Dell has a complex supply chain. The company has 22.3 million orders per year with an average or 125,000 systems shipped per day. Customers want simplicity in the ordering and fulfillment process and timely shipments, yet 40 percent of their products are still built to order and many of their products are built in Asia. They have a complex network of internal sales, channel partners, 3rd Party Logistics and contract manufacturing partners.
And, this complexity has, over time, had a corrosive effect on Dell’s order fulfillment performance. Dell saw its Net Promoter Score (NPS) going down. The Net Promoter Score is a management tool that can be used to gauge the loyalty of a firm’s customer relationships and claims to be correlated with revenue growth. NPS is calculated based on responses to a single simple question: How likely is it that you would recommend our company/product/service to a friend or colleague?
In Dell’s case, when they dug into this by talking to customers, what they heard over and over was “I want you to build, ship, and deliver what I ordered, when you said you would.” And according to Jennifer Felch, Vice President of Enterprise Services and Order Experience at Dell, the sales department took this to mean “I want you to build, ship, and deliver what I promised my customers, when I said you (the supply chain team) would deliver it.” Ms. Felch spoke about Dell’s efforts to improve their NPS at Oracle’s Modern Supply Chain Experience conference in San Jose on January 26th.
The drop in the NPS caught the attention of senior executives and Ms. Felch was tasked with forming a cross functional team to address this problem. Ms. Felch described this as a three part process:
- Identifying a wildly important goal (in this case improvement of their NPS).
- Measuring the company’s performance against that goal.
- And, developing a culture of accountability to drive goal attainment and ongoing performance.
A natural metric to drive a better NPS based on their customer feedback was the Perfect Order Metric. Dell’s definition of the Perfect Order Metric was they calculated based on (% of on time deliveries) x (% of complete orders) x (percentage of orders delivered damaged free) x (percentage of orders delivered with accurate documentation). Damage free included not just the products being undamaged, but the boxes they arrived in being undamaged as well. Accurate documentation included not just billing correctly, but making sure that systems came with the proper user manuals and associated user materials.
Ms. Felch pointed out that you could think you were doing pretty well if you were at 98% on each of the POM components, but the total Perfect Order Metric would only be 92% because these metrics are multiplied by each other. 98% sounds good, 92% not so much.
Ms. Felch did not reveal Dell’s actual scores in these areas. However, she did say that on time deliveries (OTDs) is where Dell performed worst; so that is where the company focused their attention initially.
But as is so often the case, the wrong metrics can drive suboptimal behaviors; metrics can be manipulated. Initially OTD was defined as being on or before a certain date. Order promisers started delivering products early. They might reasonably believe there was a high probability the goods could be delivered in two weeks, but they would set a delivery date of three weeks. This led to longer lead times and higher inventory levels. But it was counterproductive, costs went up but this tactic did not move Dell’s Net Performance Score up as they were not delivering the kind of performance customers valued.
Dell realized they needed a REDO. They needed to take an end-to-end view of their processes starting with order receipt, processing orders, fulfilling orders (postponement manufacturing and warehousing), and deliveries. And each step needed to be measured.
Before the end-to-end order fulfillment process was decomposed and measured, the initial belief was that logistics was performing very badly. “Actually,” Ms. Felch said, “(logistics) was the most predictable, but they were at the end of the process” (so they looked like they were the problem). Further, if every partner in their supply chain performed to their contractual obligations “we would miss every on-time delivery.”
In decomposing the end-to-end process the goal was to “flush out the tricks.” Inventory was not allowed to increase. Lead times could not be padded. If a product was not in stock, it was the job of sales to set the right expectation and then the other parts of the value chain needed to deliver on that expectation. And Dell realized that no one knew how lead times were calculated, they had to invest in a tool to correctly calculate the lead times.
Multiple groups throughout the company had to participate. In order processing, for example, it was important that the product group give better visibility to new products in the pipeline and that sales did a better job of providing advance warnings for big orders. “We measured everything. That sounds easy. It was not.”
Every week a large group of people from multiple disciplines participated in what they called a WIG call (a widely important goal meeting). And nonparticipation, particularly at the executive level was heavily discouraged. “Every week,” Ms. Felch said, “we would ask who is not here in the room that should be here. We have to hit this goal together.” And every week the various groups were asked to make commitments on what they would do in their area to improve on-time deliveries.” Groups were also expected to share pertinent knowledge, for example with a surge of orders expected surrounding the Chinese New Year, lead times to fulfill those orders could grudgingly be increased.
These were fast moving meetings, the goal was a 30 minute meeting. Sales would begin by saying here is “what I said I would do last week. Here is what we did. This is our goal for next week. And this is where I need help to meet that goal.” Other disciplines would follow with a similar set of comments. Ms. Felch made an interesting point about these meetings. It is often easier to admit failure to your boss than to peers that are dependent on the performance of other areas of the company. Peer to peer promises were key to creating a “culture of accountability.”
Accountability drives discipline. Before you promise that goods will arrive on Monday, check and see that trucks will be available on the weekend. “This did not cost anymore, but it did require a change of behavior.”
Some Oracle applications are being used to facilitate better order fulfillment. Others are being looked at. The fact that processes have been nailed down before some of these applications are implemented is seen as a key success driver for future implementations. And some applications – like Oracle Transportation Management – that were initially seen as a cost project are being additionally justified by their ability to help the company achieve their on-time delivery goals.
Over the last 18 months, Dell has improved significantly. Between October 2014 and December of 2014, for example, on-time deliveries improved 10 percent. In the 2014 Christmas season, Dell was one of only four retailers out of 40 promising a late cut-off time – delivery of orders made on December 23rd. And yet they delivered every package on time according to a Forbes article. And with this improvement, their Net Promoter Score has also increased. While customer satisfaction is up, certain costs are actually decreasing; lead times are down which translates into less inventory; and customer care calls are way down so that department is less costly.
“But,” Ms. Felch says, “we still have a long way to go.” The pursuit of excellence has no end point.