Introduction: Amazon.com has become the largest customer friendly online retailer and provides one click purchase facility to its wide range of products including books, music, toys, gifts, electronics etc. For 2011 Amazon’s net sales documented the value of $48077 million to earn net income of $631 million (Annual Report, 2011). Currently, Amazon is serving more than 137 million of its customers with its 56200 employees all over the world. Moreover, International traffic also ranks Amazon at 16th position.
However, Amazon achieved this milestone through deploying its three fold strategy of limitless inventory, customer convenience and low price.
The purpose of current study is also to explore that how Amazon achieved its objective by using its digital channel. 1. Mass Customization: Primary difference between a physical retailer and Amazon is its online operations that allow Amazon to adopt mass customization. Amazon.com provides an opportunity to offer huge collection of books, music or other products without keeping them physically on shelf.
Millions of books are available at Amazon for purchase while a large brick and mortar store is required to keep such huge inventory. In 1999 Amazon consistently added new product line or capabilities after every six weeks to increase its sale revenue. Currently, its product range can be divided into 34 broad categories. Such product customization differentiates Amazon with its competitors. It is argued that product customization is a critical source of competitive advantage even as compared to price competitiveness as it allows customers to select products according to their needs and wants at one place.
So, one can attribute such mass customization to the success of Amazon.com. 1.1 Amazon Operating Models: However, to provide such mass customization Amazon follows its three operating models. First, it sells its own inventories and manages customer relation and supply chain on its own through Amazon.com. Second, Amazon also act as third person and allow other companies to place their products at Amazon.com for sale. However, Amazon only manages front end customer relations while logistic issues are controlled by sellers. In 1999 Amazon offered Z shop facility that allows small companies to sell their product through Amazon.com. His strategy was to compete with e-bay who was also providing similar services of auction. At last Amazon has also introduced its e-commerce solutions and design web sites and offer hosting services to its customers. In other words these three operating models provide huge collection of products that is consistent to its business strategy limitless inventory.
Success of Amazon strategies lay within its integrated business operations. Figure 1 illustrates that how Amazon fulfill its customers order through integrating its operations. Amazon.com server uses the supply chain optimization software to predict demand and also optimize its supply chain. In first step customers’ data for credit card is processed to finalize their orders. Amazon warehouse is also information about customer order in this respect for coordination. This is done to find out stock information at Amazon warehouse. However, in case of shortage at Amazon warehouse appropriate suppliers are selected. This information is transferred to publishers, music companies and electronic OEM for further process. After receiving order information publishers, music companies and electronic OEM dispatch required products physically to the nearest Amazon warehouse. At Amazon warehouse these items are packed and also send to customer place through UPS or US postal services. In this way Amazon develop integrated business operations that share information over its network for effectiveness.
Amazon integrated system speeds up the process and customers can receive their product at same or next day. This will positively contribute to customer’s loyalty. Moreover, Amazon also made required changes to its fulfillment system when needed especially for huge order fulfillments. For instance Amazon received record advance order of 275000 for single volume of Harry Porter. This challenged information staff at Amazon.
During such event Amazon mailed to its customers for confirmation of delivery information. Moreover, before shipment data regarding each package was updated. For Shipment purpose Amazon contracted with FedEx for shipping 250000 orders at released date that scheduled 100 flights to fulfill orders. In this way, Amazon successfully met such huge order fulfillment on released date. 2. Low Cost Strategies: Porter (1980) argued that firms can gain sustainable competitive advantages through adopting differentiation, cost leadership or focus strategies. While on the other hand Loudon & Loudon, (2006) argued that firms can gain cost leadership through online operations as it reduces ordering and inventory cost. Mass customization at Amazon also augmented its profitability through high activity with low variable cost. Fixed cost per unit decreases with the increase in activity as compared to variable cost per unit (Drury, 2006). While in case of Amazon fixed cost of system dominates as compared to nominal variable cost. Cost of technology, many parts of fulfillment cost and advertisement costs are fixed in nature. On the other hand Amazon is bearing nominal variable cost.
This indicates that high activity will lead to low fixed cost per unit cost that Amazon can use to settle for low prices. So, this mass customization will also lead to high productivity that ultimately will optimize profits through decreased fixed cost per unit. Moreover, Amazon also reduces its costs through cross docking shipments. For instance Amazon place its different items like books, toys, electronic etc simultaneously in single order to the closest warehouse located near to customers. To do so, Amazon uses its “12 technologies” to optimize solutions and to predict demand. 3. Customer Fulfillment Network (CFN) Strategy: On the other hand Amazon has also adopted the customer fulfillment networking (CFN) strategy that emphasize to augment gross profit margins through purchasing books directly from publishers rather than involving distributors who add their profits. CFN strategy was developed to integrate customer relationship management and order fulfills management applications. CFN system compares customers’ demand with their capabilities to recognize that whether Amazon can fulfill their orders with reasonable profits or not. It also allows predicting dynamic demand that ultimately reduces the carrying cost and transportation cost at Amazon warehouse. Moreover, it also allows improving their cash flow as less cash is tired up in inventory and increase inventory turnover that ultimately augments firm’s profits.
One can also explain Amazon’s success in respect of its ability to extract and use of customer information. Amazon keeps a complete record of all of its customers. Amazon main a data base that knows that when and what a customer orders. If a customer has not been placing order for some time then Amazon sends him an e-mail coupon containing information regarding entirely different or related product line to stimulate customers for reordering. For instance it is possible that you will receive an e-mail regarding computer equipments products if you last purchased a notebook.
Similarly, Amazon.com also provides convenience in selecting products over its website through customization. Web pages are customized according to the liking of their customers. One can easily personalize his selection when he login as a customer at Amazon.com. All the Amazon products are divided into 34 broad categories.
A person can select and search within these 34 broad categories easily. It is consistent with their strategy of providing convenience to customers. 4.2 Customer Review: It is argued that digital means of information can be used to communication product quality and also creates a bond between buyers and sellers especially within online markets (Chevalier and Mayzlin, 2006). Amazon also stimulates its customers to write editorial and review of book they purchased. This option of book review communicates positive information to other potential customers and increases the like-hood of purchase. It is also consistent with Chevalier and Mayzlin, (2006) who also argued that improvement in scores obtained by a book through book review contributes to purchase intentions and lead to high sales revenue. 4.3 Quick Shipment: Providing hassle-free fulfillment of customers’ order is also viewed as one of the key success areas of Amazon. For most of the product Amazon offers same or next day fulfillment. This is what makes different Amazon with other online retailers. However, Amazon does this through its integrated order fulfillment process as demonstrated in figure 1.
Dell is a technological sales company which performs their business in the whole world as is possible to see in the following diagram.
With net revenue of $61,133,000,000 is the second largest computer manufacturer company in the word and the number one in United States.
Dell focuses on Business to Business (B2B) and Business to Consumer (B2C) commerce to satisfy their business and individual customers. Dell differentiates between classes of customers because the needs of their business customers, who buy large quantities of computers, are different than the individuals who want to configure a single unit.
The present document is oriented to analyze Dell just since the point of view of operations management starting with a review of the company, after a look over Product design process, the internal process and the technology associated, how Dell forecast the coming productions rates, how Dell manages their inventory, which is the quality model followed by the company, which is the human resource strategy to finalize with conclusions and reflections.
Identify the operations strategy of Dell is go almost in all the main activities of the company where operations is relevant. Under this perspective, the list of strategies is related to some areas of operations inside of the company:
For Dell, Globalization has impacted directly in the management of the product life cycle involving more stakeholders during the process of product development; thereby the complexity of this process has become more complex as well. The most important factor introduced in the product life cycle is the environmental issue. For Dell, the design products have to be energy efficient, to avoid unnecessary materials and to be easy to use, which is supported by rigorous business controls and supplier audits that consider (Dell, 2008): * Energy Efficiency: Dell delivers optimized performance per watt, and help customers deploy systems efficiently. In this way, IT is an important avenue to decreasing cost of ownership and enhancing productivity while reducing a customer’s carbon footprint. * Precautionary Chemicals and Materials Use: Dell design to eliminate the use of unregulated substances if we believe they possess hazard characteristics similar to other, regulated substances. If alternatives are not yet viable, Dell works to develop reliable, environmentally sound and commercially scalable solutions. * Supply Chain Sustainability: We expect suppliers to uphold the same commitment to environmental responsibility as we do, as a condition of doing business with them.
Dell design activities are compliant with this internationally recognized standard for environmental management system criteria (ISO 14001 certification program)
Other main stream of definition of what Dell is doing in terms of product design rely on the participation of their own customers. The website “Dell Idea Storm” (http://www.ideastorm.com) where customers participate directly in the conceptualization of products giving their own ideas of develops, voting for another ideas already posted or simply criticizing products from the company. This website is a very comprehensive platform to cover an appropriate SWOT analysis of products design due to the huge variety of post and group discussion on it.
The well known operation model of Dell called ‘Dell Direct’ base its value added in just work on demand eliminating intermediaries in procurement, manufacturing and distribution processes. The technology used by the company
in the manufacturing process is the base of success and therefore play a very important role in its operations.
Dell’s technology allow to the company to combine its resources, its relationship with suppliers and its consumer communication capabilities, developing one big advantage over its competitors.
Dell is in “Mass Production” process category due to mainly the stable demand of products, the assembly work as a main line of production and with a good level of efficiency. To consider Dell as a manufacturing or assembly company is a constant discussion even for the employees of the company. Due to the nature of the products (mainly computers) they build new products that do not exists in the market, in this sense they are manufactures. But in another sense they just assemble component which production is on suppliers, in this sense could be considerate that dell “buy to sell”. In this document the company will be considered as a manufacturer company.
The generation of innovative ideas for the production line is pulled due to the necessity of new kind of products defined basically due to the interaction with suppliers and customers.
All the Dell manufacturing centers use the same processes enable by the same systems and are measured in the same way. This insurance consistency award quality across the global network and also allows identifying and implementing best practices.
The standardized process of manufacturing is divided as is illustrated in the following diagram.
Final Test and labeling
Order accumulation area
Software Installation and Testing
Customer Order Pull
These processes are described as follow:
In terms of technology, Dell in all its experience in all the manufacturing centers has implemented a large number of solutions in order to accomplish a constant improvement in the value chain. Basically, the main source of constant improvement has been Internet, helping Dell to establish good relations with both their suppliers and their customers. The high level of integration that this technology has allowed is on simple evidence through the corporate website (www.dell.com) where for example suppliers are allowed to follow their material as it used throughout Dell’s operations. They can log-on, drop off invoices, check engineering change orders; review negotiated and forecasted cost reports, and track their overall performances and progress.
The “Dell i2 Supply Chain Management (i2SCM)” is the name of the solution implemented to cover communications necessities with suppliers. This implementation enabled to Dell to reduce costs providing component suppliers and Dell planners with global views of product demand and material requirements.
In partnership with IBM, both have managed to maintain high employee productivity. The join in between companies to design the productions lines provide near unlimited availability to their IT infrastructure. Another outcome of this partnership is the use of electronic catalog with appropriate search functionality.
As an example time ago, Altiris Recovery Solution was selected by Dell for integrated delivery of backup and disaster recovery. Altiris along with Dell Open Manage Client Administrator (OMCA) will provide “Direct integration of Altiris backup and recovery technology with Dell OMCA which helps ensure business continuity and helps provide additional cost savings for Dell customers through proactive IT management”. These factors implemented into a concrete disaster recovery plan provide Dell and IBM with the confidence to scale and complex IT network.
Dell is by definition an assembly manufacturer company, where basically the process is only one and the assembly line as well. Dell does not build any part or piece of the computers, lodging basically in their own suppliers which have the necessary expertise and commitment with dell’s production line. If we consider Dell and their suppliers as a unique company it will be represented as typical “Process Layout”, and Dell will be of course in this exercise the assembly department.
The main advantages of the “Product layout” (or assembly line production layout) are: * The amount of time for a product to be ready is faster in general if it is compared with other kind of process layout.
As negative point in Dell layout oriented to product, it is possible to say that the required infrastructure is more expensive than other layouts because the high degree of cohesion that should exist in the assembly line which it demands a high technology and dedicated machinery.
As is possible to appreciate, Dell Company is in the middle of all the operations since suppliers till the final customer. The simplicity of this model put on evidence the absence of intermediaries in the supply chain, which is synonymous of low cost, fast answer to client’s orders.
The communication between Dell and suppliers is by Internet, and in real time which it means that the suppliers are constantly monitoring the status of components in order to prepare new orders and negotiate the prices on demand. Usually suppliers have warehouse building nearby Dell’s Manufacturing Centers in order to reduce the risk of lack of components in
the main assembly line of Dell and assuming at the same time the inventory costs that Dell is avoiding.
The suppliers usually feed the starting point of the Dell’s assembly line, but as the illustration show, it is possible to have some suppliers after the production line of Dell (even out of Dell facilities). Partnership with screen or printer manufacturers, allow to the final user to order for products that are absolutely out of Dell’s production lines, and it is just necessary to complete the order in their warehouses to finally ship the order to the client.
Is important to recognize that the use of Internet is the blood of this system, without this technology would be impossible to coordinate such value system.
In order to make the service easier for customers within this supply chain, Dell has divided their home page into a number of major customer groups:
As a forecasting method Dell, as many other big companies, base their analysis on the records stored on the internal Customer Relationship Manager system (CRM). This system stores every registry made by customers in order to analyze the tendency of the actual behavior and predict demand for certain products in the future.
Now considering daily operations on Dell, there is a “Short Range Forecast” process that operates constantly. Dell uses state of the art production planning programs that forecast the quantities of components needed to build the computers. After those forecasts are made, supply chain systems pass those forecasts to suppliers, who respond with cost estimates and plan their production as a result. As the CRM, the mentioned i2SCM (technology section) is another provider of forecast information as well, providing real-time factory scheduling and inventory management.
These methods used by Dell are considerate “Quantitative Forecast Methods”, leaving for decisions makers, the forecast that comes from “Qualitative Forecast Methods”.
Dell bases its scheduling process in the system i2SCM system output. One of the basic tasks of i2SCM is to streamlines the supply chain in order to keep a constant flow of component in the starting point of the assembly line, and considering this, as a consequence is in charge of provide a manufacturing schedule the whole plant. This scheduling process is refreshed every 2 hours.
Dell has implemented “Just-In-Time Inventory System” which operates on only 6 days of inventory. This simple number implies a huge benefit for Dell because this enable to the company to reduce the warehousing costs, also is not necessary to hire people to put in charge and maintain the inventories and though technology become obsolete very quickly, for Dell this is not a problem because they don’t hold obsolete technology in its small inventory.
The way how Dell controls, in terms of basic definition its inventory and the costs that this means is being a “Demand Pull Company” (used as well as a Lean system method), whereas one of its top competitors (Compaq HP for example) is strictly a supply-push company and operates in a more traditional manner.
Since several years, Dell has been operating their manufacturer plants using the production standards ISO 9001, ISO 14001 and OHSAS 18001 (Dell).
Dell operations in China have been distinguished by Ministry of Information Industry (MII) and China Quality Management Association for Electronics Industry (CQAE) receiving wards such as “Excellent Quality Management Corporation”, “Excellent Quality Management Team’s and “Excellent Quality Management Individual”. It demonstrates Dell’s commitment to providing high-quality products and superior customer experience (Dell).
The main support behind this award is the constant focus in the customer-centric strategy, and the will for a constant improving in the quality management system.
In Dell, the quality control process starts from engineering design and the early testing stages during which design for reliability is the priority. Been conscious of quality standards in early analysis of failure mode, the product design is based on typical customer profile and operation requirement. It is important to consider that reliability test and improvement are also keys factors to ensuring the best quality.
In addition, Dell has extended the “quality chain” putting great emphasis on suppliers’ quality management, as the company always regards the quality of the components as crucial factors for product quality. According to this, Dell has established a set of scientific and complete management process, which ensures final product quality through rigid selection and process control of industry-leading suppliers.
Considering the whole process, the Quality Management during manufacturing process is the strongest guarantee of Dell products’ quality. Engineering pilot and employee training are conducted before any new product launch. Through Statistic Process Control Quality Analysis, Dell is able to detect and improve incoming material and process issues, which guarantee the best manufacturing quality.
Dell’s direct business model influenced an organizational structure that fosters direct communication and open-minded listening. As an strategy to accomplish this objective is to listen employees, and this is done through “Tell Dell” program, a voluntary and confidential employee opinion survey. This program is developed to encourage employees to speak frankly and privately about Dell’s principles, values, strategies, policies, managerial effectiveness and employee engagement. In this way the HRM department, after taken the measurement, is able to act in direct response to surveys. Some responses to these kind surveys were for example in the past: * Implementation of an employee purchase program
Less formal but equally important strategy to get employees feedback is Employee Storm. A tool that enables every Dell employee to bring experiences and creative solutions to Dell and our customers.
With the objective to reduce mistakes and its consequences, Dell has implemented a strategy related to ethic tools. This strategy defines for example policies of communication in order to allow employees approach the company when they feel is necessary according to the defined Dell Code of Conduct. These policies are:
Since Dell is committed to inclusion and diversity, their mission is to succeed in the marketplace by fostering a winning culture in which Dell employees are highly talented, committed, reflective of our global customers, and recognized as our greatest strength. For Dell “diversity” is the core of their values and winning culture. For this Dell has implemented the following activities:
Other areas of strategy where Dell has been working on are:
It is very interesting to remark that Dell, a multinational company with a big size, is successfully capable to repeat basically the same formula of manufacturing process in every manufacturing center that the company has. Dell has been able to repeat the best practices across the borders around the world which by definition represent a big challenge for any company. Never the conditions will go to be the same: restricted markets, cultural shocks for employees, different cost structure are some of the factor that usually affect multinational companies with operations in many countries around the world.
Dell strategy found its success in basically the correct and optimums use of technology; Internet is practically the blood of Dell system, or the base of Dell success. Dell’s business model bases its success basically in Information technology. There is not a revolutionary change in the way how to do business, is just a perfect example of how to take advantage of technology to become the most efficient competitor in the computer sales industry.
Even though Dell business model is very well know, has been a model very difficult to imitate basically because the huge investment that companies should do together with their suppliers. The supply chain structure in this case is the key of success. Is not a matter of investment coming just from
Dell to have success, is a sacrifice coming from Dell, suppliers and partners that in some way are trusting in Dell way of doing business. Trust in the value chain, is definitely a very big competitive advantage for Dell.
The product mix from Dell is not as broad as directs competitors are doing it, which in one way has allowed to Dell specialization, focus and expertise in the field. But is a risk at the same time because depending basically on a very limited amount of product and services it does not open many alternatives to explore new markets or develop innovative solutions amount the products and services.
Even though Dell is considered a very successful business model, the company has been having problems. These problems are reflected in financial reports which indicate that Dell is not reaching the rate of growing that they were expecting. Although Internet is the base of its success, it has been a big problem for Dell as well, since the point of view that important bloggers has been complaining in the net about the pour quality of services and this has spread quickly between users a non god image of the company. Dell is working on this blog phenomenon taking care of every comment done in the net about their products and services.
Another problem faced by Dell is that Dell is becoming victim of its size because they are trying to keep the rate of growing in a market where the value of their products fall significantly every year , this means that to keep the rate of growing is necessary to have a higher rate of sales. As a final weak point in the way how Dell is approaching businesses, Dell is relaying increasingly on new markets which it means that Dell is just applying best practices and knowledge in the field rather than go deep with a study of the new entrance. This could be a risk considering the diversity and cultural matters in between their customers.
Introduction: IBM or International Business Machines is a well known American computer manufacturer, founded by Thomas J. Watson (born 1874-02-17). IBM is also known as “Big Blue” after the color of its logo. The company has made everything from mainframes to personal computers and has been immensely successful selling business computers.
Drawing on the strength of the full strategy and change practice: Operations Strategy is one of the four competencies within IBM’s larger Strategy and Change team. The three parallel competencies are Business Strategy, Organization Change Strategy and Technology Strategy.
Operations Strategy helps clients resolve a variety of critical issues from strategy and planning to day-today operational improvements. IBM practitioners specialize in identifying the capabilities that are required to execute business strategies and in defining how operational models should be configured, implemented, and continuously improved. With deep experience in operations strategy, IBM provide clients with the support needed to address the operational issues that are crucial to success.
Helping clients with critical business issues: Clients look to Operations Strategy for help with these critical business issues:
IBM experience in successfully formulating and implementing operations strategies lies in three main areas: * Helping clients formulate operations strategies that align corporate and business strategy with organization, technology and process strategy.
Utilizing a proven, consistent approach: All Operations Strategy engagements incorporate the following key elements: * Mobilization – Utilizes preparation and planning to help increase the odds of successful and timely project completion.
Providing a full suite of offerings: Operations Strategy has a diverse range of capabilities, including:
Rapid process change:
A solution for rapidly identifying and delivering a step change in process, organizational and systems performance. Rapid process change focuses on achieving tangible operating improvement results in an accelerated time frame.
Six Sigma/Lean Sigma:
Strives to create both operational excellence and a strategic change in the culture of a corporation, division or business unit. These engagements are designed to increase customer satisfaction and drive out costs by helping to improve processes linked to company strategy and key performance indicators. Six Sigma also helps build an enduring capability within the organization that can create and sustain competitive advantage over the long term.
Design for Six Sigma:
Extends Six Sigma principles to the development of new products, services, processes, and plants that are designed to precisely meet client current and future needs.
Strategic profit improvement:
A framework designed to deliver improved financial performance, including: increasing revenues and margin, reducing costs and assets, strengthening infrastructure, and positioning for future growth.
Service after the sale:
Helps clients lower their customer service costs and find new sources of revenue and value-added differentiation.
Product innovation management:
Supports the business decision making component of product development. These engagements are designed to reduce time-to market and product development costs and they help increase the pace of innovation.
Determines which components of a business are strategic and critical to success of the enterprise and which are not. Then identifies opportunities for improvement and transformation by comparing critical business requirements and operational capabilities.
Shared services implementation:
Our team builds a business case for the transition to a shared services operational model, designs a custom shared services solution, and then works with the client to successfully implement the change.
Helps organizations establish a program management office capable of supporting outsourcing Initiatives throughout their lifecycle, from qualification and assessment to development and Operation.
Demonstrating success at numerous clients: At one client, a leading consumer electronics manufacturer, benefits of the project included:
At a large manufacturer of aluminum products, we developed and implemented a new operating model. The scope and results included:
Finally, we developed an outsourcing strategy for a leading manufacturer of semiconductor equipment. The scope Included:
Working with client executive team to develop a vision and operating model * Implemented the model, focusing new investment in core business processes and developing and implementing the roadmap to outsource all non-core processes to save client significant cost and increase competitive advantage.
IBM Clients: A small sample of IBM clients includes leaders of every industry and all levels of Government: