Supply Chain Pressure

The New York Times has an article about the lack of safety monitoring for some heart-related health care products. But this isn't an isolated problem. From the New Jersey importer that had to recall 450,000 light truck tires to some of the recent toy recalls, companies are starting to learn the difficulties of managing an extended supply chain or design chain. The concept says that companies have an interconnecting chain of suppliers and distributors and sellers that all affect product manufacturing, inventory, and distribution.

As companies have taken the standard business advice and focused on their "core competencies," they've extended these chains, having more come from outside sources. But rarely to the companies have any control over their partners. For them it's like going to a big mall and getting this from here, that from there. However, such a hands-off approach isn't going to continue to work. Particularly in an industry that directly affects people's well-being and safety, someone has to be able to guarantee the integrity of what the purchaser gets. That generally comes down to the name on the label.

It may be that many companies are going to have to take a leaf out of Wal-Mart's playbook and get more involved with their partners. As most businesses don't have the big box retailer's resources, it seems that there is a market opportunity here: consultancies that can take the specifications of clients and travel to their business partners, checking on the components they produce. It would probably have to be an organization with global scope, because manufacturing is geographically diverse. But a large management or technology consulting firm might consider this as a useful type of service offering, and one that is bound to get more popular as the number of recalls because of bad ingredients or components rise.

Michael Dell Says Changes Are Necessary

According to a Financial Times article on April 28, 2007 (sorry, no free link), a leaked memo from Dell has the company's founder and current CEO stating that the company is “a defining moment in its history and in [its] relationships with customers.” Dell replaced his former hand-picked replacement, Kevin Rollins, in January because of disappointing results. The memo suggests some pretty significant changes in direction:

He said their plans were to simplify IT for business and the consumer and to innovate beyond its traditional hardware business. They would also work to fix
their core direct-selling business. “The direct model has been a revolution, but
is not a religion,” he said n the e-mail. “We will continue to improve our
business model, and go beyond it, to give our customers what they need.”

The company apparently wants to "radically simplify IT' for corporate customers and go beyond its direct sales model for consumers, which has done well but that is a limiting factor in growth.

I'd like to suggest that these changes are not what the company needs. Consumers aren't moving to HP because of store sales. Dell has developed a recipe for atrocious customer service. (Disclaimer, I once got so frustrated in trying to get a PC from the company on a timely basis that I cancelled the order.) Trying to chase expanding sales before management really fixes this problem is setting up the conditions for business calamity, because customer service that functions poorly now is only going to get worse with greater demands. And the idea that the company will change IT for companies is a level of arrogance that smart corporations won't tolerate - because they don't have the time, money, or inclination.

Then the Dell memo discussed how the company would "take our supply chain and manufacturing to the next level of efficiency." I've done some pieces on Dell's supply chain in the past and have heard from analysts who closely follow electronic manufacturing that Dell is already pushing so hard on its vendors that some are walking away from doing business with the company.

The amount of efficiency increases in the past could not explain the company's profit level growth compared to the rest of the industry. What seemed far more likely, according to the experts I've interviewed, is that it was beating up suppliers and pulling out every last penny of increased profit it can and telling suppliers to use the increased economies of scale that Dell can offer to make more money off their other clients. But those clients are reportedly starting to balk, because essentially they pay for Dell's ability to make more money.

The short prediction: within the next three to five years, major business magazines will be running "What Ever Happened to Dell?" stories, because you can only push your clients and vendors for so long, and then, as the poet W.B. Yeats noted, things fall appart.