Dell Computer is a leader in the e-commerce computer hardware market. It is an established brand that leads personal computer manufacturers in U.S. sales and overall online sales. Its trademark method of selling products to customers, corporate and individual consumers, emanates from the Dell Direct
model, a Web-enabled infrastructure that allows customers to customize their PCs and order other products they need or desire. This virtual integration structure eliminates the need to manufacture everything, and instead uses the power of the Internet to share and exchange information with suppliers and vendors to build a truly superior supply chain that keeps inventory turnover low and costs to a minimum (Harrington, 2002).
Constantly changing technology directly impacts Dell’s success. The primary method Dell uses in order to achieve and sustain their competitive advantage is a unique, direct to customer business model (Dell, 2007). The Internet is Dell’s key success factor which results in lower costs to customers than other retailers because customers tell Dell exactly what they want and Dell creates products for the consumer without experiencing wasteful resources in production (Breen, 2004).
Dell’s supply chain works as follows. After a customer places an order, either by phone or through the Internet, Dell processes the order, which takes two to three days, after which it sends the order to one of its manufacturing plants in Austin, Texas. These plants can build, test, and package the product in about eight hours (Kapuscinski et al, 2004). The general rule for production is first in, first out, and Dell typically plans to ship all orders no later than five days after receipt.
Since many of Dell’s suppliers are located in Southeast Asia, Dell has significantly less time to respond to customers than it takes to transport components from its suppliers to its assembly plants. To compensate for this, Dell requires its suppliers to keep inventory on hand in the Austin plant, referred to as revolvers (for “revolving” inventory). Revolvers or Supplier logistics Centers (SLCs) are small warehouses located within a few miles of Dell’s assembly plants. Each revolver is shared by several suppliers (Breen, 2004).
The inventory in Dell’s revolvers is not owned by Dell. It is owned by suppliers and charged to Dell indirectly through component pricing (Kapuscinski et al, 2004). However, the cost of maintaining inventory in the supply chain is included in the final prices of the computers. Therefore, any reduction in inventory benefits Dell’s customers directly by reducing product prices. Low inventories also lead to higher product quality, because Dell detects any quality problems more quickly than it would with high inventories (Pizinger, 2004).
Dell wishes to stay ahead of competitors who adopt a direct-sales approach, and it must be able to reduce supplier inventory to gain significant leverage. Although arguably supply-chain costs include all costs incurred from raw parts to final assembly, Dell concentrates on Dell-specific inventory (that is, parts designed to Dell’s specifications or stored in Dell specific locations, such as its revolvers and assembly plants). Because assembly plants hold inventories for only a few hours, Dell’s primary target, in this project, was the inventory in revolvers (Kapuscinski et al, 2004). Dell holds inventory only for the six to eight hours it travels across the assembly line and for the 18 hours it takes for the completed CPU to be trucked to a merge center in Reno, Nevada, where the unit is bundled with a monitor and shipped to the customer (Harrington, 2002).
Dell also works the other end of the supply chain — the customer — to eliminate the evil of inventory. Essentially, it’s replacing inventory with information. The company keeps a massive database that tracks the purchasing patterns and budget cycles of its corporate customers, and predicts upgrade purchases by individual repeat consumers, which enables it to forecast demand with about 75% accuracy (Kapuscinski et al, 2004). Three times a day, Dell updates its demand forecast for key suppliers on its extranet portal. When Dell misses a forecast — which it does from 5% to 25% of the time — and finds itself running out of, say, 15-inch flat screens, it runs a one-week special for 17-inch screens. Its direct-to-the-customer model allows it to shift demand to match what its suppliers can deliver. Supply-chain experts call this “demand shaping,” and Dell has mastered this competitive weapon, too. But while such tactics have helped Dell to almost eliminate inventory from its balance sheet, its suppliers cannot claim to have done the same (Solis, 2001).
Dell’s supply chain management success can be summed up in one idea. “Supply chain management shortens the cycle between the component, the manufacturer and the end customer. We are allowing them to almost touch each other, (E-commerce)” according to Michael Chong, e-business Technology Manager of Dell Computer Corporation. Supply chain management is the effective and efficient movement of materials from suppliers, through a company and into products, which eventually is received by consumers (Dell, 2007).
Breen, Bill. (2004). Living in Dell Time. Fast Company. Retrieved November 3, 2007 from http://www.fastcompany.com/magazine/88/dell.html.
Dell.com. (2007) Supplier Principles: Supply Chain Management System. Retrieved November 4,
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Harrington, L. (2002). Industry Week. Retrieved November 3, 2007. The Accelerated Value Chain: Supply chain management just got smarter, faster and more cost-effective, thanks to a groundbreaking alliance between Intel and i2 technologies.
Kapuscinski, R., Zhang, R., Carbonneau,P., Moore, R., Reeves, B. (2004) INFORMS – Interfaces – Inventory Decisions in Dell’s Supply Chain – Vol. 34 No.3 May-June 2004. Retrieved November 5, 2007
Pizinger, Michael (2004). Retrieved November 3, 2007, Extending DELL’s Direct Model
to Product Development via Supplier Collaboration Tools, The Management Roundtable.
Solis, Adriano O. (2001). SOME SUCCESS STORIES IN SUPPLY CHAIN
MANAGEMENT. Retrieved November 3, 2007 from http://utminers.utep.edu/solis/NAPM%20- %20El%20Paso/Criterion%20Articles/Academic%20Advisor%27s%20Corner%20may% 202001.doc