As a business diversifies, it may need more than one supply chain. Here’s how Dell addressed that challenge.
Although operations and supply chain executives understand the difference between efficiency and responsiveness, many are confused about when to apply each strategy. In recent years, companies have been caught in the bind in which Dell Inc. found itself in 2008, when it realized that the highly responsive configure-to-order supply chain that had made its online store the world’s largest channel for personal computers sales no longer fit the needs of some of its fastest-growing businesses: its new physical retail channel, its enterprise sales or even its high-volume consumer products. Facing increased pressure from emerging and revitalized competitors, Dell found that its long-vaunted supply chain was no longer right for all aspects of its business.
In 2008, for example, when Dell entered the retail channel, the company tried to use the same supply chain as its online configure-to-order business. But competition in conventional retail can be more price-sensitive than it is online, and the supply chain Dell designed for online was not optimized for lowest cost. By contrast, what was valued most online — the customer experience associated with the ability to configure the product to exactly what the customer wants — was not needed in the store.
Adding to the challenge, the company faced corporate and public sector clients who were increasingly looking for a complete solution for their IT needs, and in many cases, a solution designed specifically for their organization. This again entails a supply chain strategy quite different from the one employed for online customers.
Clearly, Dell needed to transform its supply chain to serve new customers in new channels with new types of products. The question was: how to do that effectively? Dell decided to create multiple supply chains, each dedicated to a different segment of the PC industry, but configured in such a way that the company could take advantage of synergies to reduce complexity and benefit from economies of scale.