Physical Supply Chain Management University of Bolton

Dell and Green Supply Chain By Warren Loo ( Student ID#: 0810286)

1.0 Abstract

Management theory and business practice had not taken into account the environmental impact that businesses' activities may have. Today, environmental concerns are everywhere. Everyone seems to be going green—especially manufacturing and assembly businesses. However, how are we to know if these environmental concerns are in fact what really moves businesses towards lowering their environmental impact? Furthermore, are these so called "green practices" actually legitimate and focused truly towards the protection of the environment, or are they just profit-driven and for image perception? Is society being green-washed? This paper is looking into how Dell reacts to the environmental concerns and implementing the green physical supply chain policy that not only for cost saving and operation excellent, but bigger green market pie is waiting.

2.0 Introduction

Business strategy involves leveraging the core competencies of the organization to achieve a defined high-level goal or objective. It also includes the analytic and decision-making process surrounding what to offer (e.g., Green products and services), when to offer (timing, business cycles, etc), and where to offer (e.g., markets and segments) as a competitive plan. Most companies have a business strategy, but are unlikely to have overtly designed a environmental friendly Green physical supply chain strategy. So, why is a green physical supply chain strategy so important? One good reason is to operationalize and support corporate business strategy. At some point, must be executed and typically this is done through the operational components of a company. Green Supply chain strategy also focuses on driving down operational costs and maximizing efficiencies. The fundamental purpose of the paper is to study on Dell Inc internal organization structure and external relationships that relating to the physical Supply Chain Management. Part 3.1 explains on Dell Inc current Supply chain Management policy and practices that negatively impact the company performance then it is obvious that we need to review and recommend changes in order to improve overall strategic positioning of the organization. In Part 3.2, it analyze the how health and safety requirement especially the ROHS and WEEE impact supply chain process and how the policy affect the nature of functioning of the physical supply chain.

In Part 3.3, we propose and explain a significant green policy decision which would dramatically improve the overall strategic positioning of Dell, but at the same time would significantly impact the internal processes and/or the external relationships of physical Supply Chain of Dell Part 3.4, we describe new policy implementation and related issues. While the business strategy constitutes the overall direction that an organization wishes to go, the physical supply chain strategy constitutes the actual operations of that organization and the extended supply chain to meet specific supply chain objectives.

Part I: Dell Inc Current Status

Dell Inc. is one of the World top 5 PC makers, it’s started the business in 1984 and the business grown steadily, today Dell offers wide range of products: desktop, laptop, workstations, servers to its corporate and consumers market. Michael Dell is visionary in supply chain management, he understands that supply chain can be strategic differentiator and PC is just the medium he used to introduce his idea in competitive supply chain: sell direct, build to order and ship direct. (Cohen & Roussel, 2005) Dell is famous with the direct selling model through internet, build to order and mass customization, however these competitive advantages has once put Dell in leading position is now become less effective as the competitors such as HP and Acer has crossed into Dell Inc. territory and conquered the market shares, thus Dell need to develop new and robust supply chain strategy to regain the market share. Technology has made the possible growth of the PC industry, so newer model are launched

every month and the technology life cycle become shorter and shorter. Since the

introduction of IBM original computer in about 3 decades ago, many changes has occurred,

Moore’s law indicated that the available processor performance and disk storage capacity

double every one and a half to 2 years. (Mueller, 1999).

Technologies revolution and fast phase out speeds created more E-waste. In US, 372.7

million units E-waste disposed in 2007, and 55 percent are computer products. Sadly, only

average 15.3 percent E-waste were recycled.

Dell Inc is claiming it to become a first PC manufacturer with green operations, Dell Inc CEO Michael Dell expressed Dell Inc has responsibilities associated with 260 million computers produced a year. In fact, Dell is expanding its "Plant a Tree for Me" program for private consumers to "Plant a Forest for Me," for companies buying in bulk. (Modine, 2007)

Part II Health and Safety Requirement in PC Industry

Dell Inc manufacture and ship direct the pc to the users, even now Dell Inc enters into retail channels, and the fundamental is unchanged significantly.

Dell adopted E- supply chain model, physical inventory moved from supplier managed inventory (SMI) hub upon order downloaded to region factory production or Original Design Manufacturer (ODM). Dell factories are required to keep 1 day inventory while ODM are required to maintain at least 3 days stock inventory (DSI). Dell manage and control key components supplies like Liquid Crystal Display (LCD), Harddisk Drive (HDD), Optical Disk Drive (ODD), Memory and Battery via buysell process.

Poireir & Bauer (2000) has evaluated the cost incurred throughout the value chain in figure 1 Cost to Service; however, Dell Inc has strong bargaining power for its global and United States markets. The commodity inventory maintain and move at suppliers cost from VMI hub to Dell factories and ODM which support Dell business. Cost to purchase and produce were lower than its competitors; thus, overall the cost to serve were driving down and consumers enjoy great cost saving. That’s the open secret Dell Inc overtook its competitors in the 90’s.

PC industry

Figure 2 Cost to Service, A New Model (Source: Poireir & Bauer, 2000)

Figure 1 E-Waste in US 2007 (Source: Electronics Takeback Coalition, 2009)

is affecting by green products demand and government directive, especially by European Union directive Waste of Electric and Electronic Equipment (WEEE). In WEEE, the area of affected include large and small house appliances, IT and telecommunications equipment.

As shown in figure 3 regulatory timeline, more and more environment regulatory comes into enforcement, from WEEE to Restriction of Hazardous Substances (ROHS). Besides EU, China, Korea, Japan and United States have the similar law enforcement come in place.

PC industry which is regulated by the WEEE and ROHS directive are heavily affected, companies that marketed non-ROHS compliance products in EU needed to pay dear price, for instant, Apple pulled several products: iSight, AirPort Base Station with modem, AirPort Base Station power over ethernet and antenna, iPod Shuffle external battery pack, and all versions of the eMac all-in-one desktop computer for sale in Europe and Palm stopped shipping the Treo 650 Smartphone to Europe (Karofsky, 2006).

Dell Inc as part of PC industry has no exception from ROHS and WEEE compliance, Dell’s product has to be green.

Part III Dell Inc’s Significant Policy Decision

Per CNBC news, in Q3 2009, Dell lost the market share to HP and Acer, currently is listed as world third largest PC manufacturer by shipments. Dell planned to cut cost $3 billion annually by the end of fiscal 2011 and going Green is one of good options that will help to improve Dell Inc revenues.

Figure 3 Regulatory Time (Source: VK Lai, 2009)

According to United Nation Environment Program researches, the green market is set to boom. The global market for environmental products and services are predicted to double from $1.37 trillion a year at present to $2.74 trillion by 2030. Global warming issues have raised Green awareness among global citizens and have reshaped the market demands. Esty & Winston (2006) commented that in the near future, no company will be positioned for industry leadership and sustained profitability without factoring environmental issues into its strategy. Understanding the ROHS and Hazardous Substance Process Management (HSPM) are critical. European Unions’ ROHS directive has reshaped the world corporate business culture and is giving global impact by stimulating the developments of environmental friendly technologies to make greener product available to consumers. (Inform Inc, 2003).

The key areas Dell can set the eyes in initiating green efforts are waste reduction, renewable energy, greener product development, packaging redesign & label and Electronic scorecards. Go for Green will innovate and reengineer Dell’s physical supply chain management. In this effort, not only Dell needs to turn to be green manufacturer, but suppliers are required to be green as well.

As illustrated in Figure 4, under IECQ certificate of HSPM, to be ROHS compliant, a component needs to meet 6 ROHS hazardous substances compliances. While for Green Product, the components, product or subassemblies need to 100 percent meet 6 ROHS hazardous substances compliances. To be considered as Green Partner, the company has to be component and product 100 percent meet 6 ROHS hazardous substances compliances and meet customer requirements. To be qualified as Dell Green partner, the supplier must have the capability to meet the requirement according to HSPM.

Figure 4 Hazardous Substance Process Management (HSPM)

Packaging materials have the number of tasks; protect the material from damage, from the environmental conditions, to make transportation easier and to make the item attractive to the consumer. However, as the public’s perception about the environment changes, companies are looking at how they can adopt greener packaging alternatives. Excessive packaging is making products price expensive and create more waste to the environment.

According to report by Commission to the Council and the European Parliament on the implementation of Community waste legislation in 2006, the quantity of packaging waste generated increased from 65.5 million tons in 2000 to 66.6 million tons in 2002. European Union was among the pioneers implemented Packaging Directive since 1994.

In PC industry, excessive packaging is obvious. As the consumer, we often have joys when received the long awaiting ordered PC, the next minute we are headache to dispose the packaging material. In December 2008, students from Coppell Independent School District, Texas, US posted the comment on Direct2Dell Blogs about the dissatisfaction on waste created from Dell excessive packaging and packaging material used. Thus, Dell needs to redesign the packaging to meet market conscious and requirements.

Worldwide Electricity consumption per capita is in increasing trend, as illustrated in Figure 5, world electricity consumption increased from 1317 kWh in 1971 to 2750 kWh in 2006. US electricity consumption increased from 4050 kWh in 1960 to 13852 kWh in 2006, the consumption rate increased 240% over 40 years.

However, US Environmental Protection Agency and Department of Energy joint hand to establish Energy Star program which provide guides to public and corporate to develop energy efficiency products and practices. Through this program, US citizens saved $19 billion on utilities bill in 2008. (EPA, 2009)

Green products should be the energy efficiency, Thus, Dell is having challenges to design and deliver the IT products with high energy efficiency to meet consumers’ green needs; at the same time, Dell has to be efficient in energy management on its buildings energy consumption and production processes.

To develop Green processes and substantial green physical supply chain, partnership is important as in globalization era, no company can standalone. Esty & Winston (2006) suggested that partnership can be in many forms: Partnering with Experts, Partnering with Government, Partnering with Communities, and Partnering with other companies.

For Instance, the development of Electronic Products Environmental Assessment Tool (EPEAT) was the co-operation of multi-stakeholder effort that included representatives from the IT industry, the US Environmental Protect Agency, federal and state purchasers, recyclers, and nongovernmental environmental organizations. EPEAT is a procurement assessment tool designed to help public and private sector purchasers evaluate, compare and select desktop computers, laptops and monitors based on their environmental attributes.

Figure 5 Electricity Consumption per capita as of 2006

Such co-operation will benefit all stakeholders in term of information sharing and help to reshape IT industry physical supply chain policy. Dell as part of IT industry will beneficial from here.

Part IV Implementation of the policy

Waste reduction Dell was the first PC manufacturer to offer recycle program at no charge for its products and help customer recycle other brand when customer purchase Dell’s products.

How to handle E-waste have been the critical challenges to environment, in 2003 Greenpeace found 23000 tons metric of E-waste undeclared in UK was illegally export to Africa, India and Far East. However, Dell announced policy to prohibit export of e-waste directly or indirectly from developed countries to developing countries for repair, recycle, reuse or disposal.

Dell has committed to reduce the waste to create better environment for future generation.

Renewable energy Dell target to reduce the greenhouse gas 40% by 2015 and renewable energy is part of the plans. Currently, Dell has 9 plants in United States and Europe which are fully powered by renewable energy. Dell is strike to use the renewable energy whenever is possible; since April 2008, Dell partner with TXU and Waste Management to power Dell’s Global Headquarter in Texas with 100 percent green power. 516 panel solar structures were constructed as alternative energies generation, the solar panel are able to generate 130,000 kWh of solar power per year which will eliminate 145,000 pounds of green house gas. Dell is targeting to build the solar panels in every region whereby Dell business are in, besides Texas, Dell was also installed solar panels in Brazil production sites that use solar power for kitchen and cafeteria water heating purpose. Dell’s executive commented that Dell is saving money by using the green and renewable energy, globally Dell uses of 20% renewable energy as compare to competitor Hewlett-Packard which only 3.7%. On the other hand, Dell aims to use electricity 100% generated from green and renewable energy, however, there is no timeline set. (Forbes.com, 2009) Besides renewable energy, Dell set goals to have more buildings and facilities certified through Leadership in Energy and Environmental Design (LEED) green building rating system. (Velite & Elsenpeter, 2008).

Greener product development

Dorf (2001) defined green products as 1) uses the less materials and energy in its production, use and disposal than other products. 2) Uses fewer toxic materials or result in lower discharges of hazardous materials than other products. Dell follow ISO 14001to manage the environmental program, in Dell Design for Environment white paper, the guideline for design has stated clearly the design shall be energy efficient, hazardous substances restricted, design for reuse when product End-Of-Life and design for ease of recycling. Dell’s products are greener than before, OptiPlex desktops are designed 81percent smaller than standard mini tower and 70 percent lesser power consumptions. Smaller size means that lesser material use to build the desktop. Latitude E-Series laptops display is transforming from cold cathode fluorescent lights (CCFL) to mercury free LED displays, LED displays is less power consumption and has longer lifespan than CCFL. 80 percent of the laptops will be sold with LED displays by end of 2009 and 100 percent in 2010. (Treehugger.com, 2009) To stimulate the ideas for green production development, Dell organised Green computing competition, ReGeneration, this is to invite students and individuals to contribute ideas and design the computer which is truly green. As long term goal, Dell develops the personal computing products that are BFR and PVC free. In fact, IT industry has helped in preserving better nature, a study carried by American Council for an Energy-Efficient Economy (ACEEE), for every 1 kWh of electricity used by IT, 10kWh of electricity are saved. This includes IT-enabled benefits such as virtualization, energy-efficient computing, telecommuting and online transactions. (Allbusiness.com, 2008)

Packaging redesign and label

Dell received complaints from customers regarding its packaging design generate wastes and looking into this area seriously. Thus, it has implemented a transformation program to change the packaging, such transformation is estimated will bring cost saving of $8 million over 4 years from 2008 to 2012. Subsequently, 10 thousand tons of packaging material will be saved.

The packaging method is changed for servers, for multiple orders that going to the same destination; Dell is offering multipack which multiple products will be shipped in a single carton. This option is now extending to other Dell product families, like desktop and laptop. Besides, the carton material is 100 percent recyclable.

In November 2009, Dell introduced a computer with a bamboo case which source from China's Jiangxi province and will begin shipping netbooks with bamboo cushioning, rather than the customary Styrofoam and plastic, the packaging itself is pulped without chemicals by Unisource Global Solutions, which has also invented a system to recapture the water used in the process (Kuang, 2009). Dell opted for bamboo as cushioning material due to it can grow fast and strong, bamboo tensile strength is like steel, making it reliable in protect the personal computing products. The innovation in packaging helps to burden lesser to environment, bio-degradable of the packaging material save the landfill areas.

As for label, Dell products is currently carrying labels from Japan and Europe, namely

Confederation of Professional Employees (TCO) from Sweden, Blue Angel from Germany and Japan PC Green Label, these label are eco-mark that required Dell products to meet environmental friendly criteria: energy efficient, reduce, reuse and recycle, free from hazardous substances and environmental information disclose.

This is aligned with RoHS directive not only in European Union, but across worldwide as more and more similar directives has been introduced in different countries as the environment issues are critical that draw governments highly focus on this.

Conclusion

Personal Computing devices become part of life of everyone, from desktops, laptops to

servers, the devices are required to ease the flow and share of the information, product life

cycle become shorter as the technologies is advancing.

Introduction of new technologies, means that more outdated products are phased out, these

products are not handled properly has harmed the environment badly.

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