Dell's Supply Chain Strategies Essay

A Knowledge-Based Analysis and Modelling of Dell’s Supply Chain Strategies Areti Manataki Master of Science Artificial Intelligence School of Informatics University of Edinburgh 2007 Abstract Supply Chain Management is becoming more and more important for the success of today’s business world. Dell has realized this trend from its very first steps and has become one of the most successful PC companies in the world by putting emphasis on its supply chain, orchestrating its build-to-order and direct sales strategies.

While most of the literature that covers Dell’s business and supply chain strategies is too theoretical, we suggest an analysis of a lower level using knowledge-based techniques. So, we have developed a business process model for Dell that captures its supply chain strategies, and which is strategic, business-goal-oriented and executable. In order to make this BPM executable we have designed and implemented a workflow engine that simulates BPM execution and calculates the related total time and cost.

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Using the workflow engine we have then run experiments on Dell’s BPM improvement and on its comparison with a traditional PC company, thus providing a useful framework for supply chain strategies’ comparison. This work is expected to provide a good insight into the successful supply chain of Dell on the one hand, and demonstrate whether knowledge-based techniques can provide good analysis of business and supply chain strategies in general on the other hand. i Acknowledgements I would first of all like to thank my supervisor, Dr.

Jessica Chen-Burger, for her guidance and help throughout this project, as well as for the support in difficult moments of the project period. I would also like to thank Dimtrios Mavroeidis and Ioanna Manataki for their participation in the evaluation procedure of the developed business process model. ii Declaration I declare that this thesis was composed by myself, that the work contained herein is my own except where explicitly stated otherwise in the text, and that this work has not been submitted for any other degree or professional qualification except as specified. (Areti Manataki) iii

Table of Contents 1 Introduction………………………………………………………………………………………………. 1 1. 1 1. 2 1. 3 Motivation………………………………………………………………………………………. 1 Gap, Aim and Objectives ………………………………………………………………….. 1 Thesis Outline …………………………………………………………………………………. 2 2 Background Information……………………………………………………………………………. 2. 1 Supply Chain Management ……………………………………………………………….. 3 2. 1. 1 2. 1. 2 2. 1. 3 2. 2 2. 2. 1 2. 2. 2 2. 2. 3 2. 2. 4 2. 3 2. 3. 1 2. 3. 2 2. 4 2. 4. 1 2. 4. 2 2. 5 2. 6 2. 5. 1 Importance of Supply Chain Management ……………………………….. 6 Supply Chain Management Approaches…………………………………… 7 “Hot topics” in Supply Chain Management………………………………. 8 General Information about Dell …………………………………………….. 10 Directs

Sales……………………………………………………………………….. 11 Build-to-order and integration with suppliers………………………….. 12 Other interesting approaches…………………………………………………. 14 General Information about BPM……………………………………………. 15 BPM Methods and Tools ……………………………………………………… 17 Definition and General Information……………………………………….. 18 Different Approaches and Trends in Workflow Management……. 9 Notation in FBPML …………………………………………………………….. 20 Dell’s Supply Chain Strategies ………………………………………………………… 10 Business Process Modelling…………………………………………………………….. 15 Workflow Management ………………………………………………………………….. 18 Fundamental Business Process Modelling Language (FBPML) …………… 20 Three-Layered Business Process Modelling Approach ……………………….. 4 3 Dell’s Business Process Model ………………………………………………………………….. 25 3. 1 3. 2 Dell BPM – The MIT Process Handbook version ………………………………. 28 Dell BPM – The sequenced MIT Process Handbook version ………………. 32 3. 2. 1 3. 2. 2 3. 3 Weaknesses of Dell’s BPM based on MIT Process Handbook ….. 32 The sequenced MIT Process Handbook version of Dell’s BPM … 33 Dell BPM – The enriched version…………………………………………………….. 41 iv 3. 3. 1 3. 3. 2

Weaknesses of Dell’s BPM sequenced version ……………………….. 41 Enriched-MIT Process Handbook version of Dell’s BPM ………… 42 4 Workflow Engine …………………………………………………………………………………….. 56 4. 1 Workflow engine design and assumptions…………………………………………. 57 4. 1. 1 4. 1. 2 4. 1. 3 4. 2 4. 2. 1 4. 2. 2 4. 2. 3 4. 2. 4 4. 3 4. 3. 1 4. 3. 2 4. 4 Aim & Objectives ……………………………………………………………….. 57 Design conceptualisation & Requirements ……………………………… 7 Design decisions & Assumptions ………………………………………….. 61 Junction representation ………………………………………………………… 66 Process representation………………………………………………………….. 68 World state representation ……………………………………………………. 69 Event representation…………………………………………………………….. 69 Workflow engine algorithm ………………………………………………….. 70 Interpretation of workflow engine interesting code ………………….. 6 Logical representation of executable BPM ………………………………………… 65 Workflow engine creation…………………………………………………………… ….. 70 Discussion and conclusions …………………………………………………………….. 77 5 Experiments …………………………………………………………………………………………….. 80 5. 1 Dell’s BPM simulation……………………………………………………………………. 80 5. 1. 1 5. 1. 2 5. 1. 3 5. 2 5. 2. 1 5. 2. 2 5. Dell’s BPM specification and representation…………………………… 81 Dell’s BPM simulation results ………………………………………………. 88 Discussion of Dell’s BPM simulation results ………………………….. 89 Experiment 1: Improve the actual BPM …………………………………. 91 Experiment 2: Compare Dell with a traditional computer company 95 Discussion and conclusions …………………………………………………………… 103 Experiments & Results……………………………………………………………………. 0 6 Evaluation ……………………………………………………………………………………………… 107 6. 1 6. 2 Evaluation Framework ………………………………………………………………….. 107 Evaluation of developed BPM ……………………………………………………….. 107 6. 2. 1 6. 2. 2 Soundness evaluation…………………………………………………………. 108 Realism evaluation…………………………………………………………….. 108 v 6. 2. 3 6. 2. 4 6. 3 6. 3. 1 6. . 2 6. 3. 3 6. 3. 4 Completeness evaluation…………………………………………………….. 109 Evaluation of the level of detail …………………………………………… 110 Soundness evaluation…………………………………………………………. 111 Completeness evaluation…………………………………………………….. 112 Coverage evaluation…………………………………………………………… 113 Ease of use ……………………………………………………………………….. 13 Evaluation of developed workflow engine ………………………………………. 111 7 Conclusions and Future Work………………………………………………………………… 114 7. 1 7. 2 7. 3 Overview…………………………………………………………………………………….. 114 Conclusions…………………………………………………………………………………. 114 Future Work ………………………………………………………………………………… 115

Bibliography …………………………………………………………………………………………….. 117 A Workflow Engine Decisions …………………………………………………………………… 122 B Workflow Engine Code………………………………………………………………………….. 129 C Demo For Workflow Engine ………………………………………………………………….. 138 D Experiments’ Code………………………………………………………………………………… 47 vi List of Figures Figure 1: Types of channel relations and flows across a supply chain …………………… 4 Figure 2: Analysis of SCM System [53] ……………………………………………………………. 5 Figure 3: Cost-Responsiveness Efficient Frontier and Zone of Strategic Fit [10]……. 8 Figure 4: Distribution channel of Dell vs. a traditional company [31] …………………. 11 Figure 5: FBPML notation…………………………………………………………………………….. 0 Figure 6: FBPML joint and split junctions ………………………………………………………. 22 Figure 7: Combinations of FBPML junctions…………………………………………………… 23 Figure 8: Three-layered BPM approach…………………………………………………………… 24 Figure 9: Sample entry of the MIT Process Handbook for “buy” ……………………….. 27 Figure 10: Sample entry of the MIT Process Handbook for “Identify potential customers in custom channel {Dell}”………………………………………………………. 7 Figure 11: Decomposition of “Create computers to order” (MIT Process Handbook) ……………………………………………………………………………………………………………. 28 Figure 12: Decomposition of “Design product and process” (MIT Process Handbook)……………………………………………………………………………………………. 29 Figure 13: Decomposition of “Buy standard item to stock” (MIT Process Handbook) …………………………………………………………………………………………………………… 29 Figure 14: Decomposition of “Sell using customized sales channel {Dell}” (MIT Process Handbook) ……………………………………………………………………………….. 31 Figure 15: Decomposition of “manage as a creator” (MIT Process Handbook) ……. 32 Figure 16: Decomposition of “Create computers to order” (Sequenced MIT Process Handbook version) ………………………………………………………………………………… 4 Figure 17: Decomposition of “Design product and process” (Sequenced MIT Process Handbook version) ………………………………………………………………………………… 35 Figure 18: Decomposition of “Develop product and process design” (Sequenced MIT Process Handbook version)…………………………………………………………………….. 35 Figure 19: Decomposition of “Buy standard item to stock” (Sequenced MIT Process Handbook version) ………………………………………………………………………………… 6 Figure 20: Decomposition of “Manage suppliers” (Sequenced MIT Process Handbook version) ………………………………………………………………………………… 36 Figure 21: Decomposition of “Sell using customized sales channel” (Sequenced MIT Process Handbook version)…………………………………………………………………….. 37 Figure 22: Decomposition of “Identify potential customers in custom channel” (Sequenced MIT Process Handbook version)……………………………………………. 38 Figure 23: Decomposition of “Manage as a creator” (Sequenced MIT Process…….. 8 Figure 24: Decomposition of “Manage resources by type of resource” (Sequenced MIT Process Handbook version) …………………………………………………………….. 39 Figure 25: Decomposition of “Manage other external relationships” (Sequenced MIT Process Handbook version)…………………………………………………………………….. 39 Figure 26: Decomposition of “Manage regulatory relationships” (Sequenced MIT Process Handbook version)…………………………………………………………………….. 0 Figure 27: Decomposition of “Create computers to order” (Enriched version) …….. 43 Figure 28: Decomposition of “Develop product and process” ……………………………. 44 Figure 29: Decomposition of “Develop product and process design” (Enriched version)………………………………………………………………………………………………… 44 vii Figure 30: Decomposition of “Buy standard item to order” (Enriched version) ……. 45 Figure 31: Decomposition of “Share info with supplier” (Enriched version) ……….. 6 Figure 32: Decomposition of “Share real-time info via Value Chain” (Enriched version)………………………………………………………………………………………………… 46 Figure 33: Decomposition of “Get inventory from supplier” (Enriched version) ….. 47 Figure 34: Decomposition of “Manage supplier” (Enriched version) ………………….. 47 Figure 35: Decomposition of “Build to order” (Enriched version)………………………. 48 Figure 36: Decomposition of “Sell directly” (Enriched version) ………………………… 9 Figure 37: Decomposition of “Sell directly to home and small business customers” (Enriched version)…………………………………………………………………………………. 49 Figure 38: Decomposition of “Manage home and small business customers” (Enriched version)…………………………………………………………………………………. 50 Figure 39: Decomposition of “Support home and small business customers” (Enriched version)…………………………………………………………………………………. 0 Figure 40: Decomposition of “Get feedback from home and small business customer” (Enriched version) …………………………………………………………………. 51 Figure 41: Decomposition of “Sell directly to large business and public sector customers” (Enriched version)………………………………………………………………… 51 Figure 42: Decomposition of “Identify potential corporate customers” (Enriched version)………………………………………………………………………………………………… 2 Figure 43: Decomposition of “Manage large business and public sector customers” (Enriched version)…………………………………………………………………………………. 52 Figure 44: Decomposition of “Support large business and public sector customers” (Enriched version)…………………………………………………………………………………. 53 Figure 45: Decomposition of “Support large business and public sector customers” (Enriched version)…………………………………………………………………………………. 3 Figure 46: Decomposition of “Manage as a creator” (Enriched version)……………… 54 Figure 47: Decomposition of “Manage resources by type of resource” (Enriched version)………………………………………………………………………………………………… 54 Figure 48: Decomposition of “Manage other external relationships” (Enriched version)………………………………………………………………………………………………… 5 Figure 49: Decomposition of “Manage regulatory relationships” (Enriched version) ……………………………………………………………………………………………………………. 55 Figure 50: Relation between workflow engine mission, conceptualisation and requirements, design decisions and assumptions ……………………………………….. 60 Figure 51: Example BPM with a “process branch” …………………………………………… 64 Figure 52: An example BPM for the workflow engine ……………………………………… 6 Figure 53: Relation of workflow engine with model, process and entity specification ……………………………………………………………………………………………………………. 70 Figure 54: Flowchart of our workflow engine ………………………………………………….. 72 Figure 55: Flow state of the execution of a simple BPM using our workflow engine ……………………………………………………………………………………………………………. 3 Figure 56: Graphical representation of workflow engine use……………………………… 78 Figure 57: Decomposition of “Buy standard item to order” (Enriched version) ……. 81 Figure 58: Decomposition of “Sell directly to large business and public sector customers” (Enriched version)………………………………………………………………… 85 Figure 59: Original (sequenced) and parallelized part of “Buy standard item to order” for experiment 1, version 1 …………………………………………………………………….. 92 viii

Figure 60: Original (sequenced) and parallelized part of “Buy standard item to order” for experiment 1, version 2 …………………………………………………………………….. 93 Figure 61: myCompany’s BPM for “Buy standard item to stock” ………………………. 96 Figure 62: Comparison of simulation results of time between Dell’s “Buy standard item to order” and myCompany’s “Buy standard item to stock” …………………. 98 Figure 63: Comparison of simulation results of cost between Dell’s “Buy standard item to order” and myCompany’s “Buy standard item to stock” …………………. 8 Figure 64: myCompany’s BPM for “Sell via intermediary to business customers” . 99 Figure 65: Comparison of simulation results of time between Dell’s “Sell directly to large business and corporate customers” and myCompany’s “Sell via intermediary to business customers”………………………………………………………. 102 Figure 66: Comparison of simulation results of cost between Dell’s “Sell directly to large business and corporate customers” and myCompany’s “Sell via intermediary to business customers”………………………………………………………. 02 Figure 67: Comparison of simulation results of time between Dell’s and myCompany’s processes………………………………………………………………………. 104 Figure 68: Comparison of simulation results of cost between Dell’s and myCompany’s processes………………………………………………………………………. 105 Figure 69: Level of detail of Dell’s BPM ………………………………………………………. 11 Figure 70: Example BPM to illustrate that backward chaining is inappropriate for start time estimation …………………………………………………………………………….. 122 Figure 71: Execution times of processes of Figure 70……………………………………… 122 Figure 72: Example BPMs to illustrate sophisticated treatment of process waiting time……………………………………………………………………………………………………. 23 Figure 73: Example BPM to illustrate the need for prior knowledge of events’ occurrence ………………………………………………………………………………………….. 125 Figure 74: Example BPM with a process branch…………………………………………….. 126 Figure 75: Example BPMs to illustrate the need for conditions iii) and iv) of execution completion …………………………………………………………………………… 127 Figure 76: Example BPMs for a transforming a BPM containing a loop……………. 28 Figure 77: Example BPM for simulation……………………………………………………….. 138 Figure 78: Graphical representation of workflow engine use framework …………… 139 Figure 79: Screenshot of myProcess. pl………………………………………………………….. 140 Figure 80: Screenshot of myJunctions. pl……………………………………………………….. 141 Figure 81: Screenshot of myWorld. pl……………………………………………………………. 143 Figure 82: Screenshot of workflowEngine. l …………………………………………………. 144 Figure 83: Screenshot of Sicstus Prolog environment in Windows……………………. 145 Figure 84: Screenshot of run command of workflow engine in Sicstus Prolog …… 145 Figure 85: Screenshot of BPM simulation output……………………………………………. 146 ix List of Tables Table 1: Dell’s appropriate coupling of supply chain capabilities with processes and people ………………………………………………………………………………………………….. 5 Table 2: Key principles for Dell’s business model according to Pearlson et al [41]. 15 Table 3: Common characteristics of Business Process definitions………………………. 16 Table 4: Contribution of Business Process Modelling, according to Luo et al [33].. 17 Table 5: Model specification of junction-followed-by-junction in our workflow engine ………………………………………………………………………………………………….. 67 Table 6: Process specification of “Buy standard item to order” ………………………….. 2 Table 7: Process specification of “Sell directly to large business and public sector customers”……………………………………………………………………………………………. 86 Table 8: Simulation results of Dell’s “Buy standard item to order” …………………….. 88 Table 9: Simulation results of Dell’s “Sell directly to large business and public sector customers”……………………………………………………………………………………………. 89 Table 10: Simulation results of myCompany’s “Buy standard item to stock” ………. 7 Table 11: Simulation results of myCompany’s “Sell via intermediary to business customers”………………………………………………………………………………………….. 101 Table 12: Results of experiment 2 for Dell and myCompany …………………………… 104 Table 13: Completeness Evaluation Checklist for Dell’s BPM…………………………. 109 Table 14: Completeness Evaluation Checklist for the developed workflow engine 112 x Chapter 1 Introduction 1 1. 1 Motivation The role of Supply Chain Management (SCM) is becoming more and more important in today’s business world.

From a purely operational approach to SCM of the 1960s we have moved to a more integrated and strategic approach. Hence, supply chain management is today considered as a source of competence and innovation. In the modern business world, companies are competing not only through their product range and customer relations, but also through their supply chains. In this, Dell has been held as the “golden example” of Supply Chain Management. Dell has achieved to become one of the most successful PC companies in the world, by emphasizing and aligning its strategies with the design of its supply chain (SC).

The innovative ideas of its founder, Michael Dell, and their successful implementation have turned Dell into the most quoted example of the Supply Chain research community. Therefore, the interest in investigating Dell’s SC strategies is great, as it is expected to highlight more general and innovative issues of SCM. 1. 2 Gap, Aim and Objectives Even though several research efforts have examined Dell’s supply chain strategies, most of the adopted approaches fall into the category of strategic and theoretical, abstract view of the subject.

On the other hand, the business world is “starving” for examples and practical, realistic advice for strategies and operations. So, there seems 1 to be some gap between academia and the business world concerning the treatment of the subject of SCM. Our aim is to fill this gap by providing an analysis of a lower level, thus use knowledge-based techniques to analyze and model Dell’s business and SC strategies. After examining these strategies, we will develop a business process model (BPM) for Dell that is strategic, business-goal-oriented and executable.

To make the BPM executable we will create a workflow engine for BPM simulation and calculation of the total execution time and cost. So, the primary objective of our work is to have an insight into Dell’s supply chain strategies. The secondary objectives include: i) the development of a BPM for Dell that illustrates its SC strategies, ii) the creation of a workflow engine for BPM simulation that is business context sensitive, and iii) the simulation of the developed BPM using the workflow engine for further analysis of Dell’s strategies. 1. 3 Thesis Outline The thesis has been divided into 7 chapters, starting from this introductory one.

The remaining chapters are organised as follows: Chapter 2 gives an overview of literature that is related to our work, and hence covers Supply Chain Management, Dell’s Supply Chain Strategies, Business Process Modelling and Workflow Management Chapter 3 describes the developed Business Process model for Dell and explains the relevant decisions Chapter 4 covers the development of the workflow engine and illustrates its mission and objectives, some design decisions and assumptions we have made Chapter 5 presents the experiments we have conducted on Dell’s BPM using our workflow engine and illustrates the relevant conclusions Chapter 6 covers the evaluation of our work Chapter 7 summarizes the work done, presents interesting conclusions and suggests future extensions of this work 2 Chapter 2 Background Information 2 In this chapter we will review literature that is relevant to our work and that will be helpful to the reader to bear in mind throughout the report. Since our work combines a business-oriented subject with a computer science methodology, it is meaningful to review literature of both sciences. So, we will first present some general background information about supply chain management, and then we will review literature that handles Dell’s supply chain strategies.

In the second half of this chapter we will give an introduction to business process modelling and workflow management, and then we will explain some topics that we will base our work on, thus FBPML and the three-layered business process modelling approach. 2. 1 Supply Chain Management A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request [10]. In other words, a supply chain (SC) includes all organizations that collaborate in order to produce and deliver a finished product to the final customer, as well as the customer himself. An example of a simple, direct SC would be the one for a bakery in Edinburgh, which contains one supplier, a distributor of the materials, the bakery and a customer.

Supply chains can differ in size, complexity of relations between the members and distribution of physical presence. In the following figure two different types of channel relations can be seen: direct, where the SC consists of one supplier and one customer of an organisation, and extended, where apart from the above, a supplier’s supplier, a customer’s customer, etc. are included. In general, supply chains are 3 dynamic, and involve the flow of information, products and funds between different stages [30], as shown in the following figure. Direct Supply Chain Supplier Organization Customer Extended Supply Chain Supplier’s Supplier … Supplier Organization Customer … Customer’s Customer Products Information Fund

Figure 1: Types of channel relations and flows across a supply chain Supply chain management has the objective to have the right products in the right quantities at the right time at minimal cost [13], a situation that would guarantee optimal service levels for the customer and optimal performance for the organizations as a whole and separately. So, SCM involves the management of flows between and among members of the supply chain in order to maximize total supply chain profitability [10], hence maximize the total value generated throughout the SC. Even though the term Supply Chain Management is popular in both academia and business world, its meaning seems to be ambiguous, as Mentzer et al. [38] suggest.

Some authors view SCM as a management philosophy (with systems approach, strategic orientation and customer focus as key features), others use the term to refer to the set of activities to implement a management philosophy (with integrated behaviour, mutually sharing information, risks and awards, cooperation and integration of processes being the most important ones), while a third approach is in terms of a set of management processes (the definition given above by Chopra et al. [10] adopts this approach). In our work we will adopt the last definition of SCM, 4 while recognizing the existence and importance of the others – an organization needs first to decide about its supply chain strategy and then translate it into actions and processes that fulfil it. Apart from this, there seems to be a confusion between the term of Supply Chain Management and Logistics. In fact, the two terms are very closely related, and they are sometimes used alternatively.

However, logistics involves “the management of order processing, inventory, transportation and warehousing” and the challenge within a firm is to “coordinate functional competency into an integrated operation focused on servicing customers”, while in the broader supply chain context, operational synchronization is essential with customers and suppliers in order to link internal and external operations as one integrated process” [4]. This is made clear by the following figure by Zografos [53]: Logistics involves the operations of a single enterprise, while supply chain management involves the interoperations between the different supply chain members. Supply Chain Management ORGANIZATION ORGANIZATION Organization

LOGISTICS MANUFACTURING SALES ORGANIZATION ORGANIZATION Transportation system SERVICES RESOURCES Logistics Operation ORDER PROCESSING TRANSPORTATION WAREHOUSING INVENTORY Figure 2: Analysis of SCM System [53] Bearing in mind the different dimensions of SCM, there are three types of SCM decisions: strategic, tactical and operational [39]. Strategic SCM decisions involve the design and configuration of the supply chain, capacity planning and facility location; tactical decisions include supplier selection and evaluation, bidding and 5 contracts; operational decisions include inventory management, production planning and scheduling, and replenishment policy.

The research concerning SCM decisions is wide, and it includes the five illustrative decision models by Narasimhan et al. [39], thus buyer-supplier behaviour, sourcing, integrated operations and marketing and logistics models. 2. 1. 1 Importance of Supply Chain Management As we have already mentioned in Chapter 1, supply chain management is becoming more and more important in today’s business world. As Harrison suggests [21], “enterprises are currently competing through supply chains”, while Gattorna [18] claims that “supply chains are the business”. But what is it that makes supply chains so important? To answer this question one has to consider the modern business environment and Porter’s value chain model [42].

What characterizes today’s business environment is globalization and rapid rhythms of change, leading to a high degree of uncertainty and a need for flexibility. The market is more demanding than in the past and companies compete more on the basis of time and quality. Since logistics-related decisions have a great impact on time, logistics has become important for a company’s competitive advantage. This is also supported by Porter’s value chain analysis [42], which suggests that the primary value chain activities of a firm are inbound and outbound logistics, marketing and sales, service, and operations; if a firm succeeds to implement these activities in an effective and efficient way, it can gain a considerable competitive advantage.

Additionally, globalization has led to closer relationships among suppliers and customers, thus leading to a tightening of supply chains. A systems thinking is gradually being adopted by companies, as they recognize the need for supply chain cooperation and the importance of the success of the whole supply chain rather than only their own. After all, this agrees with Porter’s value system [42], which suggests that a firm’s value chain is part of a larger value system (including suppliers’ and customers’ value chains), and as such, a firm’s success depends not only on its own value chain but also on the success of the values system it belongs to. 6 Finally, we should take into account the emergence of Internet and E-Commerce.

Internet and new technologies, such as ERP, have facilitated the sharing of information between firms, thus highlighting how much a company can benefit from cooperation with other members of its supply chain. As Lawton et al. [29] suggest, “Internet has extended the benefits of ERP from the value chain of an individual firm to the entire value system of firms and their suppliers and customers”. Relevant literature [11] deals with the other side of the same coin, i. e. how different companies can use the strengths of Internet in order to improve their supply chain performance. 2. 1. 2 Supply Chain Management Approaches Given the increasing importance of SCM for business success, there is a growing interest in SCM in both academia and business world.

Different approaches are adopted in the analysis of the phenomenon and the problems to seek the best choice of supply chain strategy. One can tackle this problem through modelling – models of successful supply chains are expected to give insight into SC theory and extend it. Beamon [2] provides us with a focused review of multi-stage supply chain modelling, differentiating four types of SC models: deterministic analytical, stochastic analytical, economic models and simulation models. In the same article an analysis is given on the different SC performance measures being used, divided into qualitative and quantitative categories. It is also common practice to examine and analyse important issues of supply chain management.

For example, it has been argued [10] that “competitiveness and supply chain strategies must have the same goal”, in other words a company should achieve a strategic fit by aligning its SC strategies with the customer priorities. Towards this, three steps should be followed: understand the customer and supply chain uncertainty, understand the supply chain capabilities and achieve the responsiveness efficient frontier”, which can be seen in the figure below. strategic fit. As far as the second step is concerned, one should bare in mind the so-called “cost- 7 High Zone of strategic fit Responsiveness Low High Low Cost Figure 3: Cost-Responsiveness Efficient Frontier and Zone of Strategic Fit [10] Many researchers are also concerned with the strategic dimension of SCM. Cohen et al. 12] propose five disciplines for top performance: view your supply chain as a strategic asset, develop an end-to-end process architecture, design your organization for performance, build the right collaborative model and use metrics to drive business success. 2. 1. 3 “Hot topics” in Supply Chain Management A term that is very popular in the last years is the one of the “extended enterprise”, which means that each member of the supply chain drops the “single company” thinking and adopts a systems thinking focusing on the performance of the whole supply chain, aiming at the satisfaction of the customer [21]. Such a situation involves the close cooperation of the members of the SC, their coordination and integration, facilitated by information sharing.

All these issues are often addressed in SCM literature, illustrating the importance of the extended enterprise (sometimes also called virtual enterprise). For instance, Lee [30] investigates the significance of integration in modern supply chains and how value can be created, suggesting that “supply chain integration is neither an easy nor a simple task – but the payoff can be handsome”. Similarly, Gattorna [18] takes us from firms’ alignment and alignment in the supply chain to dynamic alignment, introducing a four-level framework to achieve this: marketplace-, strategy-, cultureand leadership-related. Thomas et al. [50] argue that “firms are moving from decoupled decision making process toward more coordinated and integrated design 8 nd control of their components in order to provide goods and services to the customer at low cost and high service levels” and present three categories of operational coordination (buy-vendor, production-distribution and inventorydistribution), as well as strategic planning models that support SC coordination. A related “hot topic” is the so-called bullwhip effect in supply chains. Bullwhip effect is the phenomenon of the amplification of demand order variability as we move up in the supply chain [31], which has as consequence excessive inventories, poor forecasts and poor customer service. Even though different suggestions have been made on how to deal with this problem, there are still many companies suffering from bullwhip effect symptoms. Important research is also done in the field of different SCM trends and strategies.

Mass production techniques, pioneered by Ford in the 1920s [29], have been common practice in the twentieth century and are still seen as the most popular rule for doing business. A challenge to this model has been the just-in-time (JIT) scheme introduced by Toyota in the 1960s, which facilitated rapid product innovation, flexible production and cost saving through lower level of inventory [29]. The term JIT refers broadly to “a philosophy where the entire supply channel is synchronized to respond to the requirements of operations or customers” [16], and it involves manufacturing (with small lot sizes and short lead times) and purchasing (with frequent deliveries of small lot sizes as central point).

Build-to-order (sometimes also referred as make-to-order) is another popular operations paradigm, which leads to a flexible and responsive supply chain [19]. What is also common in today’s supply chains is the vertical disintegration of production, meaning that companies tend to focus on their core competence and outsource their logistics and secondary operations (3PL) in order to save money. Postponement is another common practice, where there is a delay in decision making and especially in manufacturing of a product, resulting in better predictions about the end product demand over time [44]. 9 2. 2 2. 2. 1 Dell’s Supply Chain Strategies General Information about Dell Dell was founded by Michael Dell in 1984, while he was still a student at the University of Texas in Austin.

From its very first steps, the direct sales model was adopted: At the beginning computers were sold over the phone and they were built according to the customers specifications [28]. After a short break of using the retail channel from 1990 to 1994, Dell returned to its direct model and grew rapidly in the mid 1990s, thus becoming in 1999 the number one PC seller in the United States and number two worldwide [28]. Dell’s success was phenomenal: from a student’s personal company selling no more than 100 computers in its first years of existence, it became a big company of more than 35. 000 employees and over 25. 000 million dollars’ sales in 2000 [26], competing “giants” such as IBM and HP. No wonder that Dell was the most admired company of US and third most admired company worldwide in 2005 [58].

Dell’s success remained for the following years, however could not entirely avoid the general crisis of the PC industry of the new millennium; Dell’s growth rate has fallen, resulting in a fall in its stock price. However, Dell has managed to remain a successful company, as its growth rate “continues to outpace the industry as a whole” [28]. Apart from this, Dell has decided to enter new markets and, thus, expand its product portfolio: servers, workstations, printers and PDAs, as well as flat-screen TVs and digital cameras are the new challenge for the company. Under this scope, Dell changed its name in 2003 from “Dell Computer Corporation” into “Dell Inc. , in order to “reflect the evolution of the company from a computer manufacturer to a company that provides a wide array of technology-related services” [45]. Michael Dell’s strategic choices and his effective way of realizing them have played a significant role in Dell’s success story. The key element of his successful business model of the company is its supply chain management; hence, many theorists of Supply Chain Management have tried to investigate Dell’s SC strategies, and several companies have attempted to “copy” Dell’s business model, without success however. This fact shows the complexity of Dell’s SC strategies and its unique way 10 of putting them into practice. The core elements of Dell’s business model re its direct sales model, usually referred as “direct model”, and the build-to-order strategy. 2. 2. 2 Directs Sales The direct model refers to the fact that Dell does not use the retails channel, but sells its PCs directly to customers through its website, Dell. com, as Figure 4 shows. This way the intermediary steps that may add time and cost are eliminated, and Dell is directly linked to its customers. PC maker Retailers Resellers Integrators Suppliers Distributors Final Customer Indirect Distribution Channel of the PC Industry Suppliers Dell Dell’s Direct Distribution Channel Figure 4: Distribution channel of Dell vs. a traditional company [31] Final Customer

In fact, Dell sells directly to all its customers, “from home-PC users to the world’s largest corporations” [54]. This way it creates a direct relationship with each individual customer, which turns out to be a great source of competitive advantage. As Michael Dell has stated, this direct relationship “creates valuable information” about the customer, thus Dell knows who the end users are, what they have bought from Dell and what their preferences are, a fact that allows Dell to offer add-on products and services, and stay, in general, closer to the customer [27]. As Lawton et al [29] suggest, this “provides Dell with a wealth of marketing and product development information”.

Dell distinguishes three rough customer segments: large organizations (large companies or government institutions), small and medium businesses, and personal consumers; the mix of customers served is wide (no customer represents more than 1-2% of Dell’s revenues) and there is a focus on large customers (70% of Dell’s sales corresponds to them) [34]. It is also worth mentioning that segmentation is getting 11 finer and finer in order to better approach the customers. This fact, in combination with the direct model, leads to the ability to better forecast demand [34]. Especially in the case of large customers, the above-mentioned direct relationship is upgraded to virtual integration.

With the help of information technology and traditional face-to-face human contact, customers work with Dell as partners; this means that “Dell is not going to be just their PC vendor anymore, but their IT department for PCs”, as Michael Dell claims [34]. There are two main facilities that bring Dell and its customers closer: Premier Pages and Platinum Councils. Premier Pages, now called Premier. Dell. com, are customised IT procurement and support sites for big clients, which let them decide and manage their purchases from Dell, thus leaving to salespeople a more consultative role. Premier. Dell. com represents a customised sales channel and as Dell has realised how beneficiary that is, it has increased the number of Premier Pages from 1000 in 1998 to 50,000 in 2000 [36].

Platinum Councils are regional meetings of Dell’s largest customers, where executives, salespeople and technicians discuss their experience with Dell and their needs and expectations from technology. Additionally, Dell’s Customer Experience Initiative, Dell Forums [55], the Direct2Dell blog [57] and the IdeaStorm [56] illustrate the importance that Dell places on its customer relationships. 2. 2. 3 Build-to-order and integration with suppliers The new business model that Dell has pioneered within the computer industry has broken the “we-have-to-develop-everything” existing view of the world and has managed to highlight component assembly as a respectful core activity of a computer company, as Michael Dell states [34]. The build-to-order strategy takes this achievement one step further.

Build-to-order SC as a strategy is defined as “a value chain that manufactures quality products or services based on requirements of an individual customer or a group of customers at competitive prices, within a short span of time, by leveraging the core competencies of partnering firms or suppliers and information technologies, such as the Internet and WWW, to integrate such a value chain” according to Gunasekaran et al. [19]. Thus, in the case of Dell, a computer is built only after a 12 customer has placed an order; then lean manufacturing and just-in-time production take place. This means that once an order is placed, configuration details are sent to the manufacturing floor and the assembly begins; once the computer is built and the requested software is downloaded, it is shipped by a 3PL to the customer. The choice of a build-to-order and JIT manufacturing procedure has several advantages for Dell.

First, the level of inventories is very small, leading to low inventory costs and faster response to demand changes – for instance, when a new microprocessor comes out in the market, Dell can immediately order it from its suppliers, as there is no excess inventory to get rid of first. Also, it is common that customers pay for an order before Dell pays its suppliers for the product’s components, thus letting Dell operate on a negative cash conversion cycle [27]. Not to forget the fact that this way customized products are offered, and instead of guessing, Dell knows exactly what its customers want before producing it. What is special in the case of Dell is its relationship to its suppliers, which also facilitates its build-to-order model. Dell fully adopts the approach of the extended enterprise by viewing its suppliers as an integral part of doing business and a key factor for its success. The supplier effectively becomes our partner”, as Michael Dell states [15]. Dell selects suppliers that have “expertise, experience and the ability to deliver value” [51], and their performance is regularly evaluated against pre-agreed measures. In fact, every quarter Dell meets with its suppliers to provide direct feedback on performance and future expectations [17]. The performance is evaluated through a scorecard that compares each supplier with its competitors based on cost, quality, reliability and continuity of supply. As a reward, Dell’s well-performing suppliers are provided with training and support in order to improve their processes.

Under the effort of minimizing its inventories, Dell demands from its suppliers to provide them with goods in a “high speed” – so instead of orders such as “deliver 5000 to this warehouse every two weeks”, the form of orders is more like “tomorrow morning we need 6. 795 to be delivered at door A3 (of the warehouse) by 7 am” [51]. A new notion that Dell has introduced is the one of inventory velocity, and it focuses 13 on minimizing inventory and maximizing speed. It is worth mentioning that Dell holds an average of less than 6 days of inventory, while the corresponding average of its competitors is 6 weeks [36]. (This fact will be later factored in our model design for simulation, in Chapter 5. In order to deal with these high rhythms, the main suppliers are required to maintain inventory near or in Dell’s plants; they can either produce close or keep inventories in revolvers or supplier logistics centres (small warehouses close to Dell’s assembly plants, that are shared by suppliers who pay the corresponding rent) [24]. Of course, all the practices described above require close collaboration between Dell and its suppliers – mutual trust and sophisticated data exchange are key factors to achieve it. This wouldn’t have been possible without the use of Internet and IT: The most important facility towards information sharing is the website ValueChain. Dell. com which operates as an extranet between Dell and its suppliers. Through ValueChain. Dell. om Dell’s suppliers can get informed about the level of inventory in the supply chain, supply and demand data, component quality metrics and new part transitions [24]. This way, Dell shares demand and production forecasts with its suppliers, so they can themselves decide on production levels, avoiding the bullwhip effect. 2. 2. 4 Other interesting approaches Apart from the direct model and build-to-order supply chain strategies, analysts have dealt with other issues that are said to contribute to Dell’s success. As Fugate et al. [17] indicate, Dell’s secret recipe concerning its supply chain is “the appropriate coupling of process and people elements” (See Table 1, which is taken from [17]).

This is obvious from Michael Dell’s statements that “our R&D focuses on process and quality improvements in manufacturing” and that “one of our biggest challenges is finding managers who can share and respond to rapid shifts” [34]. The above also agrees with Cutler’s suggestion that the key ingredient of supply chains is people, as they bring the SC into life [18]. 14 SCM Capabilities Processes People Maniacal about execution / Bias Demand Management Direct Model / Build-to-order for action Internal Collaboration Information Technology Culture of information sharing Linked partner planning and Value of personal/business Leverage Partners execution relationships Business Fundamentals Balance sheet and P&L Rewarded for decreasing costs Table 1: Dell’s appropriate coupling of supply chain capabilities with processes and people According to Kraemer et al. 27], there are three central points in Dell’s value web model: “Dell’s powerful role in coordination and control of the value network, its close physical integration with its suppliers and business partners, and the importance of information technology, the Internet and other electronic communications”. Chopra et al. [11] have evaluated Dell by viewing it as an example of e-business that has used Internet to align it with its supply chain strategies. Pearlson et al. [41] view Dell as a zero-time organisation and identify four key principles apart from build-to-order and direct model, which can be seen in the following table and which we will not analyse any further.

Key principles for Dell’s business model Build-to-order Direct sales Exchange inventory for information Velocity, value and volume Constant change Criticality of coordination Table 2: Key principles for Dell’s business model according to Pearlson et al [41] 2. 3 2. 3. 1 Business Process Modelling General Information about BPM There is a wide range of definitions for a business process. According to Davenport [14], “a process is a structured, measured set of activities designed to produce a specified output for a particular customer or market. Implying a strong emphasis on how work is done, it is a specific ordering of work activities across time and place, with a beginning, an end, and clearly identified inputs and outputs”.

This is the definition that we will adopt for a business process, emphasizing on the existence of some inputs and outputs, and the creation of value for the customer. However, as 15 Lindsay et al. [32] suggest, business processes are not adequately defined, a fact that leads to confusion in the academic and especially in the business sector. For example, there seems to be some confusion about whether a process description refers to the end product or not, and whether the analysis of a business process is appropriate for decision-making modelling. Even though there seems to be controversy concerning the definition of business processes, there are some common characteristics of BP definitions in literature, as Kavakli and Loucopoulos [25] suggest (see Table 3).

Moreover, some important issues about business processes are decomposition, specialization, the existence of alternative processes and temporal relations between actors, objects and some process [8]. Common characteristics of BP definitions well identified products and customers goals several activities involved collaboration between organisational actors Table 3: Common characteristics of Business Process definitions Business Process Modelling (BPM) has captured the attention of the business world in the mid 1990s and is becoming increasingly popular since then. As Aguilar-Saven suggests [46], business process models are mainly used either to learn, make decisions about the process or develop business process software. Kalpic et al. 23] emphasise the importance of process modelling “as a tool that allows the capturing, externalisation, formalization and structuring of knowledge about enterprise processes”, thus enabling knowledge management. In other words, even though business processes are nothing new to enterprises, their modelling makes their existence explicit and provides a common ground for relative discussion. On the other hand, it has been argued that process management has failed to fulfil its promises. In fact, Benner et al. [3] have shown that “pressures towards process management stunt a firm’s dynamic capabilities” and that “process management activities are beneficial for organizations in stable contexts, but not in dynamic innovation and change”.

However, the contribution of business process modelling and management is still widely recognised for the reasons mentioned in Table 4. Not to forget that BPM is usually the first step towards Business Process Reengineering 16 (BPR), a very popular management approach aiming at the improvement of the performance of business processes with respect to cost, quality, service and speed. Contribution of BPM Common process representation Common understanding of process Analysis of process behaviour and Basis for process improvement and performance management Process guidance and execution support Process control automation Table 4: Contribution of Business Process Modelling, according to Luo et al [33] 2. 3. 2 BPM Methods and Tools

There are several BPM methods and tools used in academia and the business world. Popular methods can be found in Workflow Reference Model, PIF, IDEF3, UML and Petri-Nets. As far as tools are concerned, they fall in two categories, according to Chen-Burger and Robertson [8]. The first one deals with capturing and reportgenerating of specific modelling methods (e. g. RBPL, Paradigm Plus and BP WIN) and the second provides also simulation activities (e. g. BPSimulator, Simprocess and ProSim/ProCap). It is sometimes not clear which modelling method is appropriate for a project. Luo et al. [33] suggest a framework for selecting BPM methods based on BPM objectives.

In this framework we start with the BPM objectives (communication, analysis or control) and continue with the required perspectives of modelling methods (object, activity or role) and their required characteristics (formality, scalability, enactability and ease of use). The latter two are matched to the different modelling methods, thus leading to the selection of the most appropriate one. Business process modelling is a complex procedure, as it is a knowledge and social activity: In the modern enterprises, different stakeholders have different views on the business operations and the analyst needs to take these into account [1]. Apart from the above mentioned BPM methods, it is worth mentioning Checkland’s soft systems methodology [5], which is a human activity-based formalism.

In addition, there have been efforts towards a strategy-driven BPM approach, such as the article by Nurcan et al. [40]. In this work, a goal-driven approach is adopted in order to “establish a close relationship between the whys and the whats” and a relevant map 17 representation system is provided. Soffer et al. [49] also deal with the integration of goals into process modelling by distinguishing goals from soft-goals or business measures. Kavakli and Loucopoulos [25] suggest a different way of relating goals to business process modelling: Under the larger framework of Enterprise Knowledge Development, an enterprise goal submodel is created and this is linked to the enterprise process submodel.

The connection between the two has as following: Goals related to a business process are presented in a hierarchical way, with the top business goal being realized by the process, and the leaf node goals being realized by some role (related to some actor of the process) of the business process. 2. 4 2. 4. 1 Workflow Management Definition and General Information Workflow is concerned with the “automation of procedures where documents, information or tasks are passed between participants according to a defined set of rules to achieve, or contribute to, an overall business goal” [52]. Workflow technology is thus the technology that facilitates this automation. It is obvious that workflow management is closely related to BPM. According to Mentzas et al. [37], Workflow Management involves process modelling, process reengineering, and workflow optimization and automation.

Workflow Management System (WfMS) is a system that “completely defines, manages and executes workflows through the execution of software whose order of execution is driven by a computer representation of the workflow logic”. Workflow Management Systems have been around since the early nineties and they have become very popular in both academia and business world, as they support the analysis and optimisation of business operations. It is a wide belief that the application of WfMS improves organizational performance; in fact, it has been found by Reijers and van der Aalst [43] that they decrease significantly the lead-, serviceand wait-time of business process execution, and increase the utilization of involved human resources. Recognizing their increasing importance and the need for standardisation, the Workflow Management Coalition was founded in 1993. Its 18 oal is to facilitate the use of workflow technologies across vendor products and to develop standard architectures for workflow specification to allow the interoperability by various WfMS [37]. 2. 4. 2 Different Approaches and Trends in Workflow Management According to Mentzas et al. [37], there are three basic categories of workflow techniques: a) communication-based, b) activity-based, and c) hybrid techniques. The first type is more human-oriented, and it assumes that the objective of the workflow is to improve customer satisfaction. Activity-based techniques focus on modelling the work instead of modelling the commitments among humans, and hence model the tasks involved in a process and their dependencies. A combination of the two is what we call hybrid techniques.

Current research topics in workflow management include object-oriented WfMS, flexibility in workflow modelling and transactional WfMS. Furthermore, the application of Artificial Intelligence is a new trend in workflow management and it is believed that “an intelligent WfMS with self-learning capability will be able to capture the information needed to construct or complete process definitions automatically during enacting” [47]. The use of AI search techniques can also be found in the work of Jaeger et al. [22], where a framework for automatic improvement of workflows is suggested. Another hotspot in workflow management research is web-based WfMS.

Such a topic can be found in Han and Park [20], where similarities between workflow and web services are addressed. 19 2. 5 Fundamental Business Process Modelling Language (FBPML) Fundamental Business Process Modelling Language (FBPML) is a visual modelling language which is a merger of two recognised process modelling languages, PSL and IDEF3. The combination of these two languages guarantees rich visual modelling methods on the one hand and formal semantics (e. g. description of business processes in logical sentences) on the other hand. This language is designed to support both software and workflow system development, and it is characterised as standard, accessible, collaborative, precise, executable and formal [7]. 2. 5. 1 Notation in FBPML

Figure 5 depicts the notation of FBPML, as it is shown using KBST-EM (Knowledge Based Support Tool for Enterprise Models) [6]. Figure 5: FBPML notation The notation of FBPML consists of main nodes, junctions, links and annotations. We will now briefly describe each one of these points: 20 Main nodes: Activity: denotes the type of process that may be decomposed or specialised into subprocesses Primitive Activity: denotes a leaf node activity that may not be further decomposed or specialised Role: describes the “role” that an enabler plays on the context of described activities Time Point: indicates a particular point in time during the enactment of a process model Links: Precedence Link: places a temporal constraint on process execution (e. g. n Figure 5 activity b may not start execution before the execution of activity a is finished) Synchronisation Bar: places a temporal constraint between two time points (e. g. in Figure 5, the begin time of activity d should be synchronised with the end time of activity c) Junctions: Start and Finish junctions: indicate the logical starting and finishing points of a process And and Or junctions: these can be fan-in (many-to-one relationship) or fanout (one-to-many relationship), as Figure 6 shows, and they can be broken down to: o And Joint: indicates that all of the preceding activities that have been triggered must finish execution before the following activity can be executed.

So, if from activities A, B and C of Figure 6-a, A and B are triggered, D can start execution once both A and B have finished execution. o Or Joint: indicates that only one of the preceding activities is required to be triggered and finished before the following activity can be executed. So, if from activities A, B and C of Figur

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