Dell Supply Chain

Term PaperSupply Chain Mangement in DELL Submitted ByAshis Tripathy (14PGP121)

Table of ContentsIntroduction of the company:3SWOT ANALYSIS OF DELL3Key elements of Dells Success:4DIRECT SALES IN DELL5New supply chain in Dell:5TRADITIONAL VS DELL OPERATIONS MODEL5Dell Model and its various steps:6Supply Chain Strategy :7Configure-To-Order :7Build-To-Order :7Supply Chain Integration Strategies10Value Chain Analysis :10Demand Management11Mass Customization:12Virtual integration:13Top Issues in Information and Communication Technology Supply Chain14JIT and Dell:15Requirements for JIT Production:15Advantages for Dell by adopting JIT:15Challenges faced by Dell with JIT:16Brief analysis of Inventory management :16Conclusion:17

Introduction of the company:

Being established on 4th November 1984 Dell is an American multinational IT based corporation based United States, renowned for developing, selling and supporting computers and related products and services. Founded by Michael Dell it is one of the largest technological corporations in the world and employs more than 10000 employees. Dell has many pioneering critical developments in home, small of computer systems, computer peripherals, computer software, IT consulting and IT services, desktops, servers, notebooks, netbooks, peripherals, printers, televisions, scanners, storage and smartphones. nhael Dell founds Dell Computer Corp.1 Dell came up with its public offeringin 1988 which increased their capital from 1 thousand to 85 million dollars. Initially its name was PCs limited which was officially changed to Dell computer corporation. In 1992 Dell got listed in the Fortune 500 magazine with Michael Dell as the youngest CEO to receive such a recognition.Dells success reached new heights because of its longest Battery back up being made up of Lithium Ion 2. Dell reached the customers worldwide by using online platforms and digital world as its marketing and distributive channel. Dell allowed its customers to customize their purchase depending on their own liking and provided technological support online to its customers worldwide. By 1999 it became the top PC manufacturer in US. In 2001 it became the worlds top selling PC company.

Dell also maintained its stand as far as environmental preservation is concerned and was the first company to manufacture a desktop that had a monitor free of Lead. In 2006 it started providing free recycling to its customers.

SWOT ANALYSIS OF DELL

1. STRENGTHSa. Direct Model Approach- As a small start-up Dell couldnt afford to create every piece of value chain. So it focussed on delivering the value by using the services provided by other companies.b. Mass customization of products- Sell direct to customers, and design the computers to customer specifications as they were ordered. Dell was the first to offer mass customization in the world of PC.c. Virtual Integration Technology- Virtual integration focuses on assimilating the benefits of two very different business models.i. The advantages of a very highly coordinated supply chain.ii. Benefits of being focussed and specialized which drives virtual corporations. Thus virtual integration offers coordination as well as focus.

2. WEAKNESSES

a. Direct Model approach-It can be seen as a weakness also as anxious consumers or consumers who do not have that much time to customize and wait for their products may shift to another brands for this reason.b. Not having physical presence is harmful as in many cases consumers look for executives and physical presence of entities associated with Dell to discuss or sort out issues or have an understanding of functioning of various levels.c. As far as product differentiation and new innovations in the product line are concerned Dell lags behind its competitors like Apple who have the inherent strength of innovation.d. Dell stores are not spread out geographically worldwide. Thus inhibiting many possibilities and strengths associated with physical presence.

3. OPPORTUNITIESa. With sharp growth in information technology worldwide and digitisation of market space, the already established distribution and service channel of Dell can act as a strong support in upcoming turbulent and competitive times.b. With its strong entry in the market of smart phones and tablets, Dell has proved its strong perception in the minds of customers about its brand quality and efficient technological platforms. These new markets can be leveraged to outperform in the current global business scenario4. THREATSa. The inability of Dell to differentiate itself and come up with new brands is strongly hit upon by competitors. Even the price competitiveness of Dell has been threatened by competitors giving a tough fight on price factor.b. With Apple getting innovative day by day and entry of new players into competition, Dell cannot rely just on its competitive edge of direct model approach and virtual integration; it has to look for new avenues for betterment.

Key elements of Dells Success:

They will be discussed in detail ahead.

DIRECT SALES IN DELLNew supply chain in Dell:In the new supply chain Dell got rid of the existing traditional supply chain. By applying new method of supply chain, Dell substantially improved its effectiveness and efficiency.Following are the new steps applied by Dell instead of traditional direct sales method:1. Segment the customers into groups: At the outset, Dell segmented its customers in to various segments. These segments include small and medium business customers, retail customers. By segmenting customers in to various categories, Dell substantially increased its efficiency and targeted the customers very effectively.2. Take orders:According to the segments Dell effectively took orders from the customers. Needs of the customers in different segments are varied. So taking orders and processing orders in a customised way according to need of various segments, Dell improved its efficiency.3. Sending details to manufacturing floor: After receiving orders from various customers Dell sent the configuration details to manufacturing floor for assembly of the PC. This way Dell ensured customization of the orders from different customers.4. Installation of software: Once PC is build according to the customised hardware, required software are installed in the PC. This ensured in sync installation of software with the hardware.5. Shipment of the product: After installation of software, product is shipped directly to the customers. This ensured quick delivery of product to the customers as compared to the traditional method of supply chain.

TRADITIONAL VS DELL OPERATIONS MODELTraditional model and its various steps:1. Manufacturing of PCs components by suppliers and its supply.2. Assembly of PC by PC makers. Filling of order from suppliers. Keeping distribution channel stock up to date.3. Sales and marketing activities to promote sale of PC. Maintenance of inventory in hand to fulfil orders in time.4. Purchase of PC by customers. Purchase took place according to the available model with preinstalled configuration of hardware and software.5. Service and support activities. After sales services to the customers is provided to the customers by PC makers. Various channels like email, telephone, and fax are used.

Dell Model and its various steps:

1. Manufacturing of PCs components by suppliers.2. Customized assembly of PC. Customization of PC takes place after the orders are received from customers.3. Purchase of PC by the customers and delivery of PC to the customers.4. Service and support activities. After sales services to the customers is provided to the customers by PC makers. Various channels like email, telephone, and fax are used.

This way Dell model is substantially different from traditional model. Its model allows Dell to customize product according to the need of the customer which helps to satisfy customers. This model also helps Dell to deliver product in a relatively less amount of time. This model tremendously helps Dell to reduce its inventory cost substantially.

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

Supply Chain Strategy :

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 fulfil customer demands by adding value to the products and services.Configure-To-Order :

Dell is the first company to introduce Configure-To-Order model in which customers can customize their PCs according to their preferences. So millions of configurations are possible without piling up the inventory. This method allows DELL to introduce new technology faster than its competitors. Due to this model DELL is able to sell PCs at lower rate than its competitors. It is able to forecast the demand properly. The main trade off in this model is the longer waiting time for delivery. To increase the market share in PC market DELL has introduced End User Computing in which it employs end user solutions .Build-To-Order : 1. Dell follows a built to order system which is also known as Made to order. It is the kind of production approach where products are not built until an order for the product is received.2. This kind of approach is mainly used for products that needs to be customized and the product volume is quite low.3. In this kind of approach the advantage is that it can be used to provide a customer his own specifications in the products which he orders.4. There are also disadvantages like this kind of system is vulnerable to the various market fluctuations that are likely to happen .

Direct and Indirect Channel:

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 softwares 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.

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.

Value Chain Analysis :According to this value chain plays a vital role in their demand analysis which cant be considered as true as always since there are visible occasions when their share prices go down drastically in the recent past.

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.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.

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

Mass Customization:This process majorly consists of 3 steps as shown below:1.Elicitation2.Flexible process3.Logistics1.Elicitation:It involves getting required information from the consumer to build the desired product. Further information is also needed in case of different products. Information can be name and address ,physical dimensions, relation to prototypes. Among these information type some information can be obtained from internet, but some information has to be physically procured .2.Flexible Processes:The information gathered in the elicitation phase is transformed into products and services in this step. Low cost with greater flexibility process is really difficult to achieve .Software can be used to handle information.3.Logistics:It starts with the customer order. The order number should be identified correctly to distinctly identify the product among large amount of products. After that products will be sent to the customer one at a time.

Virtual integration: A term used to describe the use of the Internet to replace physical components of a company with information. A business engaged in virtual integration owns only their brand and their clients. This eliminates the need to physically produce, ship or handle any products as they are now outsourced. Dell Computer is evolving in a direction that Michael Dell callsvirtual integration Dell has been using technology and information to haze the traditional boundaries in the value chain among suppliers, manufacturers, and end users. In so doing,.The individual pieces of the strategycustomer focus, supplier partnerships, mass customization, just-in-time manufacturingmay all be familiar. But Michael Dells insight into how to combine them is highly innovative: technology is enabling coordination across company boundaries to achieve new levels of efficiency and productivity, as well as extraordinary returns to investors. Virtual integration harnesses the economic benefits of two very different business models. It offers the advantages of a tightly coordinated supply chain that have traditionally come through vertical integration. At the same time, it benefits from the focus and specialization that drive virtual corporations.

When Dell Inc. first beganusing internet to expand their business, the company had three basic objectives:1. to make it easier to do business with Dell,2. to reduce the cost of doing business with Dell, and3. to enhance their customer relationships. Virtual integration has the potential to achieve both coordination and focus. If it delivers on that promise, it may well become a new organizational model for the information age.Top Issues in Information and Communication Technology Supply Chain

Transparency and Reporting Transparency is important to Dell's relationship with stakeholders. Dell continue to publicly disclose Dell's list of top suppliers. In addition, Dell provide Dell's greenhouse gas (GHG) emissions on the Carbon Disclosure Project website and request that all suppliers do as well. Addressing Minerals and Extractives Addressing Minerals & Extractive Dell focused on multi-industry processes that allow for the minerals tungsten, tantalum, tin and gold that Dell use in Dell's products are obtained from responsible global sources. The Democratic Republic of Congo has been a global mineral provider for years, but human rights violations have been reported in its mining industry. Its Dell policy to refrain from purchasing minerals from the suppliers that support these violations and Dell advocate that Dell's suppliers adhere to the same standards. Just in Time Just in Time, often referred to as JIT, is a strategy in production that aims at improving the ROI of a business by reducing the inventory and the cost associated with it. The primary goal of JIT is to achieve zero inventories.

JIT and Dell: Dell Computer Corporation is an organisation which is famous for use of JIT technology in its production of laptops. Dell is able to achieve JIT through its unique model of direct marketing. Dell was proactive in seeing the opportunity lying behind JIT, and was quick enough to implement it. This resulted in a cut in their inventories from having 20 to 25 days of inventory to having no warehouses. The inventory was not available for more than two hours in the factory. The results showed that Dell was constantly moving towards achieving its target of no inventory and thereby improving its business performance.To implement JIT, Dell had to do vast research on the management theories behind JIT, and at the same time, Dell required commitment from every department and support from companys strategic management team. Pull production method was needed to be in practice for JIT to work. It is the demand of the customers that initiates the production of computers at Dell. The problem that came with JIT was that there could be situations when the demand of computers can unexpectedly increase without any indication. To handle such situations, Dell needed a have a contingency plan. Requirements for JIT Production:

1. High Quality Standards2. Demand for pull scheduling3. Sufficient lead time to change to new products4. Long term contract commitments from customers and with suppliers 5. Level production schedules6. Continuous improvement of the production process.7. Minimum inventory in the manufacturing system.

Advantages for Dell by adopting JIT:

1. Prevents manufacturers from slowing down the process with an outdated or unusable inventory.2. Cost reduction.3. Made to Order, which helped in customization of the products.4. Continuous cash conversion.5. Prevents overproduction and waste production.The products are held only for two hours in the manufacturing plants. This ensures that they are totally in control of the production of the computers. The saving of time and cost enables Dell to spend their money on other areas of business such as advertising and marketing. Cost is also cut as the organisation does not have to spend money on building and maintaining the warehouses anymore to store the inventories.

Challenges faced by Dell with JIT:

1. Vast research needed to ensure functioning of inventory management.2. Large cost associated with the initial set up of JIT.3. Vulnerable to fluctuations of demand in the market.4. Market research to identify buying patterns of their customers.Brief analysis of Inventory management :Dell manages its inventory mainly with the help of following technologies:1. Build to Order2. Direct Sales3. Just in Time (JIT)4. Vendor Managed Inventory (VMI)Vendor Managed Inventory (VMI) is a supply chain practice, in which the stock is monitored, planned and managed by a vendor on behalf of a consuming organisation. VMI was started in the retail business in line with Efficient Consumer Response (ECR). There are vast advantages associated with Vendor Managed Inventory. Some are:1. Cost Advantage: In VMI, the vendor holds the stock as close to the customer, or holds on the stock. This gives customer the facility to instant and easy access to the product and ability to pull stock when needed. This way, the customer pays for only those products which are consumed, which in turn reduces the stock management, and increases the stock turnover. The vendor is responsible for replenishing stock in most VMI partnerships. This includes ordering the stock, managing the logistics and freight to ship the material, as well as stocking and counting the stock. By passing on these expenses to the vendor, the customer can reduce overall costs.2. Separates demand variations and forecasting errors between upstream and downstream supply chain partners: Such decoupling eliminates the practice for every supply chain node to buffer its stock position. This helps reduce the stock levels and the linked costs of maintaining the stock.

Conclusion: Although Dell has a very god relationship with the customers but it can also have a negative impact when the customers are very big. They can act as a retailer and provide service to the end customers. By doing this they are being a part of the supply chain of DELL. So quality of service provided by them will also entail the service quality of DELL. Therefore rather than going for short term profits consideration of these aspects would make them thrive in the industry.

IIM RaipurPage 14