Dell Computers and Amazon - Essay Example

?Introduction The report analyzes current operation and supply chain management of Dell Computers and Amazon. . The report in the first past discusses the business and supply chain model of Dell and Amazon. Dell uses direct sale model which was different from indirect distribution channels used by rest of the industry. Dell directly sells to all its customers, regardless of a home-PC to world’s largest corporations. The direct relationship with individual customer creates a great source of competitive advantage for Dell. Amazon was set up in 1994 by Jeff Bezos and since its establishment has grown to become one of global leaders in online business to consumer retail business. The last part of the report analyzes how the use of e-commerce in supply chains has enhanced the value and business operations for both the companies. Dell Computers Dell was incorporated in 1994 by Michael Dell while he was a student at University of Texas, Austin. From its very first initiatives, direct selling model was adopted. In the beginning PC’s were sold over the phone and they were customized according to customers’ specifications. Dell’s strategic choices and ways of realizing those choices have played an effective role in story Dell’s success. The supply chain management of the company is the key element in its successful business model. The core element of the company’s business model is its direct sales model, referred as ‘direct mode’, with the build to order strategy. Business Model and Supply Chain The differentiated model of dell help it creates a niche in the distribution channel and eliminates the entire mid channel members to arrive at cost leadership position in the industry. The basic principle of Resource based view is that the competitive advantage for any particular organization completely depends upon the resources which are available at any company’s disposal. It is a management tool to determine the important resources available for any organization. It is very important for success of the organization that these resources are valuable and are not imitable. The direct sales model refers to the fact that the company does not use any retail channels for selling its products, but sells its products directly to its customers through its corporate website, Dell.com. The above figure shows hot the direct model of Dell was different from the indirect distribution channel of the rest of industry. In its direct sale model, the intermediary steps that add cost and time are eliminated, and the company is directly able to link with its customers. Dell directly sells to all its customers, regardless of a home-PC to world’s largest corporations. The direct relationship with individual customer creates a great source of competitive advantage for Dell. This creates a valuable information about the end customers, and thus Dell knows who are the end users of their product, what they have purchased from the company, what are their future preferences, a fact that allows the company to stay closer to their customers by offering add-on products and services. Build in order and Integration with suppliers Thus, a computer is build after the customer places and order, then just-in-time production and lean manufacturing takes place. This means when an order is placed, its configuration details reaches the manufacturing department and the assembly begins, and once the PC is configured it is shipped by a 3PL to the corresponding customer. The choice of JIT and build to order has several advantages for the company. Firstly, the level of inventories remains very low, leading to faster responses to demand changes and low inventory costs. For instance, if a new microprocessor comes into the market, the company can immediately place an order with its suppliers, as the company need not get rid of the excess inventory. Also, in case of Dell, customers pay in advance. That means the customer pay for the order prior to when the company pays its suppliers for the products, thus giving Dell the opportunity of operating on Negative cash flow cycle. The special thing about the company is its relationship with its suppliers, which is the major reason for facilitating build-to-order model. In Dell, Suppliers are viewed as the integral part of operating business and a key variable for success. This helps Dell to adopt an approach of the extended enterprise. According to Dell their supplier effectively becomes their partner. The company selects suppliers that show experience, expertise and ability to deliver value. The performance of suppliers is regularly evaluated against the pre-set parameters. A quarterly meeting is held between the company and its suppliers to discuss the quarterly performance and future expectations. The performance of each supplier is evaluated by comparing a scorecard consisting of quality, cost, and reliability with that of their competitor. The company’s suppliers are also provided with the support and training to improve their processes. The company demands from its suppliers that it should provide them with inventory at a high speed. This helps Dells effort of minimizing its inventories. So instead of orders like deliver 4000 to warehouse every week, the form of orders is like “tomorrow evening we need 7.25 to be delivered at door D3 of the warehouse by 6 pm. This notion of Dell, has introduced inventory velocity, and that focused on maximizing the speed and minimizing the inventory. Dell holds an average inventory of less than 6 days, while the corresponding industry average is of 6 weeks. In dealing with these rhythms, main supplier does have to maintain inventory near or in the company’s plants. All the practices above require close collaboration between the suppliers and the company; sophisticated data exchange and mutual trust are the key variables to achieve it. The information sharing facility of the company is the website ValueChain.Dell.com. Through this website, the company’s suppliers get informed of the level of inventory in the company’s supply chain, demand and supply data, new part transitions with customers and component quality metrics. This way the company share production, demand and supply forecasts with its suppliers. These help suppliers in deciding on production levels, avoiding bullwhip effect. Use of E-commerce The company represent the most successful e-commerce, logistics and supply history. To compete with the giants Apple, and Compaq, company has adopted a different strategy to market their PCs. They chose the e-commerce route. For ordering a PC with desired configurations and specifications, the customer has to log on to the Company website, place an order and complete the outline commercial formalities. Very often the customer gets his PC very next day, if he happens to be in USA. The electronic commerce system installed on the Company website registers an order after online completion of commercial formalities. The system estimated the demand of the various components going into commercial formalities. The system estimates the demand of the various components going into the computer and place orders for parts with the various suppliers. The supplier delivered the parts to predetermined supply centres wherein the computer is assembled. The system, while registering the order, communicates to its logistics partner, the details of the customer and the delivery location as well as the assigned supply chain for picking up the consignment. The supply chain partner’s office nearest to the Company supply centre is activated for material pickup and delivery. The result of this effective process is nearly zero inventory and total customer satisfaction. Amazon Amazon was set up in 1994 by Jeff Bezos and since its establishment has grown to become one of global leaders in online business to consumer retail business. With an initial plan of being an online bookstore, amazon.com has now diversified to other areas including computer accessories, toys, jewellery, groceries and consumer electronics. During the late 1990s crisis of the dot-com, Amazon was equally affected but by 2003 it had realized its first turnover after years of successive losses. Amazon is now listed on the fortune 500 and is the internet’s most popular destinations for shopping online. Currently Amazon is still based in Seattle, WA, where it was started. The company employs over 17,000 professionals dotted around the globe in countries like China, Great Britain, Japan and its America’s largest online retailer. Currently, wherever that the story of ecommerce is told amazon.com is bound to feature and has some of the innovative features of ecommerce attributed to it as the pioneer. The website was the first to introduce ‘user reviews’ service where customers could rate, comment and review products and services they purchase. So whiles consumers could simply acquire their products and walk away, they could as well rate their experience and describe such experiences that will be made publicly visible for potential buyers. The idea behind this is to ensure that products that are sold actually match what the seller describes it as. It also encourages sellers or manufacturers to keep abreast with consumer demand as these consumers end up posting features and elements they wish were present in the product. Supply Chain Management The supply chain management of Amazon is based totally on the e-commerce technologies. Amazon leverages its e-commerce engine and use it to serve as the online platform for a lot more companies. The results is that sometimes there is so much confusion from search queries as the user, unless a savvy one, might not know which company he/she is dealing with. Web-wide, people are familiar with the concept of one company, one website. Anything more or less creates problems as far as usability is concerned. For example, a customer might order from amazon.com thinking he or she has dealt with the Amazon we all know all to wake up with a confirmation mail from a company he or she has never heard of. Some users of amazon.com has actually lamented that a couple of times, the readily delete such mails regarding them as one of the junk mails that are overflowing our inboxes from everywhere else apart from where we expect regular emails to come from. Most of the negative reviews that were analysed on the website on amazon.com could be traced to third-party store fronts that pay Amazon a commission on every sale for using their platform. Even with those who are able to identify that storefronts like OEM, Sell shop, Boxwave, Factory Outlet, Blumall and a host of others, they are sometimes bought into the thinking that these storefronts are supervised by Amazon or they are able to offer the level of workflow that Amazon’s huge resources will be able to afford. Unfortunately, these third-parties are so independent such that users report that they [the shops] call the homes of customers to encourage them to remove negative reviews so they could get a refund or an exchange. All that Amazon provides you the customer is variety yet there is no way to check the validity of certain shops. Whiles Amazon.com has as a policy, to remove all low-performing third party stores, a shop like Sell shop, has more 1-star rating than all the other stars rating combined for a lot of products it offers for sale yet they continue to stay on amazon.com. This really creates a big usability challenge for users who would like to make decisions based on the reviews of the fellow customers. Despite this being an non-isolated case, offers from other storefronts appear right next to every product search even if the customer actually want to be served solely by the parent company amazon.com. The consistent presence of links to these storefronts increases the chances of non-voluntary purchase from third party providers – a real usability challenge. The usability problem with co-branding is also accentuated by users who may be interested in other companies when these companies that outsources their e-commerce outsourcing to Amazon. Most business-to-consumers outsource their e-commerce businesses to other well-established online giants. Both small and large businesses are well engaged in this practice. For small business, it may be the case of saving transaction cost, increasing customer confidence with dealing with a known brand, avoiding the cost and physical resources of establishing their online business and managing it together with their ‘brick and mortar business’. For larger businesses, they are largely for strategic reasons. Large and medium scale companies that have established brands through real world retail stores will rather prefer to outsource their e-commerce in order to save management time and resources to concentrate on building and expanding their physical store presence. Outsourcing their e-commerce allows them to favourable compare performance between their real business performances with their ability to effectively harness the power of globalization through the internet. Due to the relationship between their physical and online businesses customers will like to contact businesses in between. Unfortunately amazon.com does not make it that easy. All ‘click and mortar’ businesses that outsource their e-commerce divisions to amazon.com do not have the access to contact customers with ease whiles customers will not find the address of these ‘click-and-mortar’ business. One thing that was instrumental in ToyrUs moving from amazon.com to establish their online store was the fact that customers it difficult locating the address of the business itself on amazon.com because Amazon handled the company's online toy sales, people had great difficulty finding the address of a real-world toy store on the website. (Jakob Nielson, 2005). The same applies to virtually any other storefront that sells on Amazon. References Andre, A. D. and Wickens, C. D. (1995). When users want what's not best for them. Ergonomics in Design4(4), 10-14. Baty, B. B. and Lee, R. M. (1995). 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