How will the Internet transform supply chain economics? Research a corporation’s approach, present the case

1. How will the Internet transform supply chain economics? Research a corporation’s approach, present the case A Presentation For INBS 510 By Jenny Ntuk Oct 25, 2004

2. Scope of this Presentation • What is Supply Chain Economics • Traditional Supply Chain concept • Supply Chain in the Internet era • Dell business model • Dell Internet Supply Chain Structure • Dell Supply Chain information infrastructure • Dell Internet Supply Chain as a competitive advantage

3. What is Supply Chain Economics “Supply Chain is the flow of materials, information, money and services from raw material suppliers through factories, warehouses to the end customers. It also includes organizations and processes that create and deliver products, information and services to the end customers.” Supply Chain Economics involves the management, integration and optimization of these flows both within and among companies. Turban, Efraim, King David, Lee, Jae and Viehland, David. Electronic Commerce: A Managerial Perspective. Prentice Hall 2004 pg. 300

4. Supply Chain Economics  (2) • Supply Chain Management (SCM) is the process of optimizing a company’s internal practices as well as a company’s interaction with its suppliers and consumers in order to bring product to market more efficiently. • Supply Chain Integration is the linking of suppliers, manufacturers, logistics providers, internal distribution centers, distributors, wholesalers and all other entities that are involved in the production and delivery of goods to the final consumer. • Supply Chain Optimization is the ability to apply best practices with leading technology support across an entire network with maximum effectiveness as measured by all entities in the network and particularly the customer.

5. Raw Materials Part producers, etc Manufacturer or finish good assemblers Transporter, Logistics etc. Dealers & middle man Supplies Sources Consumers Retailers Converters Distributors Traditional Supply Chain Concept • Involves linear connections among partners • In traditional Supply Chain, information is treated as a supporting element of a value-added process NOT as a source of value itself.

6. Financial Institutions Manufacturers Distributors Subcontract Manufacturers Internet Information Hub Consumer Retailers Suppliers Logistics Providers Internet Driven Supply Chain Concept • All partners in the supply chain benefits from a centralized information source. Here the supply chain is driven by true consumer demand, so information sharing is critical. Stanford Global Supply Chain Management Forum SGSCMF – W2 –2001 November 2001

7. Independent inventory management policies Information sharing is limited to current transaction and to direct neighbors in the chain. Independent information systems Channel inventory is managed according to joint information forecast on demand. (leading to overall channel inventory reduction) Real time centralized information is available for planning and monitoring. Compatible information systems for seamless information sharing among partners Traditional Versus Internet Driven Supply Chain Approach  (1)

8. Short term focus due to less reliable forecasting Each partner control its own success or failure. Consumer driven mass customization is limited. Long-term perspective due to more reliable collaborative information sharing Channel members shares the risks and reward. Mass customization and build-to-order is enhanced due to real time information sharing. Traditional Versus Internet Driven Supply Chain Approach  (2)

9. Retailers Integrator Final Consumers Supplies PC- Maker Distributors Conventional PC Value Chain Final Consumers Supplies DELL Dell Computer PC Value Chain A Corporation’s ApproachDell Internet Supply Chain Model • The success of Dell business model is due to its ability to fully integrate its supply chain and also sell directly to its customers via internet. • Dell’s build-to-order business model is made possible due to its just-in-time and flexible manufacturing operation. Every computer system the company makes already has a waiting customer, resulting in ultra low inventory level and favorable cash conversion cycle.

10. Distribution System Integration IntelCPU Sony, Philips, etc CMs / OEMs Component Suppliers Customer Seagate, Herman & 34 others DELL 3rd Party HW/ SW Suppliers Repair & Support Co. BancTec Logistics Companies Microsoft, Intuit Inc. Norton etc. Eagle Global, UPS & FedEx Physical Flow – Product and Service Information flow Kraemer and Dedrick, Dell Computer: Using E-commerce to support the virtual company, University of California Irvine June 2001 Dell Internet Driven Supply Chain Structure • Customers order information are rapidly relayed to all entities that have part to play in the manufacturing and delivery of goods to the customer. As shown below, all the relevant business entities are electronically linked for real-time information sharing.

11. Synchronized Planning • Collaborative planning allows for accurate forecasting & on-time replenishment • Joint design and product development • Virtual Resources • Reduces time for new product to get to market • Reduces administration cost • Create new products • New markets penetration • Higher production efficiency among partners • Inventory Control • Better asset and resource utilization • Efficient capital investment

12. Information Integration • Information sharing & transparency • Direct & real-time accessibility • Reduced bullwhip effect • Early problem detection • Faster response • Trust building • Direct customer relationship • On-time delivery • Faster response time for service • Faster access to resources • Ease of customization

13. System Integration LogisticsCompanies CMs / OEMs i2 Intranet DOMS DPS Glovia Tech Doc’s EDI Component Suppliers DELL Extranet Customer EDI EDI CRM Finance Procurement Help Desk E-commerce Internet Dell Premier Support.Dell.Com Extranet EDI Third Party HW & SW Suppliers EDI EDI EDI Repair & Support Providers Distributors Extranet http://www.crito.uci.edu/GIT/publications/pdf/dell_ecom_case_6-13-01.pdf Dell Supply Chain Enabling Systems Dell integrates its Supply Chain with the best of breed Information technology that allow seamless information sharing among all partners

15. Workflow Coordination • Automated business processes • E-Procurement • Requisition • Efficiency & accuracy gains • Fast response • Improved services • Expanded network

16. Dell Internet Driven Supply ChainA Source Of Competitive Advantage (1) HP /Compaq Dell All Others IBM Toshiba Fujisu / Siemens http://www.etforecasts.com/products/ES_pcww1203.htm#1.1

17. Higher due to the 2000 HP & Compaq Merger Dell US sale margin is higher than the worldwide sale due to maturity of Dell business model and higher internet influence. Dell Internet Driven Supply ChainA Source Of Competitive Advantage (2) Build-To-Order Direct sales model Fast Cash conversion cycle Suppliers own & manage inventory http://www.etforecasts.com/products/ES_pcww1203.htm#1.1

18. THE END

19. References http://www.intel.com/ebusiness/pdf/affiliates/i2-dell.pdf http://www-2.cs.cmu.edu/~weiy/e-supply.htm http://www.crito.uci.edu/GIT/publications/pdf/dell_ecom_case_6-13-01.pdf http://www.etforecasts.com/products/ES_pcww1203.htm#1.1 http://www.carol.gilbert.name/Files/SupplierSample.pdf http://infoworld.com/article/04/10/18/HNpcgrowth_1.html Turban, Efraim, King, David, Lee Jae, Viehland, Dennis. Electronic Commerce: A Managerial Perspective 2004. Pg. 298-332.