Supply Chain ManagementPractices

Who is Dell ?

What is its current position ?

What practices made them to be in that position ?

Docket

• Started by Michael Dell (19 at that time) in his dorm room at the University of Texas in 1984 with $1000.

• Company headquartered in Round Rock, Texas, U.S.A.

• Its revenue is around US$ 63.07 billion in 2012.

• In 2001, became the No. 1 computer systems company in the world.

• At present (2013), it is the third largest PC vendor in the world after HP and Lenovo.

Inception

Dell has grown by both increasing its customer base and through acquisitions since its inception; notable mergers and acquisitions including Alienware (2006) and Perot Systems (2009).

NOTABLE ACQUISITIONS

2006 – Alienware 2009 - Perot Systems2010 - KACE Networks2010 - SaaS2012 - Sonic Wall2012 - Wyse

Acquisitions

Product Lines

Dell offers a total of 1.6 million different possible product configurations for all its product lines

Desktop computersNotebook computers

Network serversWorkstations

Storage products

Curr

ent P

ositi

on

#3

What practices made them to be

successful and exemplary ?

ComponentManuf.

PCManufactu

rer

Distributor /Reseller

Order

Product Product

Forecast

Component

Components

MicroAge,CompuCom

Corporate customer

Build to Stock

Traditional Model

Component manufacturer

DELL CompCorp

Distributor

Final customer

Components

Order

Product

Direct Model

CustomerOrder>>

<<Product

Dell Supplier

It OUTSOURCED all components but performed assembly.

It ELIMINATED RETAILERS and shipped directly from its factories to end customers.

It took CUSTOMIZED ORDERS for hardware and software over the phone or via the Internet.

It designed an INTEGRATED SUPPLY CHAIN linking Dell’s suppliers very closely to its assembly factories and order-intake system

No intermediaries - No warehousing - No physical store

Direct Model

What it means for customers(users)

• PROSPerceived customizationConvenienceNo sales pressureNo price comparisons/objections

• CONSNo immediate deliveryNo touch and feel

• What it means for (corporate) customers

• PROSPremier pages: approved configurations onlyReduces procurement costReduced over shipment costsE-support

• CONSNo immediate delivery

Direct Model

What it means for DellPROS

Lower inventory and little product obsolescenceNew technology to market fasterQuick feedback on problemsAbility to manage product shortage and demand by advertising and pricing

Dell gets paid earlyLower component cost than indirect competitorsCreates real switching barriers for large customersCustomer database>>customer information, lowers cost of follow up services and support

CONSmay not appeal to all segments

INVENTORY MODEL

DIRECT MODEL

BUILD-TO-ORDER MODEL

INVENTORY MANAGEMENT is primarily about specifying the size and placement of stocked goods.

1. Just-in time inventory management - 3 days.2. Focus on speed of inventory delivery process.

“8 days of inventory competitors 40 days, if Intel comes out with a new chip, I am going to get that to the market 32 days sooner”

- MICHAEL DELL

KEY TO SUCESSES

In contrast to others who produce –to stock, dell first

receives the order and the money and only then starts to

build, using that money to purchase from supplier

Therefore there is customization of products for each and every customer.

While other companies had to guess, DELL knew exactly what its customers wanted before manufacturing the product

Others had to maintain inventory as there existed middlemen, so to support reseller and retail channels.

Build to Order

SupplierManufacturing

(SLC)Warehouse

Factory / Merge Center

Material Transfer

Supplier Logistics Centers

To compensate for long lead times & buffer against demand variability, Dell requires its suppliers to keep inventory on hand in the revolvers.

Supplier Logistics Centres (SLCs) are small warehouses located within a few miles of Dell’s assembly plants.

Each of the SLC is shared by several suppliers who pay rents for using their revolver.

Dell doesn't own the inventory in its revolvers; this inventory is owned by suppliers & charged to Dell indirectly through component pricing.

Dell has a special Vendor-Managed-Inventory (VMI) arrangement with its suppliers

Suppliers decide how much inventory to order & when to order while Dell sets target inventory levels & records suppliers’ deviations from the targets.

Dell withdraws inventory from the SLC’s as needed -- on average every two hours.

It uses a quarterly supplier scorecard to evaluate how well each supplier does in maintaining this target inventory in the SLC.

Supplier Logistics Centers

Customer

Local Suppliers

Dell Factory(SLCs)

Suppliers

Delivery

Supplier Owned Dell Owned

Supplier Logistics Centers

Value Chain is intended to extend Dell’s successful direct-sales approach back into the supply chain

The goal of it is increasing the speed and quality of the information flow between Dell and its supply base

The portal, valuechain.dell.com acts a secure extranet for Dell suppliers to collaborate in managing the supply chain

Dell envisions using this site to exchange with suppliers current data, forecasted data, new product ideas, and other dynamic information

ValueChain.dell.com

“The direct model has been a revolution,but it’s not a religion.”

Michael Dell in April, 2007

Direct sell

Retail stores

Hybrid business

model

Wal-MartGomez Electrical, ChinaDell extended its international retail strategy - Russia

PUSH or PULL

?

70% - 80% 20% - 30%PUSH PULL

Fixed B.O.MPre Manufacturing

Semi Fixed B.O.MCustomer Dictates

8 Weeks1 Week

Push-Pull

Thank you