Creating competitive advantages through outsourcing: the example of Dell and Sun
Many companies have found that by outsourcing complete areas of their Supply Chain they were able to create advantages in the market. The best examples to illustrate the link between outsourcing and competitive advantages are Dell and Sun Microsystems.
Dell, the world leader manufacturer of PC, uses a Command and Control model to manage its
Supply Chain. Dell controls almost 100 % of its production and does much of the overall planning and synchronization job across the Supply Chain, outsourcing the inventory and asking it's suppliers to react to the signals it sends them.
How odes this model work?. Dell demands its global component suppliers ship goods to locate their warehouses
generally within 15 minutes of Dell regional plants. Every 20 seconds Dell aggregates its telephone and Internet orders and analyzes the material requirements. Dell uses i2 SCM to compare their on-hand raw material inventory with their suppliers' inventory and create a supplier bill of material to meet their order requirements. Suppliers have 90 minutes to get their parts to the assembly line. Supplier's truck trailers line up in front of the cargo bays encircling the factory (for example,110 of them in Dell’sAustin plant). When an Dell’s assembly line runs low on a key component, a signal goes out and a forklift pulls the components from a trailer.
Only once the forklift crosses a white line in the factory, and the shipments bar code is scanned does Dell
take ownership of these components.
The competitive advantages of Dell are clear: Dell holds inventory only for the 6 to 8 hours it takes to build and configure their computers. As consequence, Dell has the lowest cost in the industry compare with its competitors.
Sun Microsystems, le leader mondial des serveurs Unix, a une approche différente pour l’externalisation de sa Supply Chain. Sun utilise le « Empowered Trading Partner Model”, par lequel il tient le rôle central de « chef d’orchestre » d’un réseau de fournisseurs indépendants. Sun définit les objectifs de performance tout en fournissant les outils de visibilité et de mesures de performances appropriés. Sun considère ses patenaires comme responsables de ses résultats, depuis la planification, la production jusqu’à honorer les commandes.
Sun Microsystems, world leader manufacturer of Unix servers, implements a different approach to outsourcing the Supply Chain. Sun use the Empowered Trading Partner Model, which is based on Sun setting goals for performance, providing appropriate visibility tools and measuring performance. The company holds partners accountable for the results and they are responsible for doing the plan of production and fulfilment activities.
Sun has moved a growing percentage of manufacturing, about 90 % of production, to partners in lower cost geographies. Rationalizing their supply base and cutting tiers out of their supply chain so that key strategic partners engage in a greater number of supply chain activities. Trading partners are provided visibility to forecasts and orders and are then expected to reliably fulfil orders according to fixed competitive lead times that range from 4 to 13 days, and with 1 day for premium deliveries. Trading partners are allowed to make the own decisions, within a set of predetermined guidelines and expected results. Sun built their own customized Supply Chain Event Management solution in order to provide partners with the way to deal with unexpected events across the entire Supply Chain.
As result, Sun has most flexible Supply Chains in the industry made of partners with the freedom and capabilities
to react to the fluctuation of the market. Sun has also managed to reduce significatively the fixed costs and total
(supplier plus OEM) inventory in the supply chain.
Dell and Sun are clear examples of companies that use the outsourcing of one part of their Supply Chain as a way to beat competition. However, behind the decision to outsource there is a formal corporate strategy which provides direction, guidelines and performance measurement during the implementation.
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