Supply Chain of Dell Incorporated - Case Study Example

Supply Chain Introduction A company's supply chain is a great factor in determining the efficiency of a business organization in sourcing its inputs, producing its products and delivering them to customers. In fact, some of the most amazing business successes in the past 20 years are direct results of finding more efficient supply chains in delivering products to customers. Supply chain, according to Chopra & Meindl (2004) is consist of all the parties involved directly or indirectly in fulfilling a customers request. Thus, supply chain includes customers, retailers, wholesalers, distributors, manufacturers, and component/input suppliers. This paper will look at the supply chain of Dell Incorporated. The rationale for choosing Dell is the recognition it gained for its efficient supply chain. The company's business model is based in five key strategies namely, rapid time to volume, products built to order, elimination of reseller markups, superior service and support, and low inventory and capital investment (Kapuscinski, et al 2004). Company Profile Michael Dell, who is also regarded as the computer industry's longest tenured chief executive officer, founded Dell Computer Corporation in 1984. Later in 2003, the company changed its name to Dell, Incorporated. The company is one of the most famous manufacturers of computer worldwide, which caters to the needs of individual and corporate clients with a very unique business concept (About Dell 2004). Dell Incorporated is headquartered in Rock Round, Texas. Dell, Inc. and its subsidiaries are actively involved in the design, development, manufacture, marketing, sale, and support of a range of computer systems and services worldwide. The main business activity of Dell is in the provision of products and services to customers, which enables them to establish their information technology and Internet infrastructures. Dell offers a wide array of products and services to its clients. The company's broad product line incorporates enterprise systems which includes servers, storage, workstations, and networking products; client systems, such as notebook and desktop computer systems; printing and imaging systems; and software and peripherals, including titles, monitors, plasma and LCD (Liquid Crystal Display) televisions, MP3 players, handhelds, and notebook accessories (Dell Inc. 2005). Currently, Dell is the third largest computer manufacturer in the world. During 2004, the company generated a total net income of $41, 444 million. The company also generates employment for a total of 46, 000 employees (Dell Inc. 2005). . Dell's Supply Chain Traditionally, personal computers were manufactured in large volumes, forwarded to distributors and were sold individually to customers. This supply chain became problematic as it requires a huge level of inventory and small set of configuration for customers. Dell introduced a new supply chain which rests on minimizing the costs of inventory and customization according to a client's specification. Dell employs a just-in-time inventory strategy which allows the movement of inputs only when a customer places an order. Table shows the flow of material in Dell's supply chain. The company's supply chain begins when a customer places an order through telephone or online via the company's website. Dell processes the order by undertaking a financial evaluation (credit checking) and configuration evaluations (checking the feasibility of a specific technical configuration). After passing these two evaluations, the order is forwarded to the company's manufacturing plant in Austin, Texas for assembly. Dell's plant notifies the company's suppliers and request the components needed for the customer's specification. It should be noted that Dell takes care only of the CPUs assembly while monitors are directly outsourced from other suppliers (Kapuscinski, et al 2004). Figure 1. Dell's Supply Chain Delivery of components to Dell's manufacturing plant in Texas is relatively faster than its counterparts in the industry. It is amidst the fact that the company's suppliers are located in Southeast Asian countries and transportation time ranges from seven days utilizing air transportation to 30 days for water and ground. The transportation time is significantly reduced as Dell requires its suppliers to keep inventory on stock at Austin revolvers. These revolvers are small warehouses which are located within a few miles from Dell's manufacturing plant (Kapuscinski, et al 2004). Components are tested and assembled in Austin, Texas for around eight hours and delivered to the client not longer than five days after the receipt of order. After delivery, after sales support is offered by the customer service department for the company's clients. Domestic and Global Supply Chain Practices The traditional supply chain in the computer manufacturing industry is very much different from the strategy employed by Dell Computers. The traditional supply chain is employed by other large global manufacturers like IBM and Microsoft. This inventory strategy is called just-in-case inventory system and is practiced by most manufacturing firms locally and globally. The just-in-case inventory system rests on the availability of inventory to prevent stock outs. Stock out happens when a distribution firm losses sales because no inventory is at hand during the time a client wants a sale. Just-in-case inventory system minimizes the possibility of stock out by maintaining a huge level of inventory in any point. Figure 2. Traditional Supply Chain vs. Dell's Supply Chain The traditional value chain begins with input procurement from suppliers. Unlike Dell, the procurement of input takes a longer period of time as revolvers are not present to support production. After each component is sourced from suppliers, they are manufactured in assembly lines which take weeks and even month. Completed outputs are then shipped to the company's distribution arms who serve as wholesalers. Other marketing channels like retailers help manufacturers in distributing their products to their target markets. After purchases, after sales is often offered by the distributors to ensure the product's quality (Taylor, 2005). The traditional supply chain is characterized by more players relative to the supply chain of Dell computers. This is due to the presence of thick marketing channels which bridges the company and customers. These distributors in the distribution network of manufacturers imply higher prices for customers as wholesalers and retailers put a significant mark-up to the products. The streamlined supply chain of Dell also allows the faster manufacture of computers and the delivery to the customer. It should also be noted that the company's chain starts and ends with the customer which indicates the high value placed by the company to the overall satisfaction of their clients. Customers can easily order according to the specifications they want and are not limited to a few number of configured output present in stores. Convenience of the customers is also maximized as they do not need to leave their homes to order a computer. Placing an order can be done through a phone call and online transaction. Dell's system also allows customers to track the progress of their orders online. This paper also wants to stress that the main difference of the just in time model employed by Dell and the just-in-case employed by other manufacturers is the focus of production. Just-in-case is engaged in a company driven production while just-in-time is a customer driven production system. As such it maximizes customer value by streamlining the supply chain which results in customization, faster production and delivery, lower prices and excellent customer service. Recommended Changes on Dell's Supply Chain Dell's streamlined supply chain is by far one of the most efficient supply chains in the local and global industry. As discussed above, the supply chain is tailored to ensure maximum customer satisfaction. In fact, all the stages in supply chain add value to the customer. This paper recognizes the fact that the key in recommending a change in Dell's supply chain is finding a stage or level in the supply chain which does not add value to the customer, enhance an existing process, or introduce a new process which further boosts the quality of products and services that Dell offers. As stated above, the every process in the supply chain of Dell adds value to the customer. Therefore, any changes which will be recommended will not involve eliminating any process in the supply chain but enhancing or creating a new process to increase consumer satisfaction and company efficiency. One of the most notable processes where these can be applied is in Dell's order evaluation. Evaluation of orders before production includes two phases, credit evaluation and configuration evaluation. The first involves the assessment of credit worthiness of a client. This paper recommends that: 1. The business should improve in doing this process by employing in house manpower to conduct a credit investigation and screening prior to order processing. The company can also issue membership cards to clients who prove to be credit worthy in order to reduce the time spent on evaluation for repeat purchases. 2. The company should also seek to utilize other payment methods which are not currently in use to promote more payment convenience to customers. Dell should offer other payment options such as Paypal, and e-currency. There should be no problem with this as it ensures that the order is paid even before it is manufactured. This is also consistent with the company's thrust for maximum customer satisfaction. The cost-benefit analysis of these recommendations is represented in Table 1. Table 1. Cost and Benefit Analysis of the Recommended Changes Recommendations Benefit Cost 1. Credit evaluation done prior to order processing and issuance of Dell membership cards to credit-worthy customers. -speeds up transaction flow -it encourages repeat purchases as customers who are credit worthy are recognized and could be offered additional perks -the evaluation may be worthless if the prospective customer does not order 2. Utilize other payment methods like Paypal and e-currency. -enhances customer satisfaction -promotes supply chain efficiency -Dell is assured of payment even before a computer is manufactured -can entail additional cost to the company as it still need to sell e-currency for dollars -can affect pricing of the company to cover the additional cost Ethics Implications The proposed changes in the supply chain of Dell have great ethics implications especially as these are concerned with the information of its clients. A credit investigation can mean unlocking important information which endangers the privacy of the clients. This is unethical especially if the credit investigation is done without the knowledge and approval of the client. Also, paying in e-currency adds to the threat of security. The company should ensure that maximum security is observed when customers are paying for their orders. References About Dell (2004). Retrieved February 15, 2006, from http://www1.us.dell.com/content/topics/global.aspx/corp/en/homec=us&l=en&s=corp Chopra, S & Meindl, P. (2004) Supply Chain Management. Upper Saddle River: Pearson Prentice Hall David, T. (2005). Supply Chain-A Managers Guide. Rerieved February 15, 2006, from http://businessintelligence.com/ex/asp/id.4/page.1/xe/biextractdetail.htm Dell Inc. (2005). Rerieved February 15, 2006, from http://finance.yahoo.com/q/prs=dell Kapuscinski, R., et. al. (2004). Inventory Decisions in Dell's Supply Chain. Rerieved February 15, 2006, from http://www.tmi.umich.edu/dell.pdf Read More