The success of many organizations, private, public, and military, depends on their ability to manage the ﬂow of materials, information, and money into, within, and out of the organization. Such a ﬂow is referred to as a supply chain. Because supply chains may be long and complex and may involve many different business partners, we frequently see problems in the operation of the supply chains. These problems may result in delays, in customers’ dissatisfaction, in lost sales, and in high expenses of ﬁxing the problems once they occur. World-class companies, such as Dell Computer, attribute much of their success to effective supply chain management (SCM), which is largely supported by IT. In this chapter we describe the nature and types of supply chains and explain why problems occur there. Then we outline the IT-based solutions, most of which are provided by integrated software such as MRP and ERP. Next we show you how EC can cure problems along the supply chain. Finally we describe the problems of fulﬁlling orders in e-commerce systems and some of the solutions used.
10.1 10.2 10.3 10.4 10.5 10.6 Supply Chains and Their Management Supply Chain Problems And Solutions IT Supply Chain Support and Systems Integration Enterprise Resource Planning (ERP) E-Commerce And Supply Chain Management Order Fulﬁllment in E-Commerce
1. Understand the concept of the supply chain, its importance, and its management. 2. Describe the various types of supply chains. 3. Describe the problems in managing supply chains. 4. Describe the major categories of supply chain solutions. 5. Explain the need for software integration and describe the available software. 6. Explain how EC improves supply chain management. 7. Describe EC order-fulﬁllment problems and solutions.
HOW DELL MANAGES ITS SUPPLY CHAIN
The Business Problem
Michael Dell started his business as a student, from his university dorm, by using a mail-order approach for selling PCs. This changed the manner by which PCs were sold. The customer did not have to come to a store to buy a computer, and Dell was able to customize the computer to the customer’s speciﬁcations. The direct-mail approach enabled Dell to underprice his rivals, who were using distributors and retailers, by about 10 percent. For several years the business grew, and Dell constantly captured market share. In 1993, Compaq, the PC market leader at that time, decided to drastically cut prices in order to drive Dell out of the market. As a result of the price war, Dell Computer Corporation had a $65 million loss from reduced sales and inventory writedowns in the ﬁrst six months of 1993 alone. The company was on the verge of bankruptcy.
The IT Solution
Dell realized that the only way to win the marketing war was to introduce fundamental changes along the supply chain, from its suppliers all the way to its customers. Among the innovations used to restructure the business were the following. • Most orders from customers and to suppliers were moved to the Web. Customers conﬁgure what they want, and ﬁnd the cost and the deliverability in seconds, all online. • Dell builds most computers only after they are ordered. This is done by using justin-time manufacturing, which also enables quick deliveries, low inventories, little or no obsolescence, and lower marketing and administrative costs. This is an example of mass customization cited previously in the text. • Component warehouses, which are maintained by Dell’s major suppliers, are located within 15 minutes of Dell factories. Not only does Dell get components quickly, but those components are up to 60 days newer than the ones acquired by major competitors. • Shipments, which are done by UPS and other carriers, are all arranged electronically. • Dell collaborates electronically with its buyers to pick their brains for new...