Management & Engineering Comparative Study of CODP for PC Manufacturing Industry

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Management & Engineering Comparative Study of CODP for PC Manufacturing Industry
Management & Engineering 16 (2014) 1838-5745
Contents lists available at SEI
Management & Engineering
Journal homepage: www.seiofbluemountain.com
Comparative Study of CODP for PC Manufacturing Industry
Mechanical & Electrical Engineering College, Jiaxing University, 314000, Zhejiang, P.R.China
Customer Order Decoupling Point
Personal computer (PC),
Supply chain management
This paper is mainly about supply chain management research based on empirical study by
setting representative companies like Dell Inc and Lenovo Group as example firstly. Then,
their similarities and differences are compared, and their CODP features in different point are
analyzed. Finally, this paper puts forward some relative strategies for drafting CODP faced
with PC manufacturing industry combining the present management situation.
1 Introduction
Now Chinese PC manufacturers have many problems to settle. On the one hand, they are suffering the pain from sales growth slowed,
the price war, and the recession of the whole industry. On the other hand, they are under the double pressure of decreasing operating
costs as well as meeting customer individual requirements with fastest speed. Consequently, more and more manufacturers begin to
pay more attentions to supply chain management, and use the idea of postponement strategy under the idea of Mass Customization
(MC) to balance the contradiction between lowing operation costs and meeting customers’ individual needs by separating the
universalities and the individualities effectively.
The idea of postponement strategy refers to delaying the activities of customers until receiving order forms, that is to say, delaying
the activities of customers both in time and space to make products and service with customers’ need perfectly connected and to
increase the flexibility of company as well as the value of customers. From the perspective of supply chain, the point when an order
form is received is CODP (Customer Order Decoupling Point). The so-called CODP is an inversion point at which the plan
manufacturing operations based on the prediction turns into the custom production operations acting as a response to the needs of
customers. Therefore, deciding when to delay, i.e. the position of CODP is very important.
This paper is the very based on the current supply chain management situation our country’s PC manufacturing industry now is faced
with. By comparing the similarities and differences of foreign Dell Inc and domestic Lenovo Group, who are representative in supply
chain management and analyzing their CODP features in different point. This text works out the strategies in supply chain
management for our country’s PC manufacturing industry, setting an example for domestic PC manufacturers to refer when they
make strategies.
Corresponding author.
E-mail address: [email protected]
English edition copyright © ST. PLUM-BLOSSOM PRESS PTY LTD
2 The Current Whole Supply Chain Management Situation of Domestic
Faced with the situation of big market capacity and intense competitive environment, most domestic PC manufacturers know few
about supply chain. The enterprises just like Lenovo Group, who has the ability to compete with the foreign strong company, are
numbered. The main feature that home PC manufacturers takes on in whole are showed as follows:
1. For the sake of the diversification of demand and the emergence of the new way to trade such as online trading and alliance
purchasing, the original supply chain strategies of PC manufacturer, which mainly focus on retailers and enhancing logistics
performance, are now confronted with great challenge.
2. PC manufacturers are confronted with great competitive pressure from market and mostly set optimizing the company as their
managerial goal, but the whole supply chain often doesn’t reach its best condition.
3. In order to capture the market quickly, domestic PC manufacturers usually take measures to integrate upstream enterprises and
downstream enterprises in the supply chain rather than align themselves with them to realize lean production and management. As a
result, it’s easy to make them lose their core competence and decrease their whole competitive edge.
3 The Comparative Analysis for CODP Between Dell Inc and Lenovo Group
3.1 Dell’s supply chain management and confirmation of CODP
Dell Inc was set up in 1984. With its particular direct business model and efficient supply chain management mode (Figure 1), Dell
Inc, a company who just do personalized assembly but product any Computer Accessories, defeated many competitors with strong
technique power like IBM and HP. By the end of 2000, Dell Inc has become the second strong enterprise, capturing the 15.2% PC
market in the world, and its income after Years tax is up to 40 billion dollars.
PC Accessories Producers
DELL PC Assembly
PC Final Consumers
Figure 1 Supply chain management mode of Dell
From the Figure 1 we can see clearly that Dell set its CODP in workshop, take “push type” strategy before PC assembly and take
“pull type” strategy afterwards driven by the needs of customers. As a result, it can not only meet the personalized needs of
customers but also decrease the inventory costs. In order to make a quick response to the needs of customers, Dell used an efficient
supply chain management system. Firstly is a complete information system. A good information communication channel was built in
both the front and back ends and the two ends were well integrated. Secondly is a high-efficiency supplier’s management. Many
suppliers logistics center were built to ensure that suppliers have an agile supply speed and to meet its needs of celerity to answer the
consumer demand. Lastly is a fast logistic distribution. PC accessories are transported by air from Asia in its front CODP end, while
personal computers are transported by package in the back CODP end.
It’s not difficult to find out the supply chain mode of Dell from the analysis above—setting the assembly stage as CODP to cut the
supply chain into two parts, the front “push stage” and the back “pull stage”, combining the idea of MC and postponement strategy,
taking efficient inventory control and logistic distribution strategies, depending on the powerful information system so as to meet
customers’ personalized needs and make fast response to those needs.
3.2 Lenovo’s supply chain management and confirmation of CODP
Lenovo Group was established in 1984, persisting on the concept of continuous innovation. By taking example by Dell in supply
chain mode and establishing a production sales system of direct selling added marketing, Lenovo quickly got succeeded. By the end
of 2004, Lenovo has continuously got the first position in Chinese market for 8 years.
Based on the supply chain mode of Dell, Lenovo gave full play to its own local advantage such as having its own storage,
manufacturing, personnel, finished product distribution, management to establish a very particular supply chain mode (Figure 2),
making it costs in china is less than half of that of Dell.
PC Final
PC Accessories
PC Accessories
PC Final
Figure 2 Supply chain management mode of Lenovo
From the Figure 2 we can see that there are two supply chains, which make up the complete supply chain system. One is the same
with Dell’s, a chain combining “push” with “pull” driven by the order forms, and the CODP is at assembly stage; while the other is
for channel network, It’s a “push type” chain who provides spot supplies, in another words, It does traditional sales in the channel
network. Of course, such a brilliant supply chain platform would not emerge until a good information system and inventory
management was built.
3.3 The comparative analysis between Dell and Lenovo
From the analysis of supply chain for Dell and Lenovo, we can find out there are big differences between them. Dell’s is merely a
kind of pure supply chain management mode, i.e. completely combine the “push” and “pull” strategy, set the CODP in assembly
stage and make the CODP backward as far as possible. While the Lenovo has two diverse chains in the supply chain platform at the
same time, one is same with Dell’s, the other is for channel network, a pure “push” chain which provides spot supplies. The positions
of CODP in two chains within a same platform are obviously different. The former is same with Dell: in the assembly stage, however,
the latter is between finished product and after-sale service and by the delay of service to meet the diversified demand of consumers.
It has been found that although Dell has globalized supply chain network, powerful information system and brand strength, Lenovo is
just about the same with Dell as a whole in many aspect presently because Lenovo has two different chains within a same supply
chain platform and set diverse CODP positions in the two chains, taking different levels of consumers into consideration.
4 The Supply Chain Management Mode of PC Manufacture Industry and
Strategies for Drafting CODP
By means of the analysis above, we know it’s vital for enterprises to make good supply chain strategies, especially the CODP point
which is the core of the whole chain to get satisfying performance. Therefore, a strategy adapted for Chinese market to confirm
CODP position is most needed, if expecting to increase performance of the supply chain and its own competitive edge.
Because of the complexities of population levels in our country, the differences of people’s education degree and economic
development level in different place, there are different levels of awareness of computer between Chinese consumers, especially for
the vast rural market. At the same time, because China has very long boundaries, and different places have different level of
infrastructure for transportation and logistics as well the developed degree of financial system, the distribution for products is under a
strong pressure. Therefore, it’s very unrealistic to merely copy the Dell’s direct business mode and set the CODP in assembly stage.
Taking example by Lenovo’s brilliant supply chain management mode, our national PC manufacturers should classify the supply
chains from the two different aspects of products and clients. According to each of the supply chain for different products,
characteristics of consumer groups and the life cycle of same product in different stages, several supply chains in the same
management platform should be at work and different CODP positions ought to be set so as to minimize the total supply chain
operation cost, completely meeting the customers’ personalized needs indeed.
5 Conclusions
Now, more and more PC manufacturers begin to pay more attentions to supply chain management, and use the idea of postponement
strategy to make products and service with customers’ need perfectly connected and to increase the flexibility of company as well as
the value of customers. The accurate point for COPD is the key subject for successful performance of postponement strategy. Based
on empirical study by Dell Inc and Lenovo Group as example, this paper puts forward some relative strategies comparing their
similarities and differences, analyzing their CODP features in different point and combining the present management situation faced
with PC manufacturing industry.
This work is supported by Key Laboratory of Information Management and Information Economics, MII, P.R.C, Grant No.
F0607-35, and sponsored by the National Natural Science Foundation of China, Grant No. 70473006.
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