The case of Dell - an example JIT of using the Kanban system

Over the past couple of years, many manufacturers have implemented Just-In-Time system which is an efficiency system for production and inventory control. But decades ago this approach was relatively radical, even for some sophisticated and large enterprises. Because of manufacturers used to forecast demand for their production and produce as many outputs as possible to maximize efficiency and reduce costs. However this approach leads to a number of major problems such as large inventories, production obsolescence, high production time and unexpected high costs. In this circumstance, JIT could be the solution as the system will only produce the goods and services exactly due to the order. Especially in inventory management, JIT could reduce the level of stock to the minimum or even zero.

With the rapid development of information technology, PC industry has faced many risks such as production obsolescence and price war. Inventory issue have always wreaked havoc with the ability of companies to forecast demand in the PC business (ZDNet, 1998). But some companies have successfully implemented JIT and become stronger in their industries such as Dell and Toyota. Dell has leveraged JIT principles to provide short lead time to their customers by using some tools and methods such as the Kanban system that improved Dells process in producing and delivery service. The kanban system is essential vehicle for operations of the JIT system (Steve Paton et al, 2011).

Dells core competence is lean manufacturing and that made Dell become one of the largest PC manufacturers in the world. The company believes that innovation and agility will help them to maximize design creativity, reduce production cost, minimize lead time and satisfy customer demand (Dell, 2013). To satisfy customer demand, the best way is to understand what customer wants (Steve Paton, 2011). As probably is the best-known company in mass customization in PC industry, Dells Buildto-Order model is designed to produce the exactly product with customers requirement To ensure the consistent quality across their global network, all of the Dells manufacturing centres use the same processes and measurement. Firstly, the orders will be electronic transferred from Dells order management system to the manufacturing scheduling system where all orders are sequenced into the production schedule every two hours. Once the order received, Dells tracking system will monitor the whole processes to ensure the performance work well. One of the most important factors to Dells success is kitting. The reason of Dell did not face too many inventory problems is that the Dells suppliers carry the inventory, more than that, Dell demand short lead time which is every two hours on components so that they can quickly assemble the product and shipped to the customer (BrightHubPM, 2010). Since there are no warehouses, it saved the inventory cost and space cost, and they are free of the responsibility. But if there is any disruption in supplies, the process will be forced to cease. In this case, single sourcing will be too risky for Dell, and that is why Dell has near 150 suppliers in all areas (Dell, 2013). After the components are arrived, the front line will generate a unique identifier and printed onto a label in both human readable and machine readable barcode format. And the service tag

number will enter into the Dells tracking system (YouTube, 2008). This will be used in the kanban system and quality system. Both production kanban and conveyance kanban will be used in the system to show the production information such as customers requests and where the source comes from, where the destination is. When the staffs scan the service tag, it will indicate to the workers that which components should place into the reusable protective container. By the time the container has travelled the entire of the kitting line that all the parts required for the customer unique machine will be ready for matching. The staffs will scan the services tag first which gives the unique instruction based on the customers requirements. The kanban will also guide the staff to assemble the parts step by step. During the process, the staff will scan each components serial number to record for further quality check or investigation (YouTube, 2008). This will help to drive the quality throughout the supply chain. It would also be useful for Material requirements planning (MRP) as well because the system can provide the exactly historical data. Anyway, the Lean and ERP are seems to be compatible. Both of them are aim to improve the processes and decision making capability. ERP could work on identify wasteful process such as delivery and batch production planning. Lean system could use Kanban flow to re-design a better assembly line. Improved new ERP system and Lean system could help enterprises to perform better (Toolbox, 2010). Back to the case of Dell, after building process is software installation and testing. The mainframe will take in charge. As all the customer requirements have already entered into the mainframe, the software will be downloading into the machine. Finally the mainframe will test the machine so that to ensure all components are present and operating as expected. Then the machine will be transported to the boxing line. Before staff put the instruction into the shipping box they will need to scan the service tag again. This step will need to use the conveyance kanban to make sure the correct product will be delivered to the customers. In some cases, customer may have also purchased other products such as monitor and keyboard. So the production will be sent to order accumulation area and wait to all the items to put into one shipment. Before customer get the product, delivery staff will scan the service tag one more time to ensure customer get exactly what they ordered. So based on the whole process, kanban system played a significant role. From this case, Dells JIT system has three major strengths. First of all, Dells JIT system optimized their supply chain so that the company can react quickly to their customer needs at any time any location. Secondly, Dells JIT has utilized the internet to establish good information communication mechanism with suppliers and customers which reduced lead time. Last but not least, Dells JIT successfully minimized their inventories to zero and well used the pull strategy so that reduced cost, increased cash flow and enhanced efficiency. But Dell should also consider some potential problems. For example, without safety stock, Dell may have to cease the process due to the defective components or deviation. And for the managers, kanban system needs the manager to be certain about the level and consistency of demand for their product. Hence, Dell should create a strong relationship with suppliers, build good supply chain environment, monitor and control the equipment such as kanban and set up a complete emergency measure. In this case study, Dell has been shown as a successful example that implemented JIT system. The kanban system helps in almost every step during the manufacturing and delivery services and it is the heart of the JIT system. As the result, Dell offers a wide product specification range to be built and delivered in the Australia in 7 days (Dell 2013). Due to the lower cost, Dell productions price is relatively lower than other competitors which are one of their competitive advantages. The lean manufacturing

has also brought to Dell 22 percent impact on product profitability (Dell, 2013). From the customers point of view, the combination between BTO model and JIT system is very successful, because of this method is very attractive to enthusiastic fan. Although with the competitions heat up between companies and Lean operations have started to take JITs place, kanban are still the major tools in both methodologies. Hence, the kanban system will be more widespread in most of industries.