Dell Supply Chain Case Study

SUBMITTED BY: GROUP #7  

• Neeraj Joshi
• Raman Mangat
• Gagan

Introduction

Dell organization was built up in November 4, 1984. It is an American multinational data innovation company situated in Round Rock, Texas, United States, that creates, offers and backings PCs and related items and administrations. The organization is one of the biggest innovative enterprises on the planet, utilizing more than 103,300 individuals around the world. The name of its founder  is Michael Dell. He was the most youthful CEO to direct an organization to a Fortune 500 positioning. It generates an income of USD 63.07 billion yearly. The company manufactures desktop computers, notebook computers, network servers, work stations, storage products and customization of each product with the suppliers being Microsoft for windows, Intel for microprocessors, Nvidia for graphics chips and Sony for the monitors.

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As discussed in the case study, Dell keeps up a decent connection with the provider (supplier) and help them to center on the innovative capacities to support initiative segments in the light of the fact that in the realm of quick change in the innovation , research and development expenses are roughly significantly higher for a company to keep up monopoly in their segment. This is the reason that suppliers are asked to keep a lot sizes and stock as low as reasonably be expected. Dell always focus on its customer research and use that research to help suppliers and itself. As far as inventory details and new orders are concerned, Dell has build a web page , where suppliers can view order details and can plan how much and when to provide the product to dell based on actual demand of the consumer, which will decreases the bullwhip effect on supplier end. The main motive of the dell is to work with supplier as a team and to reduce the customer order line and to keep moving the supply chain. At that point with the joint efforts of the whole provider`s, Dell can provide a large variety of alternatives to their clients and can work to accomplish a quick throughput.

FIRST MOVER ADVANTAGE

If we see on the distribution side dell is mainly dependent on direct sales through internet, in order to enhance income by offerings large varieties of desktops, notebooks and enterprises products. All these are displayed on company’s websites and customers can directly purchase from it. Even customers can place order from anywhere at any time. On comparing online and retail dell computer purchase, online is cheaper because of the brick and mortar model. In dell company whenever the new product is manufactured at the same time it is introduced over the company`s website. Whereas the competing companies firstly produces the product and then introduce the product after it reaches the retail store for selling. That is why Dell has an advantage of introducing new product early in the market, said to be first mover advantage.

DELL OFFERS A BETTER MATCH TO DEMAND AND SUPPLY

Dell company has designed its manufacturing and assembling process in such a way that product is manufactured in a couple of minutes. In this way earlier production can be postpone and new product can be manufactured according to the order received and once new product is manufactured, the postpone production again starts. As it offers modularity and tight scheduling. Whereas the other companies sell their products through retailers and wholesalers and they find impossible to postpone production.

ENJOY CASH FLOW ADVANTAGE

The best part is that due to direct sales dell company eliminates the extra cost and margins lead by retailers and wholesalers. Point to note that dell operates at negative working capital as it receive it payments before it pays its suppliers and enjoy cash flow advantage .

DRABACKS

On the darker part, Dell company bear a high shipping cost then selling their product to retailers and wholesalers. In this way dell has to bear shipping cost for each product when ordered by customers, whereas other companies bear large shipment via tucks to warehouses and finally then to retailers which is less expensive per unit.

DISCUSSION QUESTIONS

1. How has Dell use its direct sales model and build to order model to improve its supply chain?  

Ans:  Dell Company’s path of action is to enhance technological capabilities to compete and enjoy continuous  leadership. Special Web pages are designed to encourage supplier’s to meet customer’s demand by driving down lead times, lot sizes and inventories. Focussing on their distribution path, Dell offers variety of it’s component, virtually through the internet leading to increase in their revenue. Customer’s can choice their products based on their value choice. Customers can select products during any time by recommending product configurations or customizing them and also based on their purchase history and current needs.

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Direct Sales and build to order model are use by  the Dell to build supply chain by synchronizing the process from the starting to it’s completion. Dell produce products on the basis of their customer’s order and execute accordingly after receiving the payment. No Products are produced prior to customer’s order and based on the order procurement starts. So first step of the company si to do research of customer’s preference and then based on it, a design is made which is displayed on the web site. Integration of supplier’s is done through web page, which displays the orders that are not yet executed, giving supplier’s the vital information to structure their plan based on the requirement. These models have been proved exceptionally useful by drastically decreasing the overall process timing to a couple of hours in comparison to months. Increase in cash flow is also witnessed as the payment is received by the company before making the payment to their suppliers.

2. How has Dell exploited the direct sales model to improve operations performance?

Ans: Dell produce products for the customers who have value for choice from different part of the world. Internet played a key role in the success of the direct sales model. The Products with high life cycle in an industry face difficulty to compete with dell, who enjoys advantage of early market. Dell introduces the first model to customers in form of a new product. Supplier’s are directly linked to the orders, so that they know the quantity of components to be manufactured and shipped. The compression of supply chain give Dell a competitive advantage. Depreciation and write off of inventories costs are reduced as Turnover rate of inventory is 60 times per year. Negative cash conversion cycle is operated by Dell by using Direct sales model. Money is received by the company in advance to pay to it’s supplier’s for the components. No stocks are kept and orders are executed based on the customer’s choice. Sale Price and orders of the product are received by the company, simultaneously, customer also receives the product accordingly to their preference within a short span of time.

3. What are the main disadvantages of Dell’s Direct Sales Model?

Ans: The disadvantage of Dell’s Direct Sales Model is the shipping cost and customer support service cost ,which the company has to bear after the sale is done. Dell bears the direct cost of shipping, as it deals directly with the customer and where retailers have no role to play. Other companies produce and send the products in bulk in comparison to Dell, who delivers small orders individually to  customers. Dell bear all the related transaction costs from receiving the order to it’s execution and after sale services. Direct Sales Model enjoys advantage of cost on the side of production but brings a disadvantage of cost on the side of support.

4. How does Dell Compete with a retailer who already has a stock?

Ans: The strategy adopted by Dell to compete  with retailers, who already has a stock is by providing low price to customers, which is a result of low fixed cost. It also givies customers a chance to customize their product, according to their needs, by giving them virtual display over the internet, whereas in stores the supplies are limited. Dell Produce the products within hours and supplies to the buyers within a couple of days.

5. How does Dell’s supply chain deal with the Bullwhip effect?

Ans: Supply Chain should be consistent to avoid Bullwhip effect in order to fulfil the demand accurately and within time with accurate forecasting of demand.

             Dell constructed web pages where supplier’s can forecast the demand of components by viewing the stock  available and avoiding the problems related to unnecessary components and products.