Supply chain of Dell

Supply Chain Management
Case Study
By
Ansari Anwaar e Mustafa

Personal computers
 1980, IBM, open architecture, off-the-shelf component
- MS Dos from MS
- Intel 8088 microprocessor
- Tandon disk drive
- Computerland and Sears Business as Retailers
 1983, IBM commanded 42% of PC market share while Apple’s
share was driven down to 20%
 Structure of the computer industry
• Vertically-integrated corporations -> Horizontal “slices”
 This structure enabled IBM-PC “clones” like Compaq, Hewlett
Packard
 One of them was DELL Computer.

• 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.

Dell history
• Net revenue in million$
Birth &
Childhood
Profitless
Growth
Explosive
Growth
‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99
$69.5M $546M
$3,475M
‘83

• Support services such as 24-hour hotline and
guaranteed shipment of replacement part, Quality at a
reasonable price.
• Dell grew from nothing to $500M sales in 1990
• Dell’s model being imitated by other, Entering Retail
• Booked their first loss in 93’
• Launching www.dell.com
“We think about internet commerce as a logical extensions of our direct
model…..Because we’re all about shrinking the time and the resources
it needs to meet customer’s need….”
• Internet increased efficiency of sales process and
service

Acquisition
• Dell has grown by both increasing its customer base and through
acquisitions since its inception; notable mergers and acquisitions including ,
• 2006 – Alienware
• 2009 - Perot Systems
• 2010 - KACE Networks
• 2010 - SaaS
• 2012 - Sonic Wall
• 2012 – Wyse
• Dell offers a total of 1.6 million different possible product configurations for
all its product lines
• Desktop computers
• Notebook computers
• Network servers
• Workstations
• Storage products

Traditional Model
Build to Stock
Component
Manuf.
PC
Manufactu
rer
Distributor
/Reseller
Order
ProductProduct
Forecast
Component
Components
MicroAge,
CompuCom
Corporate
customer

Direct Model
Component
manufacturer
DELL Comp
Corp
Distributor
Final
customer
Components
Order
Product
customer SupplierDell
Order>>
<<Product

Dell direct
 Direct Model
 Bypassing the dealer channel, selling directly to consumer
 Focus on Speed of Execution and Minimum Inventory
 Characteristics of Direct Model
 Eliminate costs & risks of carrying large inventories
 JITM : high velocity, reduced channel costs from 15% to 2% of
production revenue
 Direct customer relationship
 Latest tech. introduced faster than indirect channels
 Use IT to control value chain and achieve a high deg. of
coordination
 Build-to-order

What it means for Dell
• PROS
– Lower inventory and little product obsolescence
– New technology to market faster
– Quick feedback on problems
– Ability to manage product shortage and demand by advertising and
pricing
– Selling direct to customers cuts out the middleman, which increases
Dell’s margins.
– Mass customization using standard parts allows Dell to control their
costs and enables them to pass savings to customer
• CONS
– may not appeal to all segments
– Customers not able to touch and feel the product, which is a large
ticket purchase

INVENTORY MODEL
• DIRECT MODEL
Manufacturing Process
 No inventory other than work in process (WIP)
 Components arrive from suppliers just in time for manufacturing
through the factory’s cargo doors
 No Warehouse Space
Manufacturing is synchronized to avoid storing parts or finished systems
 This needs close relationship with suppliers
 Dell has small number of suppliers even reduced number from 204 in
1992 to 47 in 1997
 Trust Manufactures like Sony, Logistics like UPS
• No test time

• 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

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.
Supplier
Manufacturing
(SLC)
Warehouse
Factory / Merge
Center
Material
Transfer

Supplier Logistics Centers
Customer
Local Suppliers
Dell Factory(SLCs)
Suppliers
Delivery
Supplier Owned Dell Owned

Customer Segmentation
• Dell Focuses on Computer-literate
customers
• Targeted segments where revenues could
grow faster than expense
“We figured they (competitors) could be the ones to teach consumers
about PCs,while we focused our efforts on more profitable segments”

www.dell.com
• Increased Efficiency of Customer Service
“We think about internet commerce as a logical extensions of our direct
model…..Because we’re all about shrinking the time and the resources
it needs to meet customer’s need….”
• Build Relationship with Supplier (Extranet)
• 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

CORE ELEMENTS OF STRATEGY
• Mass customization (end result: Delivers exactly what the
customer wants)
• Partnerships with suppliers
• Just-in-time components inventories (Quick Introduction of
Latest Technology)
• Direct sales
• Market segmentation
• Customer service
• Extensive data and information sharing with both supply
partners and customers.

SWOT
Strength:
1. Direct Model Approach, it provides
Dell a way to interact to customers
directly
2. Customization of products
3. Reliability, Service and Support
4. Latest Technology
Weakness:
1.Market share growth is slow due to
competition; Fake products/ imitations
affect sales
2. Overdependence on Suppliers.
3. Lack of Dell Stores, can be an issue for
some customers.
Opportunity:
1. With increase in e-commerce the
online retail stores of Dell provide
them better framework to tap new
business
2. The Direct approach Model of Dell
would help them there existing to sell
the other IT products, so new product
development opportunity is for Dell
3. Tablet and Smart phone Market.
Threats:
1. With the increase in innovation in the
market the computer systems are
becoming outdated, so Dell should
constantly come out with new products
2. People need the quality products at low
price which was Dell strength due to it’s
customize solution, but now its
competitors are coming up with products
in same price range

Conclusion
• Perfected the credo— “Cut out the middleman.”
“DELL eliminated the need for inventory or middlemen and
gave itself a built-in price advantage, which it in part keeps as
profit and in part passes on to customers.”Fortune 2005
• Dell’s Focus on Customer Segmentation
“Behind the simple proposition of direct selling is a complex
infrastructure that dell has developed over 15 years”
“Dell’s service advantage may be a greater differentiator than
its 10-15% cost advantage, Dell has everything we want in a
tech company, especially Focus, Dell does nothing but PCs
• Internet as Natural Extension of Business Model

20
Thank You!
“The only constant thing about business is that everything is changing.
We have to take advantage of change and
not let it take advantage of us.”
-Michael Dell-

Supply chain of Dell

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