Critical Evaluation of the Dell Supply Chain - Case Study Example

"Critical Evaluation of the Dell Supply Chain" Table of Contents Introduction 3 2. Supply Chain 4 3. Supply Chain Management 5 4. Dell's Supply Chain 7 5. Critical Evaluation of the Dell Global Supply Chain 9 6. Conclusion 15 7. References 16 1. Introduction In today's world of increased trend towards globalization and customer-orientation, the businesses are operating in a highly competitive environment to improve on their core competency and focus on the customers globally. For the purpose of any business to be successful, there is a strong need to build up strong supply chains and lower the supply chain management costs to increase effectiveness and efficiency in the business processes. Whenever we talk about a strong supply chain, the name of the PC Giant "Dell" comes to our mind. Dell has, over the period of time; build a very strong and efficient supply chain management system by improving on it continuously. Although Dell has a well-managed supply chain, but when we talk about so much of the positive aspects of the system, it does not definitely means that the negatives don't exist. Thus, the supply chain system of Dell does possess shortfalls and improvement areas do exist. This paper serves the purpose of critically evaluating the Dell Supply Chain and envisaging not only the efficiency of the system but its inefficiencies as well. The paper firstly describes what a supply chain is. The next section presents what is actually supply chain management. Dell's Supply Chain is discussed next following the critical success factors adopted by the Dell Supply Chain Management. Then a major section of the paper presents a critical evaluation of the Dell Supply Chain. And then the conclusions are finally presented. 2. Supply Chain Constituents of Supply Chain Supply Chain involves every person and stage that is involved in satisfying the customer's demands. It includes every party from the manufacturer to the customers. The supply chain involves the chain that starts from manufacturer, suppliers, transporters, warehouses, retailers and ends on the customers (Chopra and Meindl, 2004). The supply chain of every company is active and ever changing. Information and products are the crucial and continuously involved constituents of every stage in the supply chain. The key to successful supply chains are the customers because the basic intention of the supply chains is to fulfill the customers' requirements (Chopra and Meindl, 2004). Every party involved in the supply chain works to fulfill the customers' demands because when the customers are satisfied and are getting what they actually want, they are willing to pay even high prices for the products and making profits is what every company lives for. The supply chain is an entire network of various parties striving towards the fulfillment of the demand (Chopra and Meindl, 2004). Thus every supply chain is demand-driven i.e. the whole of the chain of supply works to fulfill the demand (R Ernst, B Kamrad, 2000). The different stages involved in the supply chain involve stocks and inventory which are updated at every stage (Alan Johnson, 2006). Supply Chain and the Competition The competition in the entire global industries is now based on the competition of the supply chains. The approaches different companies use to run and deal with their supply chains are crucial for their construction or destruction (David A. Taylor, n.d.). Supply chain also has a great impact on the cost that the organizations incur and the savings that it makes. Enhancements in supply chains are not just beneficial for the baseline operations but they are also important for the top line operations because an efficient supply chain can increase the competitive advantage of the organizations over the others (David A. Taylor, n.d.). Therefore, the organizations today are focusing on the lowering of costs mainly through their supply chains and through these low-costs, fulfilling the demands of the customers. Thus, resulting in an efficient 'management of the supply chain'; which is again a crucial concept because just having a supply chain is not enough, proper management and monitoring is significantly important. 3. Supply Chain Management Like effective management of any business processes is important, the management of the supply chain and its proper monitoring is also extremely crucial. Whatever the size of the organization may be, the management of the supply chain is done in similar ways. Just even minute changes in the supply chain management have considerable impacts on the performance of the entire organization (Kapuscinski, Zhang, Carbonneau & Moore, 2004). Effective supply chain management is to deliver the right quantity of product, of right quality to the right customer, at the right time when the customer demands for it (DJ Power, AS Sohal, SU Rahman, 2001). Essentials of Supply Chain Management Value to Customers: Proper management of the supply chain includes the capability to convey great value to the customers and measurable amount of savings and cost reduction to the organization (Ehsan, 2006). Reduce Costs: The appropriate management and forecast of the procurement and logistics costs is crucial in supply chain management (Ehsan, 2006). Separate Waste from the Processes: Supply Chain Management is concerning separating or discarding waste away from the actual processes that the organization undergoes by tracking the waste through process mapping. Keeping storages in bundles and towers is not effective supply chain management (Alan Johnson, 2006). Flexibility: Appropriate management of supply chain also demands flexibility. The organizations need to be flexible in the fact that a particular process is to be carried out in-house or should be out-sourced (Fred Andrews, 2000). Technology Improvements: Supply Chain Management also requires continuous improvements in the technology being used to monitor the supply chain processes (SE Fawcett & GM Magnan, 2002). Change Management: Whenever a new process or technology is introduced in the organization to improve the supply chain management, it also brings about a change in the organization, management of which is very essential (WD Presutti, 2003). Commitment and Support: Commitment of the employees and Top management support are very essential for the effective supply chain management (SE Fawcett, GM Magnan, 2002). Well-Administered Data: Efficient management of Supply Chain involves cleaning the inefficiencies in the data and sorting out inaccurate data. This will lead to processed information in an accurate form through which exact forecasts can be made on the right time (WD Presutti, 2003). In today's competitive environment, strong and integrated supply chain management is very essential as a core competency. Thus, a prime focus on the management of the supply chain processes is required in order to bind the supply chain processes directly with the customers (Dick Hunter, 2005). 4. Dell's Supply Chain The supply chain of Dell includes the customer who makes an order online, the website through which the customer gets to know about the price and features of the PC and builds his own PC and then the inventory level is upgraded, the assembly plant of Dell where the finished products are assembled, the suppliers who provide with the components to Dell and also those suppliers through which the suppliers of Dell get their supplies. Thus there is a continuous flow of products and information through the supply chain of Dell (Chopra and Meindl, 2004). Direct Model Approach Dell follows a direct model approach in which it sells directly to the customers (WD Presutti, 2003). Dell's 'build-to-order' supply chain has led it to have a competitive edge in the market. Dell builds the systems when the customer themselves ask for it. Thus, the process of manufacturing a system begins when the customer makes an order. Thus the intermediaries like the retailer, wholesaler or distributor are not included in Dell's supply chain because deals with the customers directly (Chopra and Meindl, 2004) without any intermediaries in between. For the purpose of delivering the customers what they want directly, in a cost-effective manner and also in a lesser amount of time, Dell is highly dependent on the continuity of supply and its suppliers for the purpose of bringing in the inventory at the right time and within the given amount of time (Fred Andrews, 2000). Thus, the demand of the customers has to be monitored accurately and should be communicated properly to the suppliers so that the required amount of inventory can be brought in (Fred Andrews, 2000). Just -In-Time Inventory System Dell has built such an efficient Supply Chain Management System through the use of i2 solutions. The suppliers are upgraded after every two hours based on the requirements that the customers specify (Kapuscinski, Zhang, Carbonneau & Moore, 2004). Dell runs the programs for Business Process Improvement (BPI) in its supply chain. Thus, the Dell's staff thinks in requisites of the problem and its actual cause (Alan Johnson, 2006). Through a proper understanding, the enhancements are made in the supply chain management of Dell. Dell keeps inventory for just 5 days having a yearly 76 inventory turns which is a major reason of its efficient supply chain. Dell has a number of suppliers of it near its factories only so that the timely supplies can be received as Dell gives its suppliers a very less amount of time to bring in the inventory (Alan Johnson, 2006). Serialization Most businesses that manufacture products put a serial number on the products at the end of the processes but in the Supply Chain of Dell, it assigns the serial number in the beginning and through the serial number it tracks the serialized parts in machine from the beginning to the end of the manufacturing process (Alan Johnson, 2006). In this way Dell traces every part from the beginning till the end and enhances the quality of the supply chain processes by providing the customer exactly what he wants through the tracking of the parts from the suppliers to the customers (Alan Johnson, 2006). 6. Critical Evaluation of the Dell Global Supply Chain Although the supply chain of Dell is very efficient and has adopted procedures and processes that continuously work towards the further improvements and enhancements in the supply chain and its management, but still it is not just faultless and it is not the case that that everything is just perfect at Dell Global Supply Chain. There do still are present inefficiencies as well at the Dell Supply Chain and it is also subject to certain constraints and restrictions without which it cannot survive. The Just-In-Time Method -Not Perfect Although there are a lot of advantages of using the just-in-time method as mentioned earlier, but this technique also comes with certain limits on the supply chain of Dell. What actually the industry though when Dell adopted this technique was that (Bill Breen, 2004): "Will Dell be able to mange without warehouses filled with the required inventory" The entire industry was of the opinion that Dell would be left over with nothing to sell in some days and will not be able to meet the customers' demands and will result in loosing the market share from the industry. But Dell proved itself as an emerging and efficient manager of the supply chains and through a prime focus on direct delivery and continuous supply, it was able to become an example for the entire global industry. But what if some natural catastrophe occurs Will Dell be able to manage its so well-known 'Just-in-time Inventory method' Will it be able to then run successfully its 'direct model approach' then Thus, the drawback of such an approach that Dell follows is that it then has to respond most quickly to such hazards than any other business and any kind of any delay is even not accepted by the industry in which Dell operates. Dell therefore need to plan in advance, else its success is critical. Dell is thus surviving at the edge of success and failure. Direct Model -Elimination of Inventory For connecting directly to customers, the initiative take by the Dell Corporation is appreciable and is a positive aspect of the organization. Although such a step is very critical and can result in either success or the failure of the entire organization, but still it proved its innovative capacities through the successful initiative of the system. For this purpose the supply chain of the Dell Corporation was completely transformed which was again a challenge. Although very efficiently managed, this step requires Dell to speed up its all supply chain operations. This is again very critical to any business because once the processes are speeded up, it requires second to second monitoring in order to get each and every process on the right track and deliver the customers exactly what they want. Dell thus needs to keep the customers updated as well in order to have mastery in its operations. Dell believes that inventory should be kept minimal. This is probably because inventory is like a fish. The more period of time it is kept before it is cooked, the more rotten it gets and at the end what happens is that such a fish is not left in a condition that it can be cooked or eaten. Therefore, keeping the inventory levels low is although a good decision due to the changing technology as well but then again when there is no inventory, the conditions can again be not handled that much efficiently in very urgency situations. Regular and accurate forecast of the demand also becomes crucially important. If now Dell fails to forecast demand accurately, not only it supply chain but all of its processes can collapse within hours. So what Dell is doing is highly risky and instantaneous counteractive action is required else it can lead to great losses just due to the lack of proper monitoring. Financial Evaluation In the supply chain management of Dell, inventory lowering has also resulted in positive financial impacts. Dell has a practice of receiving payment first from its customers through their credit cards which they enter when they make an order, although the suppliers are paid a month or so after the delivery of the products to the customers. Thus, it takes the payments from its suppliers first and then pays late after the receivable of the payments. This practice of Dell Supply Chains is although very efficient for Dell itself but not beneficial for the suppliers. Therefore, there is a probability that the suppliers stop supplying to Dell due to the fact that Dell is making its suppliers bear the costs of Dell's operations and processes. This fact is although positive for Dell but entirely negative for the suppliers with whom Dell is doing business with. Supplier's Need to Hold Inventory Dell Supply Chains keep minimal inventory and for that purpose it requires that it gets inventory just when it needs the inventory. For this, the suppliers who supply Dell the inventory should hold inventory so that whenever Dell requires inventory and asks fro it, they have in stock what is needed by the suppliers. The suppliers thus cannot work on the principle of just-in-time approach and cannot make their supply chains efficient through keeping minimal inventories. This need for the suppliers to hold inventory for Dell leads to the fact that if the suppliers once realize that they can do better by forecasting demands and keeping inventories to minimal, they will stop supplying to Dell because every organization seeks for improvements and strive fro increasing its profits in the long run which is not possible for them with holding inventories for such long times. Thus, although Dell's supply chain is gaining advantages through the holding of inventory by its suppliers but the suppliers are just been taken for granted. What is critical right now for Dell is that it should reengineer its processes so that it can build up good buyer-supplier relationships. Otherwise, in the long term, the success of Dell Supply Chain is at stake. Supplier Relations The critical evaluation of the Dell's Supply Chain greatly involves analyzing the supplier relationships Dell Supply Chain has maintained throughout its road to success. Although Dell gets its supplies on time from its suppliers but it is not definite that it keeps getting supplies in time from the suppliers after the relationships that it has with its suppliers. What Dell's relationships are with its suppliers is based on the fact that Dell gives no flexibility to its suppliers in order to delay even by a second. They say that if a particular supplier is unable to supply, they can easily switch to the other and is least concerned about its supplier's performance. They want that their supplier update and enhance themselves continually in terms of quality, technology and demand. Thus, although there is nothing as such mentioned about Dell having 'worse' supply chain relations but the attitude of Dell towards its suppliers which is very cold is not a part of today's buyer-supplier relationships. In today's competing world the tightly integration of supply chains should be accompanied by good relations with the suppliers as well without which the success of any organization is critical. Demand and Supply Forecasts The success of Dell's supply chain is on the boom and it is making customers through its build-to-order system but it is really amazing to know that more than 80% of its customers are the large enterprises and the government bodies whereas less than 20% are the consumers who build their systems on the internet and order (Karthik Mani, 2005). Accurate supply is critical to Dell Supply Chain but it is not necessary that the systems do the right thing every time. Dell do faces the problem of making wrong demand forecasts of it systems and sometimes even the estimated market share is not accurate and is overestimated and even sometimes Dell becomes over optimistic about its sales which results in considerable losses as the increase in the volumes also result in substantial amount of loss (SCDigest Editorial Staff, 2006). 6. Conclusion For most of the organizations today, warehouses are a key to secure business but Dell has replaced the warehouses full of useless inventories with loads of information to its customers and suppliers. Dell's Supply Chain is a dynamic and an efficient one through which it has gained a competitive advantage in the industry. Dell has achieved the success through a transformation in its supply chain including prime focus on quality, customer-satisfaction and velocity of the supply chains resulting in a cost-reduction for the business. But still Dell faces great challenges in future relating to its supply chain which still possesses some inefficiency. Dell is often wrong about the prediction of the demand-supply balance; it becomes several times over optimistic about its sales and also its least consideration for its suppliers and the attitude of forcing suppliers to meet its expectations all the time can lead in the future fro the Dell Supply Chain to result in great inefficiencies which can cost Dell a lot. 7. References 1. Chopra, Sunil and Meindl, Peter. (2004) Supply Chain Management. 2nd edition. Upper Saddle River: Pearson Prentice Hall. 2. Supply Chain Management in Action. (n.d.) [Internet], Available from: [Accessed 15 September 2007]. 3. Alan Johnson. (2006) Dell Upgrades Local Supply Chain. [Internet], Available from: [Accessed 15 September 2007]. 4. David A. Taylor. (n.d.) Supply Chains - A Manager's Guide - Chapter 1. [Internet], Available from: [Accessed 15 September 2007]. 5. Ehsan. (2006) Dell Supply Chain Executive Joins Aankhen Inc. [Internet], Available from: [Accessed 15 September 2007]. 6. Fred Andrews. (2000) Dell, It Turns Out, Has a Better Idea than Ford. New York Times. The New York Times Company. 7. Dell Computer Corporation. (n.d.) [Internet], Available from: [Accessed 15 September 2007]. 8. Dick Hunter. (2005) Tying Supply Chain to Customers. [Internet], Available from: [Accessed 15 September 2007]. 9. Bill Breen. (2004) Living in Dell Time. Fast Company Magazine, Issue 88, November 2004, p. 86 10. Karthik Mani. (2005) Musings on Supply Chain Management. [Internet], Available from: [Accessed 15 September 2007]. 11. SCDigest editorial staff. (2006) Dell Cites Supply Chain Hiccups in Disappointing Financial Results. [Internet], Available from: [Accessed 15 September 2007]. 12. R Ernst, B Kamrad (2000) Evaluation of Supply Chain Structures through Modularization and Postponement. European Journal of Operational Research, Elsevier. 13. DJ Power, AS Sohal, SU Rahman. (2001) Critical Success Factors in Agile Supply Chain Management. International Journal of Physical Distribution and Logistics. 14. R Kapuscinski, RQ Zhang, P Carbonneau, R Moore, B. (2004). Inventory Decisions in Dell's Supply Chain. 15. SE Fawcett, GM Magnan. (2002) The Rhetoric and Reality of Supply Chain Integration. International Journal of Physical Distribution & Logistics. 16. WD Presutti. (2003). Supply Management and E-Procurement: Creating Value Added in the Supply Chain. Journal of Industrial Marketing Management. 17. M Rungtusanatham, F Salvador, C Forza & TY Choi. (2003) Supply-Chain Linkages and Operational Performance. International Journal of Operations and Production. 18. JS Song & DD Yao. (2002) Supply Chain Structures: Coordination, Information and Optimization. Pearson Education. 19. MT Frohlich. (2002) E-Integration in the Supply Chain: Barriers and Performance. Blackwell Synergy. 20. Sakaguchi, SG Nicovich & CC Dibrell (2004) Empirical Evaluation of an Integrated Supply Chain Model for Small and Medium Sized Firms. Information Resources Management Journal. Read More