Supply Chain Drivers of Dell [PDF]

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Supply Chain drivers of dell Introduction Founded in 1984, it is a multinational technology corporation that develops, manufactures, sells & support personal computer& other computer related products. It has got largest market share of PC business with 19.2% market share just after HP with market share of 23.9%. Company’s revenue for the year 2008 totaled $47.3 billion



Major setbacks: 1. First setback was experienced in year 1984 when huge stock of 256 k memory chip became useless due to increased capacity of the chip from 256 k to 1Mb overnight. 2. Second was when defected batteries were sold with laptops in 2006.



How it overcame? It replaced all the defected batteries by calling back all the laptops that were sold back to its service centers. It improved its customer service by investing $150 mn



Dell’s Supply Chain: After a customer place an order, by phone or through the Internet on www.dell.com, Dell processes the order by doing financial evaluation i.e. check credit limit and check the feasibility of a specific technical configuration, which takes two to three days, after that it sends the order to one of its manufacturing plants. These plants can completely build and package the product in almost eight hours. The general rule for production is first in, first out, and Dell typically determines to ship all orders within five days after receipt. Dell applies a customer focus, supplier partnerships, mass customization & just in time delivery to implement the strategy to create & sustain customer value by efficiently responding to them.



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Facilities Inventory Transportation Information Sourcing



Role of each driver in maintaining the efficiency & responsiveness of dell’s supply chain are as follows: 1. FACILITIES: Activities such as coordinating with its manufacturing facilities & managing inventory are of primary concern for dell because they impact the price of the final product to customers. Dell has a manufacturing arrangement with its key suppliers such as Sony. Thus suppliers’ employees work in the dell facilities & work on the planning & product development. Now because of the close relationship with its suppliers & their reputation for building certain component dell does not perform quality checks on their components .Thus dell does not maintain any inventory on its own. It is owned by its suppliers. Moreover when required it instructs to get the components matched in the delivery process which eliminates the need for dell to have a distribution centre to perform all these kind of functions.



2. INVENTORY: The inventory in its facilities is not owned by dell, rather owned by suppliers which indirectly adds to the components price & finaaly the final product.Therefore, any reduction in inventory definitely reduce the product price & finally benefits the customer & definitely the company.Low inventory also lead to higher product quality because it becomes easy for dell then to identify any defects in the inventory. The vendor-managed-inventory (VMI) arrangement of Dell lets its suppliers decide how much inventory they need to order and when to order while Dell sets target inventory levels and then records deviations from the targets for each supplier. Dell chose an inventory target of 10 days i.e. it make a plan for 10 days about the inventory targets to achieve. To help suppliers in making accurate or nearly accurate ordering decisions, Dell



shares its forecasts with them once per month. They not only focuses on Productspecific trends, but also reflect the seasonality factor. For example Christmas is the top time of the year, back-to-school season and country-specific seasons for foreign purchases (foreign language keyboards are especially influenced) etc. Dell revive its forecast weekly acc to the various factors & suppliers receive forecasts monthly.



3. TRANSPORTATION: Dell in some cases has significantly less time to respond to customers than it takes to transport components from its suppliers to its assembly plants which require 7 days to as much as 30 days to transfer various components to assembly plants. To compensate for long lead times and buffer against demand variability, Dell requires its suppliers to keep inventory on hand. Thus small warehouses are located within a few miles of Dell’s assembly plants. Each of the warehouses is shared by several suppliers who pay rents for using that. Thus it store inventory there according to the forecasted demand keeping some level of buffer stock accordingly & thus reduces its transportation cost by ordering purchases in batches rather than individual purchase.



4. INFORMATION: By selling directly to customers dell computers uses e commerce to communicate with customers, maintains low cost & customize products according to customers’ specifications. Dell computers are driven by the desire to create value for customers. Through the use of internet, dell’s customers gain access to the same product, service & catalogue information as its employees. Tailor made internet sites called premiere pages gives customers direct access to purchasing & technical information about the specific configuration they buy from it. www.dell.com was launched in June 1994 and as soon as it was launched customization become very easy for dell.Product list is available with price there. Customer can directly purchase by credit card. Brochure is sent directly through e mail. Complaints are also registered there & technical support is provided to the customers. Thus customers can order, configure & even gather technical advice online & get a completely customized product. The corresponding Web site valuechain.dell.com is an extranet for sharing such information as points of contact, inventory in the supply chain, supply and demand data, component quality metrics, and new part transitions. Dell envisions using this site to exchange with suppliers current data, forecasted data, new product ideas, and other



dynamic information that might help it to optimize the flow of information and materials in the supply chain. Value Chain is a program intended to extend Dell’s successful direct-sales approach back into the supply chain with the goal of increasing the speed and quality of the information flow between Dell and its supply base.



5. SOURCING: Dell has a virtual relationship with its suppliers who manufacture components & maintain just in time for dell which are assembled in its assembly plants. Moreover, for the customers who want or need more personalized assistance, dell send out one of more than 10,000 service technicians to their site. However only a small no. are dell employees. Most are contract employees (supply chain partners). This allows dell’s employers to focus on activities that create more value for customers.



Conclusion: Dell’s operation can be described as "High Velocity Mass Customization". All the drivers of dell’s supply chain can be attributed to decreased cost & increased customer service. The result was when retailers who aligned with dell’s competitors began charging higher rates for servicing & supporting dell products, customers remained loyal. Unique product offerings, cost reductions, high responsiveness towards customers demand has resulted in customer loyalty. Key Objectives Price is the amount of money changed for a product or service, or the sum of the values consumers exchange for the benefits of having or using the product or service (Kotler et al., 2003, p.332).



Historically, prices were determined through bargaining or negotiations between buyers and sellers. Different prices were set based on the buyer needs and bargaining skill. The establishment of one price for every customer is relatively new phenomenon that came about with the rise of retailers but price still remains a major factor in affecting consumer buying decisions. In addition, it is the most flexible of those components. The ability of price to affect consumer decision and its flexibility makes pricing strategies important in meeting Dell’s objectives in a competitive environment. The main objective of Dell is to produce the low price and profitable notebook for the customer. For Dell Company, all the prices that they sell are posed to the internet and they usually based on the e-commerce market. The main reason for successful pricing strategy is having a reasonably accurate idea of supply and demand. Too high a price and demand fall as less buyers purchase the product. Too low a price can increase volume of sales but reduce margins profit. So, Dell has aimed for the e-commerce which is the multiple markets operates at different times of day and may interact or affect each others. Dell Company had set different types of price based on the home user, small business user and medium or large business user. The pricing structure changes as the products move through their life cycle. The company also always changing costs to make sure that they are still able to survive in the competitive environment. From there we can see that Dell company success to do that especially they can provide any prices and products that the consumers’ wants although promote and sell their product through the Internet.