By Charles Assisi & Pankaj JoshiEven as the world gets a hang of what Amazon-ed into submission means, business houses are facing the threat of being Dell-ed out of existence. Ask IBM.
Late last month, the PC-manufacturing giant announced plans to pull out of the conventional retail chain network. Ostensibly to create value and cut costs by indoctrinating on-line channels into its systems. But even as Team Blue creates a new blueprint for survival and success, competitor Dell Computers is closing fists and getting increasingly aggressive.
Dell has grown astronomically over the last couple of years. It is now ranked No.2 in the USA.
Dell’s Direct model eliminated middlemen involved in sales and service. With no slow moving indirect channels to impede delivery, customers receive the latest technology. Pertinently, the model operates on six days of inventories, keeping costs low.
This innovation was possible because of a transition Dell started making about three years ago. It began with the implementation of capabilities on its website to allow anyone with access to the Internet and a credit card to specify a configuration and get a machine delivered to his doorstep.
Value added services like providing technical support on-line and fairly simple pages for easier navigation, made the site a favourite. Word of mouth publicity was enough to draw traffic.
But Dell didn’t stop at that. It figured there was a corporate market which could be catered to. This realisation led it to create the Dell Premier Pages.
Repeat corporate buyers could save time by linking quickly to these specialised pages tailored specifically to meet their requirements. Here, they could find pre-configured systems that fitted their needs.
Pricing was a function of individual corporate discounts. Corporate buyers were also allowed to pull up their purchasing history reports on screen.
Employees of the company could be assigned specific rights to place orders and access different levels of information.
At last count, there were 19,000 Premier Dell Pages.
Meanwhile, Dell reckoned that large buyers were not buying only the machines. They wanted the right kind of software too.
Which is why Dell decided to rope in its allies (software suppliers) into the system. DellWare was created -- a facility that allows customers to select a vast array of products from its many corporate allies.
For the customer it means only one thing. When the machine they order on-line arrives, they have nothing to do, except plug it in. The software they want is loaded and tested at Dell’s factories.
The results are obvious and it has been possible only on the back of automation and the Internet.
Fortunately or unfortunately, these bizarre changes are still to rock Indian shores. They’re currently just being watched with a certain amount of awe and curiosity. Worse, like the charts on the side panels indicate, corporate India is still hesitant to adopt these technologies, which make such business models as adopted by Dell possible.
But there is a very strong reason why Indian business houses should incorporate the technology that goes into creating the kind of innovativeness demonstrated by Dell.
The reason why
IDC India reckons that at last count, just a little over 500 Indian companies have implemented enterprise resource planning (ERP) solutions till date.
Of these, 188 were added in 1998-99. These dismal numbers are primarily a function of cost. Globally, the average total cost of getting a license for implementing an ERP solution is close to $15 million. Pay back takes something like 31 months. Worse, most companies implementing ERP brace themselves for a drop in business performance. The decline lasts between three to nine months after going live, for that is the average time required for aligning the older work culture with new systems.
Companies in stronger economies across the world, however, discounted these costs and went ahead with such solutions that fine-tuned their internal efficiencies. This created an incredible demand and solution providers like SAP AG of Germany, which has come to command 30 per cent of world market today, soon grew terribly arrogant.
Meanwhile, small and medium enterprises (SMEs) were also down on their knees begging the services of companies like SAP. Their pleas were eventually heard. But by smaller ERP vendors like JD Edwards & Co., who cornered this segment of the market.
Over the last two odd decades, most of the bigger companies put in place some kind of ERP package or the other. The moot question, however, remained: been there, done that, now what? That was when the Internet started making its explosive presence felt. Corporates figured that this was a great medium to create outward looking efficiencies. Like supply chain management (SCM) in the area of procurement and distribution.
There was only one problem though. Existing ERP packages provided by the likes of SAP were designed to work in isolation and were not geared to leverage what the Internet had to offer. The size and arrogance of SAP and such other players worked against them. The support provided by the Internet catalysed the entry of smaller niche players who had been tinkering around with such technologies for a while in much the same way as SAP was during the seventies. Demand was ready -- and waiting. Both SAP and Baan, the other ERP powerhouse, took a hammering. Each quarter kept raking in losses and their bottomlines still look a bloody mess.
The losses did two things.
One, they infused humility at the headquarters of traditional powerhouses. Kevin McKay, president of SAP’s US arm acknowledged recently: "The days of perhaps being arrogant or having more demand than we can supply are clearly over. We have a new humility."
The losses also drove prices of traditional ERP solutions down.
Potential users don’t have to invest in these expensive packages anymore. There are homegrown Indian companies now offering customised solutions at Indian prices. Then, there is the Web. One can rent packages from the Web for as low as Rs 9,000 a month.
What all this means for corporate India is staggering. On the one hand is a dirt-cheap scope to achieve internal efficiencies. On the other hand is an equally tremendous opportunity to leverage the Internet and keep pace with the stunning changes that create models of the kind Dell has adopted.
And the most compelling changes become visible when a company puts its suppliers and distributors on-line, effectively automating its supply chain.
Why the supply chains?
An offshoot of the opening up of India’s economy was the geographic spread-out of manufacturing. Multiple locations, with varying levels of transport and storage facilities, made control and monitoring that much more difficult. Also, hefty capacities meant that a buyers' market was created.
In these circumstances, maximising customer satisfaction meant concentrating on core activities and taking expert support help in areas like procurement and distribution. This saw the concept of third-party logistics (TPL), or supply chain management (SCM) take root in Indian industry in the post liberalisation era.
SCM is the sum total of all the elements of sourcing -- indenting, procuring, placing into the production process and then, routing the finished product into a distribution channel, which could be either retailing points or the holding-cum-inventory stations.
Rajiv Samani, managing director of Netvista Information Technologies says: "Logistics is looking not at individual links of the supply chain but at its whole design to create sustainable value for the customer."
The most obvious advantage of supply chain management is that it gives instant and constant access to all elements in a supply chain in a single window. A corporate no longer has to make the routine half-dozen calls to get abreast of the prevailing state of affairs.
The advantages are obvious.
Time bound delivery and effective information systems minimise inventory levels and reduce costs.
Automated material handling equipment and a clean warehousing environment ensures safe, quick, efficient, timely and hygienic storage conditions.
State-of-the-art technology and track-and-trace facilities provide on-line status reports on goods and materials.
All this helps plan production schedules better and build market reputations for timely and safe delivery.
Companies can cut significant costs from their cost stream, re-deploy capital by not financing assets for storage and distribution channels. And they can switch and focus explicitly on their core activities.
At the end of the day, it translates into better returns from capital employed.In spite of these advantages, there have been few takers.
Companies, by and large, are not willing to jettison their normal business procedures for something as technologically intimidating as logistics. Not many of them are oriented to think in terms of what hassle-free operations can do for individual productivity, or what customer satisfaction can do for image and market share.
Then of course there is the cost. In theory, third-party logistics work out cheaper since system costs, which are normally fixed, are variable. But the truth is that these costs can be intimidating for small to medium companies.
Also, the snag is that, for the whole exercise to be cost-effective, the entire network -- comprising suppliers, service providers and even customers -- must be on-line. Implementing solutions in the face of opposition at multiple points is extremely difficult.
With the Internet these arguments have been relegated to history. By its very nature the Net is non-proprietary and hence, awfully cheap to leverage, as opposed to proprietary technologies on offer till date. The other advantage being that it operates across a common platform/protocol. This once again drives down costs because all links in a chain can be brought together quite easily. At the most elementary level, all one needs is a PC with a modem to plug into the Web.
So, what are the downsides for Internet users? Traffic is one issue, with the world wide web (www) being increasingly referred to as the world wide wait. Security is another concern on the horizon. More so, when there are fortnightly news reports of much visited sites being hacked.
But all that can be worked out, experts say. As per Rajiv Samani, MD of Netvista Information Technologies: "Virtual private networks (VPNs) are a workable option. A VPN creates a tunnel wherein data is transmitted. Prior to transmission, data is both encrypted and encapsulated. This acts as a camouflage and wards off hackers." With authentication necessary at the receiver's end, safety is assured.
Companies are already operating on VPNs, even in India, where costs of creating a network would be much lesser than that of setting up an ISDN.
Another growth area for SCM, namely e-commerce, has also been poached upon. Take the case of Dell, where daily sales on dell.com today are an estimated $18 million, a three-fold increase over last year. These amount to 30 per cent of the company's total business revenues and have been achieved just on the backbone provided by the Internet, combined, of course, with internal ERP.
But...
What is frightening is reluctance of the kind a recent PwC survey revealed. "Half the companies contacted for the survey did not even have tentative plans for e-business. Only one out of five companies have a clear (e-business) strategy and have committed resources..."
"Y2K compliance, brand building and new product development have far greater priority for investments in IT as compared to e-business." Worse, only 28 per cent of the executives surveyed indicated that it could be a source of competitive advantage.
Sanjay Shetty, CEO of DBS Internet Solutions, too expresses his reservations. Over the medium-to-long term, he reckons over 80 per cent of his business will be driven by orders from North America and Europe. Indian companies, he says, are either reluctant or ignorant of the advantages. He points out that it is the MNCs in India who are adopting the technology -- perhaps, because their umbilical cords extend to parents who are re-defining business models.
If that be the case, there will be only one casualty -- the market shares of Indian corporates will be butchered.
For only one reason.
Vision. Or rather the lack of it.