Dell'S New Strategies And Techniques

Introduction

Dell Inc. is the largest computer-systems company based on estimates of global market share. It is also the fastest growing of the major computer-systems companies competing in the business, education, government, and consumer markets. Dell's product line includes Desktop computers, Notebook computers, Network servers, Workstations, and Storage products. Michael Dell founded the company based on the concept of bypassing retailers and selling personal computer systems directly to customers, thereby avoiding the delays and costs of an additional stage in the supply chain. Much of Dell's superior financial performance can be attributed to its successful implementation of this direct-sales model.

Dell has been adored because it is the very model of a flat-earth, New Economy business. It takes orders directly from customers over the phone and the Internet, sources components around the world, and assembles and delivers them with a hyper-efficient supply chain. No one has gone as far as Dell. It's well known, of course, for nearly eliminating finished-goods inventory by cutting out resellers and connecting directly to customers. What's less known is, how it has transformed the back end of its operations -- its assembly lines and supply chain -- into one of the fastest, most hyper-efficient organizations on the planet. Eleven years ago, Dell carried 20 to 25 days of inventory in a sprawling network of warehouses. Today, it has no warehouses. And though it assembles nearly 80,000 - 100,000 computers every 24 hours, it carries no more than two hours of inventory in its factories and a maximum of just 72 hours across its entire operation. Dell's vast, global supply chain is in constant overdrive. According to Dell 'Speed' is at the core of everything they do. As Kevin Rollins had mentioned "The longer you keep it the faster it deteriorates -- you can literally see the stuff rot" and "Because of their short product lifecycles, computer components depreciate anywhere from a half to a full point a week. Cutting inventory is not just a nice thing to do. It's a financial imperative." According to one of the senior officials at Dell, "Companies keep inventory as a hedge against poor demand forecasts and an inability to see into their supply Chains".

While the computer industry has grown tremendously over the past decade, firms in this industry face their own challenges. First, rapid changes in technology make holding inventory a huge liability. Many components lose 0.5% to 2.0 % of their value per week, and a supply chain packed with yesterday's technology is nearly worthless. With its direct sales, however, Dell carries very little inventory: the whole organization concentrates on speeding components and products through its supply chain. Dell delivers new products to market faster than its competitors and does not have to sell old products at a discount, because it has none. Dell bases its business model on integrating five key strategies: rapid time to volume, products built to order, elimination of reseller markups, superior service and support, and low inventory and capital investment. With the innovation of the 'Build to Order' business model Dell has made the world turn around and their competitors have started to follow Dell's Business Model. How did Dell do this? What did it take for Dell to achieve a purchasing cycle time of 90 minutes? We shall see a detailed study of Dell's business model in this research.

Working of Dell's Supply Chain and its Inventory Management:

Dell's supply chain works as follows. After a customer places an order, either by phone or through the Internet on www.dell.com, Dell processes the order through financial evaluation (credit checking) and configuration evaluations (checking the feasibility of a specific technical configuration), 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. 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. Dell has significantly less time to respond to customers than it takes to transport components from its suppliers to its assembly plants. Many of the suppliers are located in Southeast Asia and their transportation times to Austin range from seven days for air shipments to upwards of 30 days by water and ground. To compensate for long lead times and buffer against demand variability, Dell requires its suppliers to keep inventory on hand in the Austin revolvers (for "revolving" inventory). Revolvers or Supplier logistics Centers (SLCs) are small warehouses located within a few miles of Dell's assembly plants. Each of the revolvers is shared by several suppliers who pay rents for using their revolver.

Dell does not own the inventory in its revolvers; this inventory is owned by suppliers and charged to Dell indirectly through component pricing. The cost of maintaining inventory in the supply chain is, however, eventually 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. 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. 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.

Dell and its Supplier Relationship Management:

Dell has a special vendor-managed-inventory (VMI) arrangement with its suppliers: suppliers decide how much inventory to order and when to order while Dell sets target inventory levels and records suppliers' deviations from the targets. Dell heuristically chose an inventory target of 10 days' supply, and it uses a quarterly supplier scorecard to evaluate how well each supplier does in maintaining this target inventory in the