IMPLEMENTATION OF JIT AT DELL
ASPECTS OF JIT
By the 1980s the Japanese had achieved manufacturing greatness by practicing continuous improvement, in that a firm is constantly working to improve in every facet of its business functions. To do this, a firm must always increase quality and look for innovative ways to solve problems. All of these are cornerstones of a modern JIT system.
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Possibly the single piece of JIT most relevant to a study of supply chain management are the partnerships essential to making JIT truly work. A plant cannot implement a JIT system by itself; it must have the cooperation of its entire supply chain. The supply chain must include suppliers, customers, and every department within the company. The sheer amount of information needed for a JIT system to operate well demands that the information flow of the production control system (PCS) coupled with an up-to-date Order Entry and financial system stretches throughout the supply chain, almost to the point at which an entire supply chain operates as one entity.
Lastly, gaining workforce commitment to a JIT lean manufacturing system is important. Without the dedication of the workforce, any endeavor is sure to fail. Workforce commitment can be achieved in several ways. A simple way is to cross train the workforce members outside of their normal business function and help increase an employee’s problem solving ability. In doing so, a firm is empowering its workforce to think about their function in a new way while looking for ways to improve and giving them an overall view of the entire firm, not just their single job.
Only then will the proper inventory needs of the plant be truly capable of coming under control and part of a lean moneymaking enterprise.
WEAKNESS OF JIT
Just as JIT has many strong points, there are weaknesses as well. “In just-in-time, everything is very interdependent. Everyone relies on everybody else.” (Greenberg, 2002). Because of this strong interdependence with JIT, a weakness in the supply chain caused by a JIT weakness can be very costly to all linked in the chain. Communication is king in a JIT-rich supply chain. There is a risk involved with JIT when there is a communication breakdown and the company cannot generate the correct inventory needed to keep the just-in-time system running smoothly.
CHALLENGE AT DELL
Dell is known throughout the world as a leader in supply chain management and just-in-time (JIT) manufacturing. Relying heavily on a vendor managed inventory (VMI) model, Dell has nearly eliminated inventory cost while maintaining a JIT manufacturing strategy. Key to supporting this strategy is the ever changing and increasing number of suppliers needed to manage inventory for Dell.
In 2002, Dell recognized that in order to continue scalable growth, significant process innovation would be required. After a thorough partner selection process, Dell issued a request for proposal to evaluate potential solutions to address this challenge.
The Dell Direct model was the “engine of Dell’s success” (Rangan and Bell, 5). It gave it an advantage over its competitors as it was very hard to duplicate. The Dell direct model was about “low cost, direct customer relationships and virtual integration” (Rangan and Bell, 5). It was an efficient distribution system “characterized by build-to-order manufacturing, and products and services targeted at specific market segments” (Rangan and Bell, 5). Basically, this model allowed customers to call Dell directly and order exactly what they wanted in a PC (i.e., they could customize their PCs). It was only after the order was made that the PC was assembled and shipped to the customer in a relatively short amount of time. This Direct Model led to some other strengths Dell was known to have.
Because of its Direct model, Dell was able to be described as having a differentiated product. Every PC assembled would be somewhat different from the previous based on customer order. This was an advantage for Dell since it enabled it to differentiate itself from its rivals and gain relatively more supplier power. Customer Service – After sale customer service was another one of Dell’s strengths. A customer with a problem could reach a technical support staff through a “hotline that was manned 24 hours a day” (“Matching Dell,” 9). After receiving a call, support personnel would retrieve the file that contained details of the customer’s computer, and could help the customer solve their problem. In approximately 90% of the cases, the customer and support specialist could resolve the problem over the telephone using the “diagnostic software installed in the factory” (Matching Dell, 9). Customers were very satisfied with Dell and “rated Dell’s sales, products, and services highly relative to the competition” (Matching Dell, 9).
Dell’s Direct Model allowed Dell to manufacture machines that were “tailored to customer needs” and based on Just-in-Time inventory (Matching Dell, 7). The company assembled computers based on customer orders and “held no finished goods inventory of standardized machines” (Matching Dell, 7). Holding no inventory allowed Dell to reduce its costs and have a competitive advantage over its rivals. Economies of scale: Dell is the greatest producer of laptops and therefore has economies of scale in the laptop business. In the United States, Dell had the highest market share in the laptop (and PC business overall) with a 24.8% market share, compared to 11.6% for IBM which was the second highest. Economies of scale allow Dell to have more entry barriers, and hence there was less of a threat of new entrants.
Efficient Assembly Line:
Dell’s assembly line was quick and efficient. The production process, from the day the order was made, to the shipping date, took only about a day and a half (Matching Dell, 8). This was an advantage for Dell because customers were satisfied with the amount it took for their product to be shipped to them.
Dell’s Direct Model could be seen as a weakness from another point of view. Dell assumes that its customers are educated, which is not the case for every customer. Dell does not provide a retail service which allows the customers to see their computers, and purchase them right away (advantage of retail is that it is time efficient from the consumer standpoint). Therefore, the model is limited because it cuts off a substantial part of the consumer market.
Low market share in the International Market:
Compared to its rivals, Dell had a low market share in the international market. In Western Europe, Dell only had less than a 10% market share, and in other parts of the world, Dell had a market share lower than 5% (Rangan and Bell, 23). This is a weakness because international diversification is very important. Since most of Dell’s revenues come from the US market, having a low market share in the international market is more risky today because of the effects of economic downturns.
Limited laptop customization:
Although Dell had an advantage in allowing customization within its PC industry, there was a limit to how much you could customize your laptop. Therefore, Dell was not much differentiated compared to its rivals within the laptop industry.
Quality of Display:
According to general customer opinion, Dell’s laptop has a weakness in its quality of display. The physical aspect of Dell’s laptops in general was not as great as Apple laptops for example, or even its rivals within the PC industry.
Dell has an opportunity to increase its market share in the European market. Dell can increase its market share by providing simpler services to accompany its products. Dell now has approximately 10% of the market share in Europe, and could increase its share to between 20% and 25%.
Indispensability of the Internet:
The internet is becoming more and more of a necessity. This could be an opportunity for Dell to include wireless options on its laptops and could also consider incorporating Bluetooth.
Dell could consider focusing on producing more products that allow for mobility. As demand for mobility increases, Dell could take advantage of that to satisfy the customers’ demand.
Increasing growth in the economy is an opportunity for Dell to increase its market share and at the same time production as well. Since most of Dell’s revenues come from large businesses, a positive growth in the economy may increase demand for production.
Increasing Demand for Innovation – The threat with performance increasing each year is that there is a physical limit to how far you can go. People will soon be satisfied with the level of performance not to demand anything more, and are going to be more susceptible to other things such as prices, or quality of the product. If Dell only focuses on performance, this trend might be a threat in the future.
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Intensity of Rivalry:
As performance increases, differentiation between brand names is going to decrease. Dell’s rivals are finding ways to increase their market share by replicating some of Dell’s advantages. For example, IBM recognized the advantages of direct distribution and launched initiatives to expand its own direct sales (Matching Dell, 10). Compaq saw the advantage of reducing inventory, and therefore took initiatives to do so. It “moved from a production system in which it built business PCs according to its own forecast to one in which it built according to forecasts made by channel members” (Matching Dell, 11). This change in production allowed Compaq to double its inventory turnover (Matching Dell, 11). Since its rivals are starting to “copy” its strategies, Dell’s strengths would no longer be advantages if this continues.
Inability to innovate:
Consumers are constantly looking for improvements in technology. If Dell fails to keep up with consumer demand, it can make great losses, and could lose a major part of its market segment.
PDAs replacing laptops:
Whether this is a threat or not is still unknown, but there is still a possibility that PDAs will soon replace laptops. Debates are made on whether or not PDAs are complimentary to or substitutes for laptops. If the case was that PDAs substitute laptops, it would be a threat to Dell’s laptop business.
After a thorough evaluation, Dell selected World Wide Technology (WWT) for its ability to leverage key elements of previous supply chain experience, unique end-to-end systems offering and flexibility demonstrated by the proposed approach.
Since 2003, WWT has been responsible for the procurement, inventory management and distribution of direct material classified as “Alpha” products integrated into Dell’s finished goods.
Implementation of the WWT solution fundamentally changed how materials are delivered to Dell. Multiple supplier deliveries have been replaced by a single truck delivery containing all replenishment products arriving in 45 minute intervals. Using radio frequency (RF) devices, WWT Site Coordinators on the factory floor generate demand signals to the collocated distribution center initiating the pick, pack and delivery to the factory just prior to consumption.
JIT AT DELL:
In the legacy environment, each supplier was required to provide an on-site resource to maintain inventory levels in the factory. Upon implementation of the WWT solution, WWT became the single partner providing resources on the factory floor, reducing the overall number of resources required to maintain continuity of supply. WWT also built a dedicated team of material planners, vendor managers and process consultants to ensure end-to end management and efficiency of the solution.
WWT brought several process and technical innovations to the Dell team. First, WWT developed a suite of forecast, inventory and demand planning applications calibrated to fluctuations in Dell’s manufacturing process. Second, WWT opened distribution centers collocated with each Dell factory reducing lead times to 45 minutes or less. Finally, implementation of a RF based barcode scanning system used for product acceptance, replenishment requests and invoice reconciliation at the factory floor. These innovations while removing cost also provided much greater visibility and reliability relative to continuity of supply.
Key to the WWT solution was working with each of the legacy suppliers. Management of 40 suppliers with 40different processes and systems was a key challenge that the team faced. Leveraging technology, the WWT team was able to provide an integrated process for each supplier to receive orders, monitor forecast and reduce personnel cost. Also, by reducing entry barriers for suppliers wanting to work with Dell, WWT has been able to introduce a new level of free market competition further reducing SKU prices for individual components managed by WWT.
WWT successfully developed the needed systems, opened three initial facilities and put together a support team in just under three months. In addition, the project went live just prior to the holiday season, which is typically the most critical time of year for Dell’s business. A member of Dell’s supply chain management team noted, “Our new program with WWT has created new efficiencies and simplicity in our supply chain. Consolidating supply chain management with a single entity has eliminated a lot of waste.” Dell has been able to acknowledge savings across multiple business areas recognize overall SKU price reductions and experience a scalable process necessary to support Dell’s overall growth. Since the program began in 2003, WWT has added three additional distribution centers, added more than 50 suppliers, built a team of more than 100 people to support Dell and is expanding into Dell’s international manufacturing facilities.
To conclude, in order for Dell to compete efficiently in the laptop industry in the future it needs to take advantage of all of the above opportunities. Consumers are becoming increasingly more demanding and price-sensitive. The next generation laptop must be consistent with the relevant trends affecting the industry today. If Dell succeeds in its attempt to make a product that fits the trends, it will probably still remain in its leading position in the future.
Article: Interview: Dell Pres: Phones, Computers to Stay Separate. The Wall Street Journal, February 18th, 2003.
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