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- 8. The G-2 architectureenables company to run “best-of- breed applications” rather than only a single enterprise system.
- 11. Benefits of RFID Production stops have reduced dramatically. Labor can be allocated by minimizing repetitive activities. Returns due to wrong shipping of products have been minimized.
- 13. THE SCALEABLE MODEL A shift from proprietary technologies to in house Dell capabilities. ‘Pay as You Go’ model. Benefits of the ‘Scalable’ ModelBenefits of the ‘Scalable’ Model Increase performance and availability by scaling incrementallyIncrease performance and availability by scaling incrementally Minimize management overhead.Minimize management overhead. Improve utilization rates.Improve utilization rates. Preserve capital.Preserve capital. Reduce TCOReduce TCO
Editor's Notes
- #7 Since its inception, Dell has thrived by challenging conventional business wisdom. By taking direct-to-customer and build-to-order techniques to a global scale, Dell has earned a reputation for delivering exactly the right products on schedule, and at a competitive price. The result is that Dell does not begin assembling a single computer until the company has an order from a specific customer. The order may be for an individual, a small business looking for a few PCs, or a major corporation or government agency that needs thousands of specially-configured servers, storage products, notebook computers or other products delivered to field locations worldwide. Every assembled computer has a waiting customer and a short lead-time delivery date. The success of this approach is reflected in Dell's expected US$6.5 billion growth this year. As the company has grown, so has the challenge of balancing evolving computer preferences and demand with a volatile marketplace for the materials and components the company needs to build the computers. To compound the problem, changing technology obsoletes those materials sometimes as rapidly as 2% of value per week. In true Dell fashion, the company chose a completely new solution for an old problem and once again reinvented its supply chain. Here's how it works. Through a suite of web-based applications, Dell is now linked with its core suppliers. This new system automatically converts Dell's sales orders into materials requirements. These requirements are then instantly communicated to suppliers, whose stocking locations are situated no more than thirty minutes from the Dell factory. Those suppliers use an Internet portal to view the requirements and confirm their ability to commit their own inventory to Dell as the orders are placed. As Dell factories receive orders and schedule assemblies, a "pull" signal to the supplier triggers the shipment of only the materials required to build current orders, and suppliers deliver the orders directly to the appropriate Dell assembly lines. The factory schedule is refreshed every two hours. As a result, when actual demand varies from forecasted demand, all suppliers, factories and logistics providers are quickly and concurrently notified and can adjust their own inventory allocations and production accordingly. Dell's inbound inventory is kept to a minimum, its non-ordered finished goods inventory is kept at zero, customer orders are immediately sent upon completion and customers receive what they ordered on the promised date. The efficiency of Dell's solution has been lauded by business and technology publications alike: "Dell's new approach takes the concept of just-in-time operations to new levels. The company's most efficient factories . . . order only the supplies required to keep production running for the next two hours. As the two-hour clock winds down, suppliers-who keep gear in a warehouse near Dell's factories-are electronically told what to deliver so Dell can build the next two hours' worth of computers." -David Rocks Business Week Behind Dell's information revolution are a series of projects designed to deliver a leading-edge decision-support system coupling i2 Technology's Rhythm Collaborative Planner, Factory Planner and Supply Chain Planner and Dell's direct-sales model to create enhanced planning and scheduling capabilities. The Dell supply chain management program has delivered a business tool that the people at Dell use to interact more efficiently with their suppliers, helping both Dell and its suppliers to respond to the shifting demand in the marketplace. The ultimate objective of this project was to reduce customer lead-time while creating efficiencies within planning and manufacturing operations. The program has delivered a new business capability which: * Simplifies the jobs of Dell employees who are responsible for managing material supply, * Allows Dell to transact business for specific order-driven purchases of materials and supplies, * Provides Dell with a global picture of what supply and demand look like at any point in time, * Gives Dell's planners the ability to focus on exception situations, relieving them of the drudgery of examining every possible supply constraint, * Makes it nearly impossible for components to grow obsolete in warehouses, and * Allows Dell to see potential supply constraints earlier and react quickly to correct an out-of-balance situation. In the case of a global shortage, this may mean offering suitable alternatives to its customers to ensure that they receive the products they need when they need them. Customers always receive the latest technology, exactly how and when they need it, all at a competitive price. This commitment to customer service enables Dell to sustain its leading marketplace position. Business-to-business interaction via the Internet is the main pursuit for many companies in today's electronic environment. But Dell's commitment to its enabling technologies and its willingness to rethink traditional ways of doing business makes it the first corporation to fully leverage the potential of the medium. This new system that Dell has created is the first truly private business-to-business exchange with dynamic supply-chain business transacted on the Web. As noted by The Wall Street Journal, Dell now has: "[some] of the most advanced computer assembly plants in the world if measured by integration with the Internet. Up to 50% of the orders flow directly from customers on the Internet to the aptly named 'air-traffic control room' in the plant where procurement, assembly and shipping are managed. It sits directly above the sprawling main plant floor." -John Dodge Innovative applications of technology seen in Dell's solution include: * Use of complex mathematical models to identify and predict supply constraints, * Advanced collaborative techniques using the Web as a communications medium, and * New methods of synchronizing demand and supply to minimize inventory and material handling, thereby reducing cycle time. < BR>Within the system, customer orders are reviewed and compared to supplier inventory every two hours. Dell then issues pull orders for only the materials needed to complete the next two hours of order-building, a capability that represents an industry best. This extremely short cycle helps ensure that the very latest customer demand picture is being addressed.
- #8 From IT in Dell.pdf (serial no.-10) Global Centralization of IT The need to balance control and flexibility in the organization has been evident in the evolution of Dell’s information technology systems. In the early 1990s, IT was so decentralized that management lacked even the basic information needed to make decisions and run the company. There were a data center and some common applications, but most of the applications had been developed independently in various user departments. This extreme IT fragmentation was at odds with Dell’s organizational structure, which was centralized globally on a functional basis, with sales, manufacturing, service, and other functions all reporting directly to Austin. The company’s growth was outpacing the ability of IT to provide information needed to manage the business. To bring some order to its IT house, the CIO moved quickly to implement an information system, called Information to Run the Business, or IRB, as a . rst step in giving Dell’s managers some basic indicators such as product quality, . nancial performance, and product margins. The CIO then developed a three-phase plan for evolving IT in the company. Phase one was to stabilize the current environment by installing common hardware and operating systems, and software and tools to manage it. The new infrastructure was composed of Tandem and Sun servers, with the overall network controlled by Tivoli network management software. Phase two was an interim upgrade aimed at building capabilities, including DellNet, a virtual private data network owned and operated globally by AT&T; new data centers in Austin, Ireland, and Penang, Malaysia; and upgraded staff skills to operate in the new environments. Phase three was the development of next-generation applications that would achieve tighter integration of data to allow better integration of business functions. At the core of this process was the decision to adopt an enterprise system—SAP/R3—as a means of developing a uni- . ed application environment throughout the company. The attraction of SAP is that it offers a full suite of tightly integrated applications, including . nance, human relations, sales and marketing, manufacturing and distribution, and customer service and support. Dell was hoping to bring its disparate IT functions together into one seamless system through SAP. The SAP implementation was dubbed the Genesis The SAP implementation was dubbed the Genesis Project, and involved a 140-member staff pulled together from corporate and regional information systems units. The team had gone as far as implementing the SAP human resources component when a change in business strategy caused a reconsideration of the whole project. In 1995, Dell’s SAP plans were thrown off track by a decision to reorganize the company along regional lines. The company was broken into four major regions: Americas, Europe, Asia, and Japan. The Americas region, by far the biggest (with about $8 billion of Dell’s $12 billion in 1997 sales), was then further subdivided according to business markets (large business, government/international, small business). This reorganization was accompanied by a decision to push more authority and responsibility down to the regional managers, with each region having its own sales, manufacturing, service, and other functions. Given responsibility for their own operations, pro. ts, and losses, the regional managers, not surprisingly, wanted to have control over their own IT budgets and applications as well. Such a decentralized organization went against the grain of adopting the highly integrated SAP systems, which require uniform processes throughout the company. It was feared that SAP would not have the flexibility needed to handle the diversity in business practices in the different regions (and countries within the regions) and could become an obstacle to growth. As one Dell IT executive stated, “SAP is like cement, flexible when it’s poured but rigid once it hardens.” Ultimately, the board of directors told management that it “must not put an information system in place that would jeopardize Dell’s ability to sustain its desired growth rates.” The CIO left the company in the summer of 1995 and chief . nancial of. cer (CFO) Thomas Meredith managed Dell’s IT functions directly for almost 2 years while the Genesis Project continued. Jerry Gregoire was then hired as vice-president and CIO in early summer of 1997. After an initial period of reexamination and discussion with regional managers, Gregoire pulled the plug on SAP, except for the human resources component that was already in place. Beyond SAP’s incompatibility with the new decentralized organization, Dell’s rapid growth was also an issue in the decision, as stated by another IT executive: “Dell was $2.5 billion when the Genesis project was started and was a $10 billion company by the time of deployment. Deployment is dif. cult to handle when a company is growing that fast. It is dif. cult to get business units to be willing to do business one way worldwide. Business growth led to segmentation and a customer orientation that was not consistent with the enterprise (SAP) model.” A 1997 Wall Street Journal article claimed that Dell canceled the project after its budget swelled and tests showed that it couldn’t handle expected sales volumes (White et al., 1997). Abandoning SAP did not eliminate the need for better integrated systems, however. The regions themselves were becoming large companies, and there was still a strong need for corporate information systems to support top management decision making within each region as well. -------------------------------------------------------------- HP debacle … Too bad no one can bring themselves to do enough of it. Christina Hanger had little reason to be pessimistic in May 2004, when she was moving one of Hewlett-Packard's biggest North American divisions onto a centralized ERP system from SAP. As the leader of an IT consolidation project rooted in HP's acquisition of Compaq two years earlier, Hanger, HP's senior vice president of Americas operations and IT, had an unbroken record of success migrating five product groups within the two former companies onto one of two SAP systems. Hanger had every reason to believe that the sixth would go well too. Even so, she knew to be prepared for problems. At approximately US$7.5 billion in annual revenue, the division involved with this latest project, Industry Standard Servers (ISS), is much larger than any of the others that Hanger had migrated to SAP to that point. So Hanger took the contingency plan that her team had developed for the other five migrations and adjusted it to accommodate the ISS division's larger sales volume. She planned for three weeks of IT snafus, mostly focused on what might happen as a result of tweaking a legacy order-entry system to work with the new SAP system. The contingency plan addressed business impacts too. HP banked three weeks' worth of extra servers and took over an empty portion of an HP factory in Omaha to stand by for any overflow of orders that needed special configurations (for example, an unusual component or software combination) and could not be stockpiled ahead of time. But the plan wasn't pessimistic enough. Starting when the system went live at the beginning of June and continuing throughout the rest of the month, as many as 20 percent of customer orders for servers stopped dead in their tracks between the legacy order-entry system and the SAP system. As IT problems go, this wasn't too big: Some data modeling issues between the legacy system and the SAP system prevented the SAP system from processing some orders for customized products. These programming errors were fixed within four or five weeks. But Hanger and her business colleagues from the ISS division who were on the project steering committee never envisioned the degree to which these programming glitches would affect the business. Orders began to backlog quickly and HP did not have enough manual workarounds to keep servers flowing fast enough to meet customer demand. Angry customers picked up the phone and called HP—or worse, arch-competitors Dell and IBM. In a commodity market such as servers, customer loyalty is built upon a company's ability to configure products to order and get them delivered on time. HP could do neither for much of the summer. In a third-quarter conference call on Aug. 12, 2004, HP Chairman and CEO Carly Fiorina pegged the financial impact at US$160 million: a US$120 million order backlog that resulted in US$40 million in lost revenue. That's more than the cost of the project itself, which AMR Research estimates to be US$30 million. The headlines all claimed an IT disaster, but in fact, HP's disaster resulted from a few relatively small problems in IT that snowballed into a much bigger problem for the business: the inability to cope with the order backlog. This was a disaster that could have been prevented—not by trying to eliminate every possibility for error in a major IT system migration, which is virtually impossible, but by taking a much broader view of the impact that these projects can have on a company's supply chain. CIOs don't run the supply chain in most companies, so they have trouble envisioning what will happen to sales if a critical system doesn't function as expected for a few days or weeks. Businesspeople, meanwhile, have trouble imagining an IT programming glitch getting past the walls of the data centre and causing hundreds of millions of dollars' worth of lost sales. The chasm between cause and effect is almost too vast to contemplate. But if CIOs want to stop being held liable for hundreds of millions of dollars in losses for relatively small IT problems, they have to convince business leaders of the vastly increased risks that major enterprise software projects pose to businesses with high-volume supply chains. They must use that awareness to build—with full support and cooperation from the business—a business contingency plan for IT projects that is as robust as the project plans they create for the new software. "The potential benefits to the supply chain are much bigger than the IT costs in projects like this," says Bill Swanton, vice president of research for AMR Research. "But the potential risk to the supply chain is also much bigger." If business contingency planning continues to play a secondary role to IT project management, the problem is only going to get worse as computer systems become more powerful, integration methods improve, and companies consolidate their critical business processes on fewer and fewer systems. In retrospect, HP CIO and Executive Vice President of Global Operations Gilles Bouchard does not see the data modeling problems between the legacy and SAP systems as the source of the US$160 million impact. He focuses on HP's inability to keep pace with orders in the supply chain once the problems were discovered. "It was mostly capacity issues, material issues and factory issues," he says. "We had a series of small problems, none of which individually would have been too much to handle. But together they created the perfect storm."
- #9 From IT in Dell.pdf (serial no.-10) According to Gregoire, G-2 is a blueprint for how to architect systems, execute development, and implement rollout that delivers on the failed promises of client-server computing, that is, low cost to build and manage and easy to use. Gregoire says that in an environment of 60% annual growth in transactions processed, one cannot afford IT projects that take 2 years to implement. The G-2 architecture was designed to be exible, meaning that changes could be made iteratively, without having to shut down whole systems or retrain workers. The G-2 architecture is layered, with a Web browser user interface sitting on top of an applications layer, a message broker, and a database (Figure 3). The key to this structure is the message broker layer, which is based on an IBM MQ series application integration system. It serves as an information bus, linking all applications and databases to each other, so they don’t all have to talk to each other separately. It also allows new data engines or applications to be added to the system without having to make changes throughout the system. For instance, a new database on customers (e.g., how much they have spent on various products in the past) can be added at the data engine level and be linked via the message broker to Dell’s customer service representatives’ order management system. This information can be made available as an extra button on the Web browser interface without needing to change the users’ applications or retrain the users. It also makes it possible to “run Dell on Dell,” using the products that Dell and its strategic partners sell: Dell servers, desktops, and laptops; Windows NT and the Explorer Web interface; and Oracle databases. The G-2 architecture has extended the life of Dell’s legacy applications, such as the DOMSandDell Product Services (DPS), which are written for Tandem hardware, even as other applications are shifted to Windows NT servers, because the message broker layer allows these different systems to talk to each other. Also, migration from legacy applications to NT-based applications can be done incrementally, migrating individual functions over to new applications one at a time, rather than having to rewrite entire applications or move entire databases all at once. Such exibility enables Dell to expand the capabilities of its information systems to meet the demands of rapid growth without major disruption to the business’s functioning. Creating and maintaining all of the linkages and interfaces required for this exibility is reported to be complex and costly, and problems sometimes result, but Dell’s IT people seem to have made application integration work to serve the company’s needs.
- #12 RFID as Applied at Dell By establishing its integrated sales, manufacturing, and customer call center in Xiamen, China, Dell Computer Corporation became the second largest integrated computer manufacturer in the Asia-Pacific region. This facility manufactures Dell's OptiPlex desktop PCs, Latitude notebook PCs, and PowerEdge servers for customers and distributors in China. When initially established, the facility was challenged by the lack of data capture automation for its production operations. This situation created bottlenecks throughout different production points that impacted productivity. A system was needed to increase productivity and efficiency and to track inventory throughout the plant (“RFID Brings Computers up to Speed,” 2003). RFID was already a known technology and became a candidate for review. The challenge for RFID is making the case to ensure financial success. The supply chain management implementation of RFID will impact many divisions within one corporation. Being able to assign a benefit value requires a broad look at the entities that might gain or lose from implementation. Dell has instituted a “scorecard” for measuring what tool might be most beneficial for assisting in the supply chain management at its facilities. This scorecard weighs the benefits against cost and future projections (“Building a Business Case for RFID at Dell,” 2004). From a benefits perspective, the scorecard looks at the current processes and requires evaluation of whether those processes will be improved by the use of RFID. These processes might include the amount of labor currently required to manage the supply chain. The implementation of RFID is expected to reduce the man hours required for management. Additionally, the user error rate, while not currently perceived to be at risk, can also be expected to decrease. Finally, the use of Auto-ID tags (optical scanning) is also reviewed. In the case of Dell’s facility, the use of optical scanning as a way of managing and reducing inventory is not perceived as improvable by RFID technology. During RFID implementation, the first inclination is often to conduct a very limited rollout in an effort to minimize implementation costs. This strategy may result in poor RFID performance because of the limited implementation. Conversely, with effective implementation planning, restricted rollout may result in significant benefits while controlling initial costs. Dell decided to identify some limited project areas in which the potential for financial success is greatest. The fact that the implementation will be in a limited footprint is viewed in a positive light from a cost perspective and receives the appropriate points on the Dell Scorecard
- #14 rganizations today need to improve the performance, availability, manageability, and serviceability of their IT systems to meet corporate goals. At the same time, businesses are trying to keep costs down and reduce complexity. Fortunately, IT systems are becoming more flexible and systems management tools are becoming standardized—easing the burden for IT executives. There is an ongoing shift from proprietary to standards-based technologies driven by companies seeking to replace legacy computing products with more flexible IT systems built on Intel® processor–based platforms that provide a high return on investment (ROI) over time. Corporations no longer need to be locked in to expensive RISCbased systems. Instead, they can easily deploy an infrastructure built with inexpensive, high-performance systems based on industrystandard technology, which can easily grow alongside business requirements. The current movement to these low-cost, flexible computing platforms allows companies to simplify operations and improve resource utilization, helping to reduce the risks inherent in any major technology investment. Dell is leading this effort to help drive down the cost of owning and maintaining the enterprise.