BPM Case study- Dell Inc

Agenda

BPM- The third wave

Business Process - Overview

Business process Management Overview

Need for BPM

Concept of Value chain BPM technology architecture BPM and Six sigma Dell case Study

BPM The third Wave

The first wave of business-process management in 1920s, suggested that processes were implicit in work practices.

The second wave, ushered in over the past decade, suggested that processes could be manually reengineered through a onetime activity.
The third wave of BPM lets companies and workers create new processes on the fly. Change is the primary design goal. Through agile business processes, value chains can be monitored and continuously improved. The third wave is not business-process reengineering, enterprise application integration, workflow management, or another packaged applicationit's the synthesis and extension of all these technologies and techniques into a unified whole.

Business process- Definition

It is a group or collection of related activities or tasks that produce a specific service or product and serve a particular goal for a particular customer or customers. There are three main types of business processes: Management processes, the processes that govern the operation of an organization.

Operational processes, processes that constitute the core business and create the primary value stream. Supporting processes, which support the core processes.

Expense Report process and workflow diagram

BPM and Optimization- Overview

BPM is about change management and system implementation methodology that enables the continuous comprehension and management of business processes. It is a methodology based on the following assumptions: Business processes are ever-changing and developing. Processes must flow between multiple organizations and interested parties.

Processes interact with systems and people. Those people can be employees, partners, customers, or suppliers.

Need For BPM

Bring in operational efficiency by :

Allow common processes to be defined and extended globally, enhancing productivity, competitive advantage and information flow Align business processes to the organizations objectives, eliminating the typical, misaligned environment. strategic business

Identification and measurement of valid key performance metrics and improvements to those metrics. Eliminate non-value added sub-processes and activities, improving cycle times and customer service levels across the organization

Operational efficiency improves Bottom line

Profit & Loss Statement for Company ABC

Fiscal Year 2004 and 2005

Figures (USD) 2004 2005

Sales Cost of Goods Sold (COGS) Gross Profit General Operating Expenses (R&D) Depreciation

370,000 (70,000) 300,000 (35,000) (12,000)

400,000 (75,000) 325,000 (40,000) (12,000)

Operating Income
Other Income (Interest Income) Extraordinary Income Earnings Before Interest & Tax (EBIT) Interest Expense Net Profit Before Taxes (NPBT) Taxes (10%) Net Profit After Taxes (NPAT) Dividends Paid to Shareholders Retained Earnings

183,000
8,000 191,000 (10,000) 181,000 (18,100) 162,900 162,900

273,000
12,000 (3,000) 282,000 (10,000) 272,000 (27,200) 244,800 (20,000) 224,800

Some Examples

Some example of instances wherein BPM brings in efficiencies:

Reduced inventory Improved customer service Reduced procurement costs Reduced obsolescence and scrap Improved collections Reduced logistics and transportation costs Increased working capital

Concept of value chain

Value chain is a high-level model of how businesses receive raw materials as input, add value to the raw materials through various processes, and sell finished products to customers.

A critical pre-requisite for success in digital economy is the implementation of an integrated value chain that extends across - and beyond - the enterprise. Organizations are optimizing their value chains to bring in operational efficiencies and reduce cost.

Value chain for an IT organization

Problem Diagnosis Find a solution Design ,Develop and maintain Operate the solution Solution Management consulting Management and process consulting Technology BPO

BPM technology architecture

BPM and Six Sigma

Six Sigma Provides a Method for Improving Business Processes

In its strict definition, Six Sigma is the application of statistical methods to business processes to improve operating efficiencies. Basic theory: Sigma is a letter in the Greek alphabet used to denote the standard deviation of a process. Sigma quality level is used to describe the output of a process. A Six Sigma quality level is said to equate to 3.4 defects per million opportunities.

BPM and Six Sigma

For example A companys strategic goal may be to reduce their Days Sales Outstanding (DSO), which is a measure of the amount of cash that is currently in accounts receivable.
By applying Six Sigma methodologies to the processes that impact DSO, significant improvements in process efficiency and error reduction rates can be achieved. The process to reconcile invoice payment discrepancies, for example, can be streamlined to remove latency. Invoicing errors can also be reduced, minimizing the time to collect cash.

Dell Case study

Dells Brief History

History

Founded by Michael Dell in 1984 The single concept: Selling computer systems directly to customers Designed and built the first computer system of its own design in 1985 Was one of the first computer companies to send a technician to homes to service personal computers in 1985

Dells revolution in the PC market

Dells competitive advantage: Provide customized PC configurations, with short delivery times and affordable prices. Dells success in PC market:

Case study problem Statement

How has Dell used its direct sales and buildto-order model to its advantage?
How dell has managed to alter its value chain(Business process management) to develop an exceptional supply chain?
How has Dell exploited the advantage of the Internet to improve performance?

Supply chain management perspective

SCM involves efficient integration of all the stakeholders in the supply chain. From Raw material suppliers, Manufacturers, Warehouses, and Retail Stores. The Challenge is to coordinate activities across supply chain so that the enterprise can improve performance. This objective is met only by coordinating the frontend(Customer Demand) of the supply chain with the back end of supply chain(Production and Manufacturing portion of the supply chain). The availability of key information plays an important role in supply chain integration.

Cycle View of SCM

Cycle I

Supplier

Manufacturer

Customer

Retailer Cycle III

Distributor

Module 1:Supply Chain Managemen

Supply chain Strategies : Push based Model

Customer

PULL
Distribution Channels

PUSH
Manufacturer

Suppliers

Typical PC Supply Chain (Compaq, HP, IBM, etc.)

Push based Model Characteristics

"Push type" means Make to Stock in which the production is not based on actual demand but the forecasted demand. What happens if the forecasts are not accurate or are not communicated in a timely fashion. It can cause bullwhip effect. In such cases , costs can rise dramatically due to inventory overstocking. In worst case scenario the entire supply chain can be halted because the necessary component or raw material is not available when needed.

Over supply of inventory can be expensive

Inventories can be of multiple types:

Raw material inventory Work-in-process(WIP) inventory Finished product inventory

Costs related to inventory:

Order cost : The cost of product and the transportation cost Inventory holding cost

State Tax, Insurance Maintenance cost Obsolescence cost

Bullwhip effect

Unplanned demand oscillations can be caused by stockouts, Unplanned sales promotion in the supply chain execution process create distortions which can wreck havoc up and down the supply chain. The errors in demand forecasting can further aggravate this issue.

This unpredictable demand fluctuations can cause : Excessive inventories due to need for large safety stocks Quality issues Higher raw material cost Un acceptable service levels Ineffective resource utilization

Pull based Strategy

In pull-based supply chain , production and distribution are demand driven and are coordinated with true customer demand rather than forecasted demand. In a pure pull based system, the firm does not hold any inventory and responds only to specific orders. This is enabled by fast information flow mechanisms to transfer information about customer demand(eg POS data) to various supply chain participants.

Pull based Strategy(Continued)

The pull based strategy is particularly attractive due to: Decrease in lead times achieved through ability to better anticipate incoming orders. A decrease in inventory at retailers end due to lead time reduction. Decrease in inventories at all the levels of supply chain.

The pull based strategy has some issues: Difficult to implement especially in situations wherein the lead times are high. More difficult to take the advantage of economies of scale.

Dell strategy : Push-Pull based

In push-pull based strategy , some stages of supply chain , typically the initial stages are operated in a push based manner, while the remaining stages employ a pullbased strategy. The interface between the push-based stages and the pull-based stages is known as push-pull boundary.

Push Pull Boundary

Push Strategy Raw material

Pull Strategy End customer

Supply chain time line

Push-Pull based Strategy

In this case the manufacturer takes advantage of the fact that aggregate forecasts are more accurate as compared to individual forecasts. So demand for a component is an aggregation of demand of all finished products that use this component. Since aggregate forecasts are more accurate, uncertainty in component demand is much smaller as compared to the uncertainty in finished goods demand and this leads to safety stock reduction. This implies that component inventory is managed based on forecasts , but the final assembly is in response to a specific customer request. Thus the push portion of the manufacturer supply chain is the portion prior to assembly , while the pull portion starts with assembly and is performed based on actual customer demand. The push-pull boundary is the beginning of assembly.

Aggregate Versus Detailed Forecasts

Sales forecasts can be aggregated with respect to time:

January February March Aggregate Product A 100 150 200 450

Aggregate Versus Detailed Forecasts

Sales forecasts can be aggregated with respect to product:

January Product A 100 Product B 200 Aggregate 300

Aggregate Versus Detailed Forecasts

Why? Aggregate forecasts are more accurate than individual detailed forecasts
January January Forecast Forecast Actual Error % Error 100 120 -20 -17% 200 180 20 11% 300 300 0 0

Product A Product B Aggregate

Postponement or delayed differentiation

In postponement, the firm designs the product and the manufacturing process so that the decisions about which specific product is being manufactured can be delayed as long as possible. The manufacturing process starts by producing a generic or family product , which is differentiated to a specific end-product when the demand is revealed. The portion of supply chain prior to product differentiation is typically operated using a push based strategy.

Postponement or delayed differentiation

In this case , a generic product is built and transported based on a long term forecast. Since the generic product forecast is based on an aggregate demand, these are more accurate and leads to reduction in inventories in the supply chain. In contrast , the customer demand for specific end product typically has a high level of uncertainty and thus product differentiation occurs only in response to individual demand.

Supply chain strategies - Revisit

Dell SUPPLY CHAIN

Customer

Virtual Integration

PULL
Dell

Suppliers

PUSH

Dell Supply Chain

Other Best Practices

Dell has exploited the advantage of the Internet to improve performance

Dell established a unique e-commerce model by embracing the Internet in its supply chain.

Dell brings products to market faster than its competitors Customization and quick response

Attract large business customers

Reduce Bullwhip Effect Collecting the payments

Other Best practices

Customization and quick response

Dell uses the Internet to sell its products offers a virtually unlimited variety of PC configurations. Buyers can click through Dell and assemble a computer system piece by piece, based on their budgets and needs

Other Best Practices

Attract large business customers

The Dell site offers each corporate customer an individualized interface called Premier page

purchasing managers log on and order using an interface customized for their company's needs

While Dells consumer sales are highly visible, its business sales are a much bigger revenue source

Other Best practices

Reduce Bullwhip Effect

Dell constracts special Web pages for suppliers, allowing them to view orders for components they produce. This allows suppliers to plan based on customer demand

Dells Value Chain

How does Dells supply chain deal with the bullwhip effect? (Continued)

Sharing Data with suppliers

Flexibility

Concept of Privileged Suppliers Long time relationship with suppliers

Helping suppliers become more like Dell

Other Best practices

Collecting the payments

Because of direct sales, Dell can collect payments in averagely 5 days after they are sold. However, Dell continues to pay their suppliers according to the traditional billing schedules.

Low level of inventory and negative working capital helps Dell increase its performance.

Other best practices

How does Dell compete with a retailer who already has a stock? Price Advantage of Dell

Increase in Dells profit margin

Elimination of retailer and distributer margins

Decrease in Inventory Costs

5 days inventory vs. 30-45-90 days inventory Decrease in costs of materials

Negative Working Capital

Suppliers financing Dells growth

Better Forecasts due to better sales information/feedback

Cheaper Prices

Dell performance

Thank you!!!