2. Supply Chain of DELL
Introduction
Supply Chain Management is a business practice that has
been employed in order to give an effective service to
customers and to make the business sustainable by
considering all the aspects from the suppliers to the
consumers.
Supply Chain integrates all these features such as manufacturer, supplier, transport, wholesalers,
retailers, customers and all other elements which link the above. Its main objective is to fulfill
customer demands by adding value to the products and services.
DELL is a computer technology corporation that
develops sells, repairs and supports, computers and
computer related products. DELL has realized that
supply chain is becoming more and more important for
the success of today’s business world and they work
accordingly to keep a competitive advantage in the
market.
Here in this study, the supply chain processes that are utilized by DELL will be taken into
consideration which is known to be one of the best in the world. DELL s supply chain will be
heavily analyzed in the areas of supply chain integration strategies and demand management
aspects.
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3. Supply Chain of DELL
Supply Chain of DELL
DELL has a different business model than its competitors, which can be identified as “direct
model”. In this model DELL sells its PC s directly to customers without using a retail channel.
Therefore it creates a direct relationship with each individual customer which they have
segmented into groups to make it easier to approach. Mainly there are three customer segments
which can be illustrated as large organizations, small and medium businesses, and personal
consumers.
The other aspect that makes DELLs supply chain unique is the Build-to-order strategy.
According to this once the order is placed by the customer, all the configuration details are sent
to the manufacturing floor and then the assembly of the PC begins. Once the computer is built
and all the software’s are downloaded it will be shipped to the customer by using 3PL.
Because of these aspects DELL has the competitive advantage over others because of several
reasons. The level of inventory costs is really low since the case of faster responses to demand
changes. It is also visible that customer pays for an order before DELL pays its suppliers for the
products components.
Thus the most interesting part of DELL and its supply chain is relationship they maintain
between the customers which of course lays foundation for the existence of the business.
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4. Supply Chain of DELL
Supply Chain Activities Involved in Managerial Levels
For the supply chain to be strategically effective it has to be implemented in all the levels in the
organization. Therefore in all the three levels of DELL; strategic, tactical and operational, supply
chain practices are being made use of.
In the strategic level decisions will be
made regarding the whole organization
considering the supply chain. These
decisions are critical since it reflects the
overall corporate strategy of the
company. In the case of DELL the
unconventional idea of using direct
sales method has to be come from the
strategic level.
Senior management of DELL is giving the strategic direction when considering the product that
the company should manufacture and offer to their customers. Especially the customer segments
are identified targeting company marketing and advertising. It is the same when it comes to
manufacturing of products strategically decisions are taken to verify the capacity of existing
facilities and other logistics related things. DELL is using 3PL providers and it applies the theory
of manufacturing overseas.
It is needed to analyze and predict the capacity in supply chain therefore measures can be taken
to expand the facilities accordingly. The middle level management team has the responsibility of
this. There is more significance when it comes to the operational level. All the supply chain
activities in DELL are done thoroughly by this cluster.
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5. Supply Chain of DELL
The Role of Supply Chain in Maximizing Profit in DELL
DELL is able to sustain a competitive advantage over competitors in the computer industry
because of an extremely efficient supply chain/distribution system. Also DELL has been able to
acquire superior profits in the industry since they are a knowledgeable in areas of information,
communication, e-commerce, e-business, and internet and web technologies.
DELL implements a Just-In-Time (JIT) inventory system which operates on only six days of
inventory. Because of this inventory system Dell has been able to obtain higher profit margins.
Inventory and labor are the highest liabilities that are there in a business firm. Since DELLs
inventory is only a 6 day cycle, they have been able to cut down costs on warehousing, hiring
people to track and maintain inventory , and thus avoid using out dated technology .
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6. Supply Chain of DELL
As depicted in the diagrams the technique is surprisingly simple but it is best competitive tool in
increasing profit.
One other thing which makes this supply chain really competitive is the fact that DELL’s
customers can only order computers through DELL itself which results in a profoundly bond
with the customers . This makes them retain their market share in the business.
DELL is also having strategic alliances with other companies to have their products sold on
DELL’s direct selling distribution channel.
All these elements in their supply chain make them the best in the business.
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7. Supply Chain of DELL
Supply Chain Integration Strategies
Better integration of planning and execution has become one of the dominant themes in supply
chain. DELL has given a special place for the supply chain integration as described previously.
The heart of Dell's success is its integrated supply chain, which has enabled rapid product design,
fabrication, and assembly, as well as direct shipment to customers. Inventories have been
dramatically reduced through extensive sharing of information, a prudent choice given the risk of
technological obsolescence and reductions in the cost of materials that can exceed 50 percent.
Even with reduced inventories, Dell's strategic use of information has made possible a dramatic
reduction in the elapsed time from order to delivery, giving Dell a significant competitive
advantage.
Accordingly those integration strategies described previously are there in DELL. As a whole in
the virtual integration strategy of them these characteristics are involved in.
Use of rapid seamless communication
A clear definition of what DELL does best
Selection of partners who are best in their respective fields
Use of a minimum number of suppliers
Using internet as a strategy to eliminate boundaries between companies and promote
effective integration
Less emphasis on guarding intellectual assets and more emphasis on using assets rapidly
before they become out of order
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8. Supply Chain of DELL
DELL has benefitted immensely by using a highly integrated supply chain which results in
having advantages of vertical integration while simultaneously benefiting from the investments,
innovation, efficiencies, and specialization of highly focused suppliers.
Demand Management
DELL has a special set of analysts who forecasts the demand in every single level of production.
At all these levels accuracy of the forecasts are very important.
DELL is using a
collaborative business
strategy and a process
model as shown in the
diagram.
There are 4 key task areas
according to this model
Strategy & Planning : Establish ground rules for the collaborative relationship. Determine
product mix and placement and develop events plan for the future.
Demand & Supply Management : Project consumer demand and as well as order and shipment
requirement.
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9. Supply Chain of DELL
Execution: Place orders, prepare and deliver shipments, receive and stock products on retail
shelves, record sales transactions and payments
Analysis: Monitor planning and execution activities for exception conditions. Aggregate results
and calculate key performance metrics, share insights and adjust plans for continuous improved
results
Apart from this there is this “Demand Sensing Initiative “by DELL.
In this initiative these key factors are
considered
Historical Sales
List price
Promotions
Competitor promotions
Inventory position
Market trends
Therefore their demand analyses are mostly accurate which results in them getting the edge in
the business.
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10. Supply Chain of DELL
The value chain of DELL
According to this value chain plays a vital role in their demand analysis which can’t be
considered as true as always since there are visible occasions when their share prices go down
drastically in the recent past.
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11. Supply Chain of DELL
Recommendations
Even though it is said to be that their relationship is “DEEP” with customers in the Sri Lankan
context it’s quite visible that the service is not the greatest among all. In fact DELL is losing its
market share with the rising of other PC producers which is quite evident in recent share prices
of DELL.
Having a direct relationship with the customer is a good strategy but considering big customers
who are going to be retailers in that context can be a threat to this supply chain. Since somehow
it’s representing DELL and the customer service that is done by them can have an adverse
impact on them. Therefore rather than going for short term profits consideration of these aspects
would make them thrive in the industry.
References
Thesis – University of Edinburg
www.dell.com
Surviving Supply Chain Integration: Strategies for Small Manufactures ( 2000 )
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