Published on February 14, 2014
DELL: Dell’s Edelman award finalist presentation Parag Chitalia Murugan Pugalenthi Dr. K. Raghava Rau (Application of analytics on Dell’s channel transformation)
Dell’s Channel Transformation: Leveraging Operations Research to Unleash Potential across the Value Chain Parag Chitalia, Murugan Pugalenthi, Dr.Rau
Dell Inducted to the Franz Edelman Academy: Class of 2013 INFORMS Franz Edelman Award Some Past Awardees Franz Edelman Award recognizes & rewards outstanding examples of business analytics, operations research. It is considered as “Nobel” for application of innovative & advanced analytics for business transformation. Donna Warton, Phil Bryant and DGA presented at Informs San Antonio Conference in April. Recognized for end to end analytics across all SC, Marketing, Sales, On-line 2013 Franz Edelman Awardees Dell’s channel transformation & DGA’s cross functional analytics recognized as a Edelman Laureate with 5 others Develop What products to offer ? What should be pricing strategy across channels ? What supply chain design to adopt for indirect model ? Market/Sell How to understand Marcom effectiveness ? How to improve online purchase experience ? What marketing vehicles to use ? Fulfill How much inventory to stock in the season ? How to run more effective promotions ? How to increase indirect sales across geographies ? INFORMS - The Institute for Operations Research and the Management Sciences is the largest professional society in the world for professionals in the field of O.R., management science & business analytics Support How to ensure optimal part dispatch rate ? How much inventory of service parts to maintain ?
Dell achieved market leadership by pioneering the direct sales model 1996 2000 Dell.com launched $1 million/day within 6 months Dell.com sales reach $40 million/day 1999 2004 # 1 in PCs in the U.S # 1 in Workstations worldwide Revenues grew from $3.5B to $49B in 10 years 1997 10 millionth PC shipped 15 days of inventory levels 3 2001 # 1 computer systems provider worldwide
Business Strategy & Need for Analytics 4
Segmented supply chain, as part of Client Reinvention, addressed the needs of different customer segments Configurable Products $ Configure to Order Configure Order Build Air-Ship $ Build to Order Choose from catalog Fixed Hardware Configurations (FHC) Order Build Air-Ship Planned Orders Build Ocean-Ship & Stock Deliver Build to Plan $ Build to Stock Build to forecast 5 Ocean-Ship & Stock Order Deliver
DGA delivered high-impact analytical solutions to solve key business problems across Dell Develop Market/Sell Fulfill Support $ Configuration Optimizer Online Conversion Rate Accelerator (OCRA) Marketing Investment Optimization Retail Margin Maximizer (RMM) Reduce configuration complexity 6 Pricing Intelligence solution Optimize price point for various FHC offerings Refine online purchase experience Optimize marketing spends Estimate demand accurately & match with supply Distribution Network Optimization Design a cost efficient supply chain Dispatch Reduction Program Minimize warranty parts dispatch
We will showcase two high impact analytical solutions that supported our channel transformation strategy Client Reinvention Configuration Optimizer Retail Margin Maximizer (RMM) Reduce configuration complexity 7 Client Reinvention Estimate demand accurately & match with supply
Configuration Optimizer 8
Configuration Optimizer is aimed at simplifying our product offers - to provide what customers value most 1 GB 512 MB Problem • >60 million options in a 2 GB single product 1516’’ • <15% configurations 1214’’ driving 72% sales I want to buy a Dell laptop 10’’ Objective 4 GB Hard Graphic Processor Screen Optics Brand Memory OS Cards Drive Design optimal fixed 6 GB 8 GB configurations to meet most customer needs Latitude Vostro 9 Inspiron & XPS
The first step in building the Configuration Optimizer solution was to generate an initial set of potential configurations Commodity Selection Bundles Generation Potential Set Identify influential commodities Create Performance, Security & Accessibility Bundles (correlated buying preference) Formulate initial configurations Exploratory Analysis 10 Factor Analysis Demand Cluster Analysis
Retail Margin Maximizer (RMM) 11
Retail channel posed a variety of inventory management and promotion planning challenges resulting in lower profitability Problem Inventory level • Inflated forecasts Delayed new product launch Promotions Initial supply Clearance Sale Replenishments Feb Mar Apr Spring May • Delayed season transition • Low margins due to high discounting Clearance Sale Inventory risk Jun • High season-end inventory Delayed new product launch Objective Inventory risk Jul Aug Sep Back to School Oct Nov Holiday Retail business operates through 3 annual seasons 12 Dec Jan Improve retail margin using • Proactive inventory risk management • Effective promotions
The first module, Demand Sensing, drove collaborative planning using advanced time series techniques Demand Sensing Like-wise FHC analysis Demand Forecasting Weekly Governance ARIMAX Other Factors Time Series • • • • 13 Inventory Price Competitor actions Special events Scenario analysis Replenishment planning
The second module, Demand Shaping, helped systematically plan & execute promotions to improve margins Demand Shaping Inventory Optimization Product lifecycle stage Demand & supply variability Competitor promotions 14 Optimization Engine Identifies FHCs with high inventory risk Promotion Uplift Model Identifies FHCs with high potential uplift • Initial set of FHCs Demand forecast Which FHC to promote? What promotion to run? When to promote?
Other Initiatives & Overall Impact 15
These multi-channel analytical initiatives delivered a margin improvement of $xm+ between 2010-12 NPS (Customer Loyalty) score more than doubled 16 Growth in services upsell
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