Lenovo: Utilizing the Cloud to Build the Cloud
Can Lenovo utilize the digital supply chain that enabled their success in the PC industry to become a leading datacenter hardware provider?
Competitive Landscape
Hardware development is inherently challenging due to rapid product obsolescence, largely outsourced supply chains, high levels of competition and low margins.[1] Late to the PC game, Lenovo faced an uphill battle as they entered the market through the 2005 acquisition of IBM’s PC business. [2] Lenovo’s early adoption of a cloud based platform for supply chain management proved to be a differentiator. The end to end visibility of a digitalized supply chain drastically improved decision management and agility, both key to their success. From 2006 to 2013 Lenovo cut costs by over 50%, improved product delivery 167%, and increased asset utilization 10%, all while doubling unit shipments and maintaining product quality.[3] As early as 2013, only 8 years after acquiring the PC business, they were named one of Gartner’s Top 25 Supply Chains Worldwide[4]; by 2015 they were the number 1 PC manufacturer in the world.[5]
Supply Chain as a Differentiator
By introducing cloud platforms such as GT Nexus, Lenovo is continuing to innovate to achieve full supply chain visibility and use data analytics to cut costs. Tracking all inventory both at the factory and in transit allows Lenovo to minimize inventory costs and shift to data driven procurement. Similarly, step by step digital tracking of finished goods allows for measurable and actionable performance data on logistics partners and direct visibility of customers into expected arrival times.[6] The digitalization of Lenovo’s supply chain enables them to utilize data driven decision making to respond quickly to changes in both supply and demand. This agility distinguishes them from their competitors in an industry where consumers demand the newest technology immediately and at razor thin margins.
From PCs to Data Centers
As PC sales are continuing to decline, down 4.3% in 2017 from a year ago, Lenovo is looking to apply similar innovative techniques that worked in the mature PC industry to their new, fast-growing datacenter division.[7] By introducing additional cloud platforms such as Elementum to act as “Mission Control” for the server supply chain Lenovo is betting on their ability to again differentiate themselves through a highly transparent and agile supply chain. [8] Although Lenovo has proven their technological innovation in server performance, receiving 88 #1 World performance Benchmarks in 2017, they are facing an increasingly commoditized market.[9] Competition for servers is based almost entirely on performance and cost, with little room for brands to differentiate.
In the short term, Lenovo should leverage opportunities of scale between PCs and servers to improve margins and stay competitive. However, as others move to digitize their supply chains, Lenovo will need to find additional ways to differentiate. One recommendation is for Lenovo to extend their supply chain upstream to include corporate partners in the heavily B2B datacenter industry. By linking their supply chain directly to cloud operators, Lenovo may be able to offer an improved service where large corporate customers can place orders for failing server components automatically. Lenovo should utilize existing datacenter management heuristics and machine learning algorithms to identify degrading hardware and trigger an order of replacement parts before failures even occur. With datacenter storage market growth estimated at over 14% annually through 2021, this will provide a long term competitive advantage for Lenovo.[10]
Potential Obstacles
Will large corporations like Amazon and Microsoft be open to deeper partnerships with their hardware manufacturers? Or will security concerns keep them from aligning a shared digital supply chain with hardware providers like Lenovo?
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[1] “Lenovo expands commitment to supply chain visibility with GT nexus” Noticias Financieras, 2015, Jun 10, URL, ABI/INFORM via ProQuest, accessed November 2017.
[2] Tim Bajarin. “How Lenovo Became a Global PC Powerhouse After IBM Deal.” Time, Time, 4 May 2015, time.com/3845674/lenovo-ibm/.
[3] “Lenovo named among gartner’s top 25 supply chains worldwide” Entertainment Close – Up, 2013, Jun 12, URL, ABI/INFORM via ProQuest, accessed November 2017.
[4] Ibid.
[5] “Lenovo expands commitment to supply chain visibility with GT nexus” Noticias Financieras, 2015, Jun 10, URL, ABI/INFORM via ProQuest, accessed November 2017.
[6] Ibid.
[7] King, Rachel, “China’s Lenovo to Reboot After Losing PC Crown to HP.” Wall Street Journal, 12 July 2017, URL, via Factiva, accessed November 2017.
[8] “Lenovo boosts supply chain visibility and performance with elementum.” Business Wire, 2016, Nov 17, URL, ABI/INFORM via ProQuest, accessed November 2017.
[9] “Lenovo Seizes 88 #1 World Performance Benchmarks.” Dow Jones Institutional News, 9 Nov 2017, URL, via Factiva, accessed November 2017.
[10] “Global data center storage market is expected to reach US$ 29 billion till 2021; finds new report.”, M2 Presswire, 2016, Nov 24, URL, ABI/INFORM via ProQuest, accessed November 2017.
[Picture] “Data Center.” Pulse, 4 Sept. 2015, www.pulse.ng/news/tech/tech-launch-lenovo-launches-enterprise-data-center-solutions-id3638741.html
Great article, I think my biggest fear for Lenovo is the impact of some of its largest competitors investing in the technology to gather and act on data at scale, what additional levers will Lenovo be able to pull to remain competitive.
This topic is intriguing given that we tend to assume tech companies aren’t having to worry about keeping up with the newest digital challenges; we typically focus on other industries in this conversation. Your recommendations for Lenovo’s future seem like great ways to keep their business relevant, sustainable, and innovative. However, I do worry about the security concerns that you mentioned. We’ve seen even the biggest companies like Sony and JP Morgan get exposed to hacks and now, firms are laser focused on mitigating any cyber risks they have.
Moreover, it seems like there could be resistance from a competitive perspective because as we know, companies do not like to allow such immersive access into their supply chain needs. Would this move put Lenovo in a position to be acquired by one of these larger companies?