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Key Topics
Requirement
A study to examine make-to-order approach in computer industry: The case study of Dell Inc.
Solution
Four supply chain design
Particularly, the manufacturing companies have the supply chain. There are four models that are common in the supply chain i.e. there are four designs of the supply chain (Stadtler, 2015):
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Integrated make-to-stock model: This model helps to track the real-time demand of the customer so that the process of production could efficiently restock the inventory of finished goods. This integration is possible with the help of a fully integrated information system. The system is used for receiving the demand so that the plans and schedules of production could be developed and hence this can be sent to the supply chain and the function of procurement (Stadtler,2015).
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Build-to-order model/Make-to-order model: In this model, the companies start assembling the orders of customers as and when they receive any model (Christopher, 2016). For this, the companies need to carefully manage the inventories of their components so that they can make successful deliveries of the required supplies along the supply chain.
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Continuous replenishment model: In this model, the inventory is continuously replenished by working with the suppliers and the intermediaries closely. But there are chances that the supply chain may collapse because many shipments would increase the costs. So the integration between the process of order fulfillment and the production has to be very tight (Christopher, 2016).
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Channel assembly model: This model is a modification of the Make-to-order model. Here the parts of the product are collected and then they are assembled when the movement of the product happens through the channel of distribution. The company comes in strategic alliances with the third party logistics firm to accomplish this.
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Build-to-order supply chain
Definition
In this supply chain, the customers of the product specify the features and components that they want to be present in their final product. Accordingly, the manufacturers build the product and deliver to the customers. Basically, it is the process where the quality products are manufactured as per the needs of the customers, and they are given to them at a competitive price (Xu, 2015).
Advantages of Build-to-order supply chain
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a. This method is especially popular in the computer industry as the means of customization.
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b. With this, the companies become more flexible, and they respond to the needs of people in a better way.
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c. This method proves to be cost effective to the companies as they make the product as per the wish of customer, and it is guaranteed that the product will get sold (Li, 2012)
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d. Also, this model is better than those companies that limit the people in choices by offering them specific products with particular specifications. Being customer-focused gives the company a greater advantage over being product-focused.
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e. But the greatest advantage in this supply chain is that each product is specialized to meet the expectations of the customer (Prajogo, 2012).
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f. The company also eliminates its cost of keeping the unnecessary inventory, and he need not have to worry about losing money if the stock remains unsold.
Limitation of Build-to-order supply chain
a. One limitation to this supply chain is that there is no ready supply of inventory that the employees can sell. Since the orders are taken either on the websites or on the phone, so the customers don't get a chance to visit the store and buy straight away (Xu, 2015). So there are chances that the employers may earn fewer profits from the potential sales and the overall profit potential of the company may not be earned.
b. Another limitation is that the time was taken to fill the orders of the customers is long which may lead to changes in the purchasing decisions by the customers, and hence the company may lose its potential sales as well as the cash flow (Prajogo, 2012).
The companies make their supply chains as per their business model and as per policies. So the factors that affect the decision of company that whether they have to apply Build-to-order or Build-to-stock are:
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Responsiveness to the needs of customers: Whenever any purchase decision is taken by the customers, they want to be sure that they are making the right decision. So the companies have to decide that whether they want to respond to their needs by customizing the products as per the demands of customers or they want that the product should be available to them as and when their demand arises (Wisner, 2014). So it is the choice of companies that how they want to respond to the needs. It also depends on the fact that how much research the company has done in the market on the needs of a customer and accordingly what they should do to satisfy them (Heckmann, 2015). For example, in the computer, the build-to-order model is used more than build-to-stock.
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Gaining competitive advantage: All the companies want to gain competitive advantage. So they watch the actions of their competitors and accordingly decide that which supply chain they should build. If the competitor is using build-to-stock, then they may go for the other one and satisfy customers by making products as per their specifications (Wisner, 2014). This will reduce their dissatisfactions, and they will get attracted to the company. But suppose competitor is using the build-to-order model, then the company may go for build-to-stock and don’t let the customers wait for their product. Or they may reduce the supply time; give additional benefits by building a more efficient build-to-order supply chain. All this depends on how much the company wants to gain competitive advantage.
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Cost considerations: The cost incurred by the companies in using build-to-order or build-to-stock is different. In build-to-order, the companies don't have to incur any cost of keeping the inventory (Heckmann, 2015). But in build-to-stock, the cost of inventory is borne by the companies. So cost considerations affect the decision of companies to apply build-to-stock and build-to-order.
Computer industry
The computer industry has a vast network of companies that are working in the various segments like designing, assembly, sales, and marketing, etc. the production locations are selected by the makers of computers on the basis of the optimization of many combined factors (Nadvi, 2015). The aim of these factors is to deliver the final product to the customer on time and at the greatest possible level of quality but lowest possible cost. The location for the production is based on the cost related factors of the company like the cost of logistics, depreciation, etc. and the market-related factors like a selection of the suitable vendors, preference of the people for the local market, selling of the product in the particular area, etc.
There has been development in the trends of this industry in the past years. With the advent of globalization, the companies in this industry have adapted to the needs of the people all around the globe. Many companies started using the process of BTO and since then this industry has gone through major shifts (Nadvi, 2015).
Related previous studies on Build-to-order supply chain in computer industry
Gunasekaran wrote a paper in 2005, titled ‘The Build to Order Supply Chain (BOSC) — A Competitive Strategy for the 21st Century’ (Gunasekaran, 2005). According to him, the supply chain management strategy of build-to-order has attracted the researchers and practitioners in the recent years, and many companies have also implemented this supply chain design successfully. He has given the examples of Dell computers, Compaq, and BMW. It has improved the competitiveness of the companies who have adopted this. The main aim of this model is to fulfill the requirements of the customers individually by leveraging the advantages of outsourcing and information technology. In his paper, the author has reviewed the concepts of this supply chain model; then he has also developed various definitions of this model, and he has given some insights about how future research can be done on this topic. In this paper, the author has basically focused on the improvement in the organizational competitiveness when using the build-to-order; he has discussed that how the build-to-order supply chain model can be developed and implemented. Finally, he discussed the use of information technology in build-to-order supply chain model.
There is another research on the success of Build-To-Order Model of Dell. The driving force in the supply chain of Dell is that it cuts down the material costs from the suppliers (Christopher, 2011). The revenue of Dell comprises of 74% material costs and hence when the company cuts this material costs, it saves almost $21 billion which has a major impact on the other areas of the company. Then it also stocks the materials very closely to its manufacturing facilities so it enables the company to communicate with the hubs of inventory so that the required materials could be delivered to the production place just-in-time. The aim of the company is to grow into a multi-billion company so to achieve this; the company has enhanced the processes in the supply chain by the implementation of the i2 technologies software. The company has ensured that the manufacturing plants of this company are operating on the same software. It basically helps the company in increasing the cycle time at the factories and reduces the warehouse space. So it is able to balance its demand and supply in a better way (Christopher, 2011).
Summarizing
The four designs of the supply chain are- Integrated make-to-stock model, Build-to-order model/Make-to-order model, Continuous replenishment model and Channel assembly model. In Build-to-order supply chain, the customers of the product specify the features and components that they want to be present in their final product. Accordingly, the manufacturers build the product and deliver to the customers. But the greatest advantage in this supply chain is that each product is specialized to meet the expectations of the customer. The company also eliminates its cost of keeping the unnecessary inventory, and he need not have to worry about losing money if the stock remains unsold. One limitation to this supply chain is that there is no ready supply of inventory that the employees can sell. The difference between build-to-order and build-to-stock is that in build-to-order, the product is made when the demand arises and in build-to-stock, the product is kept ready before it is demanded. The factors affecting a company to apply Build-to-order or Build-to-stock are: responsiveness to the needs of customers, gaining competitive advantage and cost considerations.
There has been development in the trends of the computer industry in the past years. With the advent of globalization, the companies in this industry have adapted to the needs of the people all around the globe. Many companies started using the process of BTO and since then this industry has gone through major shifts. The previous related studies on Build-to-order supply chain in the computer industry are a paper written by Gunasekaran 2005, titled ‘The Build to Order Supply Chain (BOSC) — A Competitive Strategy for the 21st Century’ (Gunasekaran, 2005). According to him, the supply chain management strategy of build-to-order has attracted the researchers and practitioners in the recent years, and many companies have also implemented this supply chain design successfully. He has given the examples of Dell computers, Compaq, and BMW. Another is the research on the success of Build-To-Order Model of Dell. The driving force in the supply chain of Dell is that it cuts down the material costs from the suppliers. The revenue of Dell comprises of 74% material costs and hence when the company cuts this material costs, it saves almost $21 billion which has a major impact on the other areas of the company.
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Christopher, M. and Holweg, M., 2011. “Supply Chain 2.0”: managing supply chains in the era of turbulence. International Journal of Physical Distribution & Logistics Management, 41(1), pp.63-82.
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Christopher, M., 2016. Logistics & supply chain management. Pearson Higher Ed.
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Christensen, W.J., Germain, R. and Birou, L., 2005. Build-to-order and just-in-time as predictors of applied supply chain knowledge and market performance. Journal of Operations Management, 23(5), pp.470-481.
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Gunasekaran, A. and Ngai, E.W., 2005. Build-to-order supply chain management: a literature review and framework for development. Journal of operations management, 23(5), pp.423-451.
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Heckmann, I., Comes, T. and Nickel, S., 2015. A critical review on supply chain risk–Definition, measure and modeling. Omega, 52, pp.119-132.
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Li, H. and Womer, K., 2012. Optimizing the supply chain configuration for make-to-order manufacturing. European Journal of Operational Research,221(1), pp.118-128.
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Li, T. and Zhang, H., 2015. Information sharing in a supply chain with a make-to-stock manufacturer. Omega, 50, pp.115-125.
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Nadvi, K. and Raj?Reichert, G., 2015. Governing health and safety at lower tiers of the computer industry global value chain. Regulation & Governance,9(3), pp.243-258.
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Prajogo, D. and Olhager, J., 2012. Supply chain integration and performance: The effects of long-term relationships, information technology and sharing, and logistics integration. International Journal of Production Economics,135(1), pp.514-522.
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Stadtler, H., 2015. Supply chain management: An overview. In Supply chain management and advanced planning (pp. 3-28). Springer Berlin Heidelberg.
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Wisner, J.D., Tan, K.C. and Leong, G.K., 2014. Principles of supply chain management: a balanced approach. Cengage Learning.
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Xu, X., Zhang, W., He, P. and Xu, X., 2015. Production and pricing problems in make-to-order supply chain with cap-and-trade regulation. Omega.
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