Supply Chain Segmentation

The global economic downturn alongside fierce competition in the business world means that organizations must attempt to handle the two challenges through innovation to drive growth, while reducing the cost. For a long time, businesses have strategically assigned sales growth trends to help them to pursue marketing and supply chain exclusively. In her article, Godsell (2012) explains the importance of building business alignment and supply chain segmentation, because they play a critically significant role in maintaining business alignment. Consistently, we review Dells, situation before they attempted supply chain segmentation. Then, we analyze the extent to which Dell’s experiences can be explained in relation to Godsell’s seven steps. After that, we elaborate on the activities at Dell that correspond with Godsell’s steps and the benefits the company derives from supply chain segmentation.

Dell Situation before Attempting SC Segmentation

In a bid to counter the unique global requirements, ever-changing consumer needs, product commoditization, and new and low-cost competitors, Dell embarked on a three-year journey to segment its supply chain response capabilities (Davis, 2010). More specifically, after an analysis, Dell found that its market and business strategies changed forcing the company to shift from a single supply chain and focus on creating a Customer Segmentation Supply Chain approach. After the analysis, the company found that they needed to have a unified, cross-functional business strategy with functionalities such as decision-making processes across sales, product design, and finance among others important for business segmentation.

Dell Supply Chain Management

Ideally, supply chain management is a long-established concept, but sparingly recognized. However, as Godsell, Diefenbach, and Clemmow (2011) noted, in case where customer groups exist with different service requirement, then it only makes sense to optimally match the expectations through differentiated supply chain approaches. In order to turn around the company’s supply chain management Dell adopted the direct model, configure to order manufacturing, just-in-time inventory model, and cash-to-cash conversion cycle. For some time, the company realized stability to a point of emerging among the top five in AMR supply chain top 25 (Davis, 2010). Unfortunately, changes in consumer behavior, new market growth, cost declines, and a strong supply base have raised problems for the singular supply chain prompting them to analyze a transformative change that would turn around the company. Consistently, Godsell’s seven steps in developing a segmented supply chain first require a company to be able to map out an end-to-end supply chain to act as a guide across the business. In order to achieve its end-to-end segmentation, Dell had to overcome three challenges including long-term demand sensing to continue refining their portfolio, come up with a supply chain design for a new environment, and reduce complexity. The transformation was based on six different phases, which resulted in a governance process aimed at continued improvement and portfolio evaluation. During the transformation process, Dell was also able to identify the arc of integration that the company would actively manage, which was integrating the new processes for an end-to-end customer solutions. Additionally, the primary customer base for the company was the existing customers and to identify the consumer demands, Dell used historical customer knowledge to get complete insights. The other step was to identify the key supply chain segment, which in this case was the customer new demands and the demand for a new supply chain model. In the last step, Godsell provided that it was important to developed customized practices for each segment for the functions involved. Dell proposed to develop an end-to-end low cost supply chain that focused on efficiency to simplify product designs, with unique configurations to satisfy specific consumer requirements. Virtually, although Dell’s experiences did not follow a chronological order aligning to Godsell’s seven steps, the company somehow conformed to all of the steps.

The Activity at Dell that Corresponded to each of Godsell’s Steps

In response to changes in the market, Dell responded by determining the way various segments of customers derive value from their products and services. The analytics carried out by the company indicated that consumer demand had become increasingly complex. Consumers wanted multiple channel options, the ability to customize niche products, low-cost options, and devices that delivered quality content. The complexity is what drove Dell to segment its supply chain as one of its multiyear transformation strategy to increase content and virtualization. Consistently, the activity at Dell that corresponded to each of Godsell’s steps was the six transformation phases, which were used in the improvement and evolution of portfolio. Precisely, although the approach did not follow a chronological order consistent with the seven steps of Godsell supply chain segmentation, it was able to meet all the requirements of the seven steps.

Benefits of Dell Supply Chain Segmentation

The concept of supply chain segmentation in Dell, involved the alignment of customer demands with supply response capabilities to enhance the competitive advantages of the company against an ever-changing global market and consumer demands. After the initiative, Dell transformation yielded both financial and qualitative benefits (Davis, 2010). More specifically, the company was able to create stronger connections with its consumers. Dell was able to leverage their supplier capability, and still control things that were important to their clients. The second gain was reducing product options complexity. The company was able to reduce the configuration complexity and meet the requirements of the consumers. The third benefit was being able to improve internal collaboration. The company was able identify and manage functional interdependencies that allowed them to improve the collaboration across the supply chain, product design, marketing, sales, and finance. The company was able to simplify the company interactions by creating a centralized global operations functionality, while aligning with the consumer verticals. The other benefit that the company achieved was reduced the operational cost by approximately 1.5 billion dollars between 2008 and 2010. Virtually, this was enabled by leveraging supplier capability, scale, creating new capabilities for their clients, reduced complexities, and simplified designs of the supply chain model. Additionally, by reducing the complexity and enhancing connection with the consumers, the company improved their forecast accuracy at the product, platform, and configuration level.

Supply chain segmentation is an important activity that allows the dynamic alignment of customer channel demands with supply response capabilities to maximize customer value and gain competitive advantage in the marketplace. Dell was faced with ever-changing consumer demands, unique global requirements, and emerging and low-cost competitors among others that threatened their position in the market. In response, the company embarked on a three-year journey that was aimed at segmenting their supply chain response capabilities. Based on several factors, the company was able to successfully achieve supply chain segmentation and has had considerable benefits. Their achievement provides a framework for existing businesses and the necessary skills to reach the next level of supply chain leadership.  

References

Davis, M. (2010). Case study for supply chain leaders; Dell’s transformative journey through supply chain segmentation (Gartner: G00208603). Retrieved from http://www.johngattorna.com/documents/Dell_Case_study_for_supply_chain.pdf

Godsell, J. (2012). Thriving in a turbulent world: The power of supply chain segmentation. Retrieved on from http://www.som.cranfield.ac.uk/som/p17887/Think-Cranfield/2012/August-2012/The-Power-of-Supply-Chain-Segmentation

Godsell, J., Diefenbach, T., Clemmow, C., Towill, D. and Christopher, M. (2011). Enabling supply chain segmentation through demand profiling. International Journal of Physical Distribution and Logistics Management, 41(3), 296-314.