Tuesday, April 5, 2011

Company’s capacity building and strategic sourcing-Dell as a case study

In economic terms, competitive advantage refers to strategic advantage that a company has over its rivals on the market. In Mark Gottfredson, Rudy Puryear and Stephen Phillip’s reading, “(out)sourcing”, as a best manifestation of competitive advantage, is a relative novel form of procurement. Capacity sourcing challenges companies to “step out of their walls” and embrace “a series of geopolitical, macroeconomic, and technological trends that has opened the world’s markets.” The world trade has pushed companies to a frontier where they need to start rethink about operations to build up competitive advantage.
The basic logic behind sourcing is to utilize other companies’ core competencies to spare time developing a company’s own. Through building a network of partnership and evolving operational focus, the company will be able to align their efforts optimizing the whole value chain and improving operational and manufacturing efficiency. The Japanese Keiretsu  gives a perfect example of operational efficiency  optimization though sourcing from suppliers who have long-term relationship with the company.
Dell took this further by “synchronizing functional activity into a single corporate heartbeat.” An order from Dell first drives procurement, which later drives production and in the end drives dustribution. To expand its world business, Dell is outsourcing most of its services around the globe. The improvement of process led to further drop in inventory requirement and operational costs, making Dell one of the top performers of PC production.
In the further reading “Achieving Competitive Advantage through Collaboration with Key Customers and Suppliers” by Don. Johnston, the author summarized the benefits of sourcing. The first benefit that it brings about is “sharing demand signals.” Dell’s business model catches the end user demand signal which reduces inventory buffers and improves capital efficiency. The second benefit of sourcing, according to Don is that it promotes “efficiency through alignment.” Sourcing enables Dell to have more working capital to better align its resources. The third benefitis “joint exploration of strategic options.” By overcoming the “zero sum mindset,” the company will be able to integrate operation with suppliers based on trustworthy information sharing.

Further reading:
Achieving Competitive Advantage through Collaboration with Key Customers and Suppliers,

http://www.articlegeek.com/business/management_articles/competitive_advantage_customer_supplier.htm, Don Johnston
Pic source: http://www.uptimesoftware.com/clients.php

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