Dell Computer, with close supplier relationships, encourages suppliers to focus on their individual technological capabi

[answerhappygod]

Dell Computer, with close supplier relationships, encourages
suppliers to focus on their individual technological capabilities
to sustain leadership in their components. Research and development
costs are too high and technological changes are too rapid for any
one company to sustain leadership in every component. Suppliers are
also pressed to drive down lead times, lot sizes, and inventories.
Dell, in turn, keeps its research customer-focused and leverages
that research to help itself and its suppliers. Dell also
constructs special web pages for suppliers, allowing them to view
orders for components they produce as well as current levels of
inventory at Dell. This allows suppliers to plan based on
actual end customer demand; as a result, it reduces the bullwhip
effect. The intent is to work with suppliers to keep the supply
chain moving rapidly, the products current, and the customer order
queue short. Then, with supplier collaboration, Dell can offer the
latest options, can build to order, and can achieve rapid
throughput. The payoff is a competitive advantage, growing market
share, and low capital investment. On the distribution side, Dell
uses direct sales, primarily via the internet, to increase revenues
by offering a virtually unlimited variety of desktops,
notebooks, and enterprise products. Options displayed over the
internet allow Dell to attract customers that value choice.
Customers select recommended product configurations or customize
them. Dell’s customers place orders at any time of the day from
anywhere in the world. And Dell’s price is cheaper; retail stores
have additional costs because of their brickand-mortar model. Dell
has also customized web pages that enable large business customers
to track past purchases and place orders consistent with their
purchase history and current needs. Assembly begins immediately
after receipt of a customer order. Competing firms have previously
assembled products filling the distribution channels (including
shelves at retailers) before a product reaches the customer. Dell,
in contrast, introduces a new product to customers over the
internet as soon as the first of that model is ready. In an
industry where products have life cycles measured in months, Dell
enjoys a huge early-to-market advantage. Dell’s model also has cash
flow advantages. Direct sales allow Dell to eliminate distributor
and retailer margins and increase its own margin. Dell collects
payment in a matter of days after products are sold. But Dell pays
its suppliers according to the more traditional billing schedules.
Given its low levels of inventory, Dell is able to operate its
business with negative working capital because it manages to
receive payment before it pays its suppliers for components. These
more traditional supply chains often require 60 or more days for
the cash to flow from customer to supplier—a huge demand on working
capital. Dell has designed its order processing, products, and
assembly lines so that customized products can be assembled in a
matter of hours. This allows Dell to postpone assembly until after
a customer order has been placed. In addition, any inventory is
often in the form of components that are common across a wide
variety of finished products. Postponement, component modularity,
and tight scheduling allow low inventory and support mass
customization. Dell maximizes the benefit of postponement by
focusing on new products for which demand is difficult to forecast.
Manufacturers who sell via distributors and retailers find
postponement virtually impossible. Therefore, traditional
manufacturers are often stuck with product configurations that are
not selling while simultaneously being out of the configurations
that are selling. Dell is better able to match supply and demand.
One of the few negatives for Dell’s model is that it results in
higher outbound shipping costs than selling through distributors
and retailers. Dell sends individual products directly to customers
from its factories. But many of these shipments are small (often
one or a few products), while manufacturers selling through
distributors and retailers ship with some economy of scale, using
large shipments via truck to warehouses and retailers, with the end
user providing the final portion of delivery. As a result, Dell’s
outbound transportation costs are higher, but the relative cost is
low (typically 2% to 3%), and, thus, the impact on the overall cost
is low. What Dell has done is build a collaborative supply chain
and an innovative ordering and production system. The result is
what Dell likes to refer to as its value chain—a chain that brings
value from supplier to the customer and provides Dell with a
competitive advantage.
Discussion
Questions
1. How has Dell used its direct sales and build-to-order model
to develop an exceptional supply chain?
2. How has Dell exploited the direct sales model to improve
operations performance?
3. What are the main disadvantages of Dell’s direct sales
model?
4. How does Dell compete with a retailer who already has
stock?
5. How does Dell’s supply chain deal with the bullwhip
effect?