dynamic adjustments of the supply chain management system. The ''delivering goods in 7 days'' promise of Dell is on the basis of a consummate back-end supply chain system, however, the most important reason why IT manufactures do not dare to develop direct business on a large scale is because there is no guarantee for the delivery date. The formation of the 7-day promise of Dell is the result of the improved back-end supply chain management.

Different from traditional distribution channels, the direct business model of Dell has advanced higher requirements for the prompt response to the customers. Once the order of the customers cannot get the prompt response, it means that some links in the supply chain management will have problems and Dell has to make amends and adjustments.

In early 2004, Lenovo also wanted to attempt the direct business model but at last it chose to give it up and focused on the distribution sales model. CCID Consulting thinks that it is mainly because the supply chain system of Lenovo was relatively weak, meaning it cannot provide prompt responses to direct business models. However, it was because of the lack of courage to expose itself that Lenovo missed the chance of further management upgrades and improvement and it therefore decided to cover the existing problems in supply chain management.

Thirdly, information platforms build the bridge of dynamic adjustments. In order to implement JIT, the Toyota motor corporation arranged numerous raw material suppliers in Toyota, Japan. And now, the global supply chain system of Dell cannot summon all the manufactures together. However, Dell can deliver the order information to the upstream accessory manufactures efficiently and promptly through the information platform. The manufactures can produce and assemble the accessories according to the electronic order and provide the goods according to the timetable. If the supply chain bottlenecks, the information platform can trace the problem.

In a word, the success of the Dell model is the result of the interaction of the direct business model and supply chain management system. If there is no rapid response demand shock from the customer, Dell may be intoxicated in its own supply chain system and lose its momentum bit by bit. And similarly, if there is no high effect supply chain system, the uncertainty of the direct business model of Dell will be larger and its fast response ability will be weakened.

At the current stage, the domestic manufactures have studied the direct business model or the supply chain management model well. But few can combine the two aspects together and jointly develop them. And at the same time, once the manufactures come across difficulties in the attempting to process the direct business model, they will retreat and also lack of the JIT idea of self-denial.

About CCID Consulting

CCID Consulting is the first Chinese consulting firm listed in the Growth Enterprise Market of the Stock Exchange (GEM) of Hong Kong, is a direct affiliate of the China Center for Information Industry Development . Headquartered in Beijing, CCID Consulting has branch offices in Shanghai, Guangzhou, Shenzhen and Harbin, with over 300 professional consultants and industry experts. The company is establishing international cooperation links across the United States, the Asia-Pacific region and Europe, by setting up agents in the U.S., Japan, South Korea, Australia, Singapore, Italy and Russia, with the aim of going global.

Based on the four major competitive areas of powerful data channels, industrial resources, intense knowledge and deep understanding of information technology, CCID Consulting provides customers with consulting, research and IT outsourcing services covering strategy planning, IT application, marketing strategy, human resources and information technology outsourcing. The company’s customers range from industrial users in IT, telecommunications, energy, finance, automobile, to government departments at all levels and diversified industrial parks.

CCID Consulting is committed to becoming the No. 1 brand for strategy consulting, the No. 1 consultant for enterprise management and the No. 1 expert in market research.

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