Supply Chain View

A few days ago Dell announced that it was planning to cut about 10% of its global workforce in order to remain competitive.

Stories like this are always disappointing, but this one is particularly so because Dell has been such a good example of how to build a successful business around a radical and effective supply chain. I was lucky enough to visit Dell’s European manufacturing plant in Limerick earlier this year and to talk to some of their middle management, and I was very impressed with what I saw and heard.

The plant works on a 120 minute cycle – 2 hours worth of components are delivered to one end of the factory, kitted into totes for customer orders and emerge at the other end fully assembled, configured, tested and packed. This enables a very slick build-to-order process, giving an order-to-delivery time of about 3 days for UK customers.

Dell are very demanding of their supply chain partners and have been the catalyst for the development of new, more responsive and reliable logistics services to the market.

So why are they shedding jobs? Apparently they are struggling to compete on cost at the bottom end, and after a few years of dropping the ball HP are a much more able competitor. They seem to have lost faith a little in their service offer (direct sales, rapid make-to-order) and have started selling through WalMart. Dell’s manufacturing facility is flexible enough to deal with constant product innovation and a highly-customised range, but perhaps the high fixed cost element in the plant leaves their margins exposed when sales volumes fall. This would make it even harder to compete in the low-cost market.

If there is any conclusion to draw from all this it’s the following: even if you’re good, business is complicated and it’s easy to lose your leading position for any number of reasons. The market and competition can change very quickly. Management can become distracted. The supply chain may be very effective and managed to all the right principles, but a supply chain does not an enterprise make.

Recently I suggested that Toyota’s number one position in the auto market meant that Lean had triumphed. Perhaps that was going a bit too far. On reflection, Toyota might well continue to run an exemplary Lean organisation and still lose out to a competitor.