Dell Supply Chain
This document was written for the Logistics and Supply Chain Management class that I took at the University of Hong Kong. Its a fairly basic analysis of the way the company supplies it's lean manufacturing process. Our professor also posed the question: Should Dell outsource all of its manufacturing processes? and this question is answered in the last section of the paper.
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Most computer manufacturers use a traditional business model based on forecasting. Dell, however, doesn’t start assembling a computer until it has been ordered, making its supply match demand exactly. Dell can shape its demand by offering incentives on parts that are readily available. Dell eliminates all the added inventory and overstock that are inevitable when using forecasting systems that can never be completely accurate. Other companies cannot use this kind of system without abandoning their current business models entirely, and at great expense.
Dell also sells directly to customers as opposed to using retailers as most of its competitors. Dell can keep its prices low by eliminating the middle man and has the best source of sales information available, because it is constantly in direct communication with its customers. In addition, sales information is in real time. Companies using retailers receive sales information long after a product is made. In the short life-cycle of the technology market, products are nearly obsolete by the time the company has sales figures.
Another difference between Dell and its competitors is the negative cash conversion cycle it maintains through its direct sales model. Dell receives payment for a sale within 4 days of the order, but does not pay its suppliers for parts for over a month. This model allows Dell to have the liquidity to fuel its growth.
Dell deals differently with its suppliers as well. Since Dell’s manufacturing plants run on a very lean Just-In-Time system, vendors are required to cooperate closely with the company at all times. When a factory orders parts, suppliers are required to deliver within 90 minutes, and ownership isn’t transferred to Dell until the parts hit the factory floor. Vendors are pitted against each other to compete for Dell’s business. Every quarter vendors are ranked and awarded business based on their performance. New suppliers aren’t just evaluated on costs either. To Dell, it is more important to be reliable, flexible and fast, than to have the absolute lowest component costs. The rapid depreciation of component costs already gives Dell an edge over competitors, since Dell holds parts for less than 12 hours in the factory. Dell’s competitors order parts based on forecasts, far before they are used, and have assembled and unassembled parts in their inventories for weeks between purchase and point-of-sale. Most companies use the vendors with the lowest price, since they warehouse parts and don’t need the fast delivery time or flexibility that Dell demands. Dell has no warehouses and holds only 72 hours of inventory across its entire supply chain.
Dell, unlike its competitors, spends little money on researching new technology. Instead, it studies and monitors the sales patterns of new technology products and the sales patterns of its own repeat customers. The company has mastered the art of entering a market at the right time, allowing it to decimate competitors with a more efficient manufacturing system without losing money in the unpredictable market of new technology. Dell can forecast sales to its own customers better than its competitors for two reasons. First, Dell hand-picks its large corporate accounts based on the predictability of their buying patterns and low service needs. Second, for individual consumers, Dell targets repeat buyers with regular patterns of upgrade purchases who need little technical support. Paired with its cost efficient manufacturing processes and ability to shape remaining unpredictable demand, Dell can outsell its competitors without offering the newest, latest technology.
Should Dell outsource all manufacturing processes?
Dell continues to be a force in the market because of its ability to introduce new products at the right time, and because of its tight control over manufacturing processes. In addition, the level of information across the supply chain allows Dell to handle problems and surprises nearly instantaneously. If Dell gives up control of all manufacturing, it essentially becomes a retailer selling another company’s product. Once Dell gives up manufacturing control, it loses the power to make quick decisions about products and prices. Without being able to hold the entirety of its operation to its lean, high-speed standard, lead times could increase and inventory could swell. If Dell isn’t constantly aware of what parts are readily available, it can’t offer incentives that prevent shortages or order back-ups. Even with complete cooperation, allowing another company to manage Dell’s manufacturing would result in added time to exchange information, make decisions and synchronize processes. Dell is successful as a direct sales company because of its tightly integrated, high-speed supply chain and information chain. Dell makes every decision based on the way it affects the entire process, supplier to customer. Adding another company or companies to do manufacturing would create another set of priorities. The manufacturer may profit by using cheaper parts, even if it gives up some speed, or by opening factories in other parts of the world, where manufacturing is cheaper, because its business is less dependent on lean manufacturing. This saves money for the manufacturer, but the added time is costly to Dell, and in the end costly to the customer. Dell is likely to continue to be successful by operating its own manufacturing and only outsourcing the assemblies of large, uncustomizable components like speakers and monitors.
Click Here to view or download this document using Word.
Click Here to view or download this document using Word.
Dell Computers' Supply Chain
Dell Computers is the largest manufacturer of computers world-wide. It is one of the 30 largest companies in the Unites States and, in 2005, Fortune Magazine listed Dell as the most-admired company in the U.S. In just 15 years, Dell went from being a one-man operation running out of a dorm room to a superpower employing more than 60,000 people around the world. Dell has achieved this by creating one of the leanest manufacturing systems in existence and then offering customers something its competitors couldn’t: built-to-order, high-quality machines at the lowest prices.Most computer manufacturers use a traditional business model based on forecasting. Dell, however, doesn’t start assembling a computer until it has been ordered, making its supply match demand exactly. Dell can shape its demand by offering incentives on parts that are readily available. Dell eliminates all the added inventory and overstock that are inevitable when using forecasting systems that can never be completely accurate. Other companies cannot use this kind of system without abandoning their current business models entirely, and at great expense.
Dell also sells directly to customers as opposed to using retailers as most of its competitors. Dell can keep its prices low by eliminating the middle man and has the best source of sales information available, because it is constantly in direct communication with its customers. In addition, sales information is in real time. Companies using retailers receive sales information long after a product is made. In the short life-cycle of the technology market, products are nearly obsolete by the time the company has sales figures.
Another difference between Dell and its competitors is the negative cash conversion cycle it maintains through its direct sales model. Dell receives payment for a sale within 4 days of the order, but does not pay its suppliers for parts for over a month. This model allows Dell to have the liquidity to fuel its growth.
Dell deals differently with its suppliers as well. Since Dell’s manufacturing plants run on a very lean Just-In-Time system, vendors are required to cooperate closely with the company at all times. When a factory orders parts, suppliers are required to deliver within 90 minutes, and ownership isn’t transferred to Dell until the parts hit the factory floor. Vendors are pitted against each other to compete for Dell’s business. Every quarter vendors are ranked and awarded business based on their performance. New suppliers aren’t just evaluated on costs either. To Dell, it is more important to be reliable, flexible and fast, than to have the absolute lowest component costs. The rapid depreciation of component costs already gives Dell an edge over competitors, since Dell holds parts for less than 12 hours in the factory. Dell’s competitors order parts based on forecasts, far before they are used, and have assembled and unassembled parts in their inventories for weeks between purchase and point-of-sale. Most companies use the vendors with the lowest price, since they warehouse parts and don’t need the fast delivery time or flexibility that Dell demands. Dell has no warehouses and holds only 72 hours of inventory across its entire supply chain.
Dell, unlike its competitors, spends little money on researching new technology. Instead, it studies and monitors the sales patterns of new technology products and the sales patterns of its own repeat customers. The company has mastered the art of entering a market at the right time, allowing it to decimate competitors with a more efficient manufacturing system without losing money in the unpredictable market of new technology. Dell can forecast sales to its own customers better than its competitors for two reasons. First, Dell hand-picks its large corporate accounts based on the predictability of their buying patterns and low service needs. Second, for individual consumers, Dell targets repeat buyers with regular patterns of upgrade purchases who need little technical support. Paired with its cost efficient manufacturing processes and ability to shape remaining unpredictable demand, Dell can outsell its competitors without offering the newest, latest technology.
Should Dell outsource all manufacturing processes?
Dell continues to be a force in the market because of its ability to introduce new products at the right time, and because of its tight control over manufacturing processes. In addition, the level of information across the supply chain allows Dell to handle problems and surprises nearly instantaneously. If Dell gives up control of all manufacturing, it essentially becomes a retailer selling another company’s product. Once Dell gives up manufacturing control, it loses the power to make quick decisions about products and prices. Without being able to hold the entirety of its operation to its lean, high-speed standard, lead times could increase and inventory could swell. If Dell isn’t constantly aware of what parts are readily available, it can’t offer incentives that prevent shortages or order back-ups. Even with complete cooperation, allowing another company to manage Dell’s manufacturing would result in added time to exchange information, make decisions and synchronize processes. Dell is successful as a direct sales company because of its tightly integrated, high-speed supply chain and information chain. Dell makes every decision based on the way it affects the entire process, supplier to customer. Adding another company or companies to do manufacturing would create another set of priorities. The manufacturer may profit by using cheaper parts, even if it gives up some speed, or by opening factories in other parts of the world, where manufacturing is cheaper, because its business is less dependent on lean manufacturing. This saves money for the manufacturer, but the added time is costly to Dell, and in the end costly to the customer. Dell is likely to continue to be successful by operating its own manufacturing and only outsourcing the assemblies of large, uncustomizable components like speakers and monitors.
Click Here to view or download this document using Word.
# posted by Abby-Wan Kenobi @ 2:19 PM 
