Dell Inc.

’s Production System
INTRODUCTION ABOUT DELL:
Dell was founded in 1984 by Michael Dell, the computer industry's
longest-tenured chief executive officer, on a simple concept: that by
selling computer systems directly to customers, Dell could best
understand their needs and efficiently provide the most effective
computing solutions to meet those needs. This direct business model
eliminates retailers that add unnecessary time and cost, or can
diminish Dell's understanding of customer expectations. The direct
model allows the company to build every system to order and offer
customers powerful, richly-configured systems at competitive prices.
Dell also introduces the latest relevant technology much more
quickly than companies with slow- moving, indirect distribution
channels, turning over inventory every three days on average.
1. HISTORY OF DELL
• Dell grew through the 1980s and 1990s to become at one stage the
largest seller of PCs and servers
• In 1992 , Dell entered into the Fortune 500 list
• In 1996 , Dell began selling computers via its web site(Dell.com),
generating $1 million in sales per day just six months after site is live.
• In 1999 , Dell overtook Compaq to become the largest seller of
personal computers in US
• In 2006 , Dell was 25th in Fortune 500 list

2. COMPETITION IN PC INDUSTRY:
 • The PC industry is driven by rapid technological improvements in
components, particularly microprocessors, other semiconductors,
and storage devices
• Two factors come into play in determining the ability of PC
companies to manage inventory and introduce new products.
• The traditional distribution system of the PC industry is an indirect
model often referred to as “the channel”.
Goal:
Goal is to cut out the middleman from the business.In US there
was a system of middleman in every business where the middleman
charging huge commission.
DISADVANTAGES:
Dell faces over dependency on one product, leaving aside the
extensive customization of that product. If the firm has centralized
operation, more different products can be manufactured in one
location. When the plants are dispersed, the number of different
product that can be manufactured in a given location, potential of
gaining economies of scale, will be less. There can be issues related
to repatriation of profits with regard to some domestic policies of
those locations and exchange rate fluctuating risks associated even if
there are no legal constraints. Krugman,P.R and Obstefeld,M (2003)
suggest that The theory of location is not a difficult one in principle.
The factors that determine a multinational corporation’s decisions
about where to produce are probably not much different from those
that determine the pattern of trade in general. Possible failures to
effectively scan the international environment failure to manage and
resource both market and operations expansions can be another
disadvantage. Although still considered a leader in logistics and low-
cost manufacturing, Dell began to see its market share erode in 2005
because of complaints about poor customer service, among other
factors.

Advantages:
Customer intimacy at Low cost is the source of Dell’s competitive
advantage. Rather than competing on equal factors that were
common in the industry, Dell thought “out of the box”. Dell seems to
be able to counter competitive challenges, innovatively which
evidences management capability. This indicates a relatively secure
advantage with the huge experiences they would have gained since
its implementation time at small scale. But, just because it is imitable
in principle, it is not fully secure too. The concept is so simple and
any PC company also may initiate a subsidiary company to follow the
same model as a separate profit centre. They may attract suppliers
using the prestige of the parent company for competitive pricing and
other terms. They may attract customers using their high brand
image. The IT infrastructure of the parent company may provide a
fast information flow to match even the Dell’s approach. In that
manner if the competitor start operation at a smaller scale and
gradually gain the hands-on experience for some time (Smaller scale
will mitigate possible loss due to trial and error) such company can
gradually increase volumes under the subsidiary firm while gaining
experience.

Dell Supply Chain Strategy:

To restructure its supply chain, the company implemented the
following solutions:
Global structure instead of regional structure, with three business
units – enterprise, public, and consumer/small business.
Standardized offers including the most frequently purchased
configurations.
Segmented model instead of a one-size-fits-all model.
Infrastructure that corresponds to the changing needs of the
business.
Standard yet flexible processes that leverage global partnerships.
Customer priorities aligned according to speed, choice and cost.
Ready-made, in-stock systems for quick delivery.
Optimization of global IT infrastructure.
Dell’s Suppliers and Inventory Management
Like other retail giants, Dell has long-term relationships with
suppliers that help the brand streamline their inventory
management as well. The company considers its vendors to be an
integral part of its success.

The key objective of Dell’s inventory management is to minimize the

inventory and optimize the production speed. As a result, the
company does not hold inventory for more than 6 days and avoids
unnecessary carrying costs.

The retail giant has got suppliers from all over the world, including
major companies such as Motorola, Samsung, Sony and more. All of
them supply the components – HDDs, cables, motherboards, etc.
according to a set of rules provided by Dell.

For example, it is strongly advised that each supplier have a

manufacturing plant near Dell’s plant. The suppliers should also
cooperate with logistics companies that can both deliver the
components and ship the customer orders. Finally, the company
manages its inventory based on the VMI model, meaning the
supplied components are kept on the truck only and taken as needed
while the vendor manages the inventory.

Dell and its suppliers communicate with each other via an internal
website called Value Chain. At this website, the companies can
access information about the inventory status within the supply
chain as well as get demand and production data.

The Bottom Line on Dell’s Supply Chain

To summarize, Dell has been a successful player in the computer
hardware market since the very beginning because of its innovative
supply chain strategies.

Despite the hard times in the early 2000s, its customer-centric model
helped Dell remain afloat. In 2010, the retailer reinvented its supply
chain according to the changing needs of its target audience. That
just goes to show that renewing and improving your supply chain
strategy continuously can go a long way.

If you want to use the lessons that Dell learned and lead your
business to success, it is important that you efficiently manage your
inventory. For that, Dynamic Inventory is ready to help by offering
multifunctional but easy-to-use inventory management software.
Contact us today and learn more about how we can help improve
your supply chain.
Challenges faced by the company:
Unfortunately, the company faced a series of challenges and
disappointments after 2005, such as slow sales, losses to competitors
and new technologies along with the decline of the PC industry. But
despite these hardships, Dell Inc. still maintains a large market.

In other words, it’s still worth seeing how the Dell supply chain
strategy keeps the company afloat.

Dell Supply Chain Models, Explained

The most remarkable feature of Dell’s supply chain management is
its direct sales model, meaning that it accepts orders directly from
the customers, without any resellers involved.

This model helped the company access its customers and study their
needs directly. Based on this data, the brand implemented additional
products and services according to customers’ preferences. This
made it stand out among other computer hardware manufacturers
early on.
Dell’s renovated supply chain model groups the customers and
products chosen by them into the following key segments:
Customers with specific needs – configurable products
Customers that choose the company as a trusted advisor –
preconfigured products
Customers that value speed – finished goods purchased either
directly or through the website.
DELL BUSINESS MODEL
DELL BUSINESS MODEL • Dell operated as a pioneer in the “configure
to order” approach to manufacturing - delivering individual PC
configured to customer specifications • To minimize the delay
between purchase and delivery, Dell has a general policy of
manufacturing its products close to its customers. • This also allows
for implementing a just-in-time (JIT) manufacturing approach, which
minimizes inventory costs • Low inventory is another signature of
the Dell business model - a critical consideration in an industry where
components depreciate very rapidly.

Comparison b/w Compaq and Dell sales model

DELL’s value web model Component supplier - The high-tech

components, such as microprocessors and software are provided by
firms as Intel and Microsoft, they rely on big players. - The low-tech
components are provided by small multiple players who compete on
prices and availability Original Equipment Manufacturer (OEM) The
OEMs traditionally would receive all the parts from their suppliers,
assemble the computers in their production lines and ship them over
to their distributors, or Corporate resellers.

DELL’s value web model Distributors - They generally supply to

corporate resellers and other distributors - They carry large
quantities of different products to increase their leverage when
dealing with their customers - They also provide specific software,
peripherals, furniture,as well as service - For example: Ingram Micro,
Tech Data, Computer 2000, and Santech. Corporate resellers /
System integrators -The corporate resellers or system integrators
buy systems directly from manufacturers and install these systems at
their corporate clients - These are firms whose main purpose is to
provide customization to their clients

10. Benefits by implementing this model

• DELL - Cash :Dell maintains a negative cash conversion cycle, that
means the payment receive for the product before it has to pay for
the material - Cost :Dell´s direct sales and build-to-order model has
achieved superior performance in the PC industry in terms of
inventory turnover, reduced overhead, cash conversion, and return
on investment. Bypassing the reseller channel that causes further
cost reduction to the company - CRM :Direct customer relationship is
the key to Dell´s business model, and provides distinct advantages
over the indirect sales model -Demand forecast: Dell has additional
advantages over PC vendors who must try to forecast demand and
ship products based on those forecasts • CUSTOMERS - Tailored
offerings from Dell in terms of add-on products and services - Very
customizable systems at an affordable rate, since Dell manufacturing
builds specifically for each customer

Business secret
Michael Dell knew how important it is to make everyone onboard.
One person alone cannot handle everything even if he is owner of
the company. His secret was to surround himself with employees
who were smarter than him and then talk to them about any issue or
problem.

Is Dell a B2B or B2C?

As a consumer brand, Dell is known for its progressive marketing
programs that utilize cutting-edge technology, big data and social
media. With proven success in the B2C sector, Dell executives
realized the need to transform the B2B marketing program to gain a
competitive edge.

What is Dell Technologies strategy?

In addition, with the core focus on technology and services, Dell
Technologies' strategy is to grow the IoT footprint via a strong
partner program and ecosystem.

What makes Dell unique?

Dell is able to achieve superior profits in the industry because they
are a knowledgeable user of information, communication, e-
commerce, e-business, internet, and web technologies. Dell
implements a Just-In-Time inventory system which operates on only
6 days of inventory.

Parties involved with the dell

Many parts and components are
manufactured in Asia and shipped to distribution centers
near Dell facilities. This is usually the
case for hard disk drives, floppy drives, power supplies, CD-
ROM drives, cables and connectors,
and many add-on cards such as modems, sound cards and
video cards. On the other hand, a
larger share of motherboard production is located regionally.
For instance, Solectron and SCI
supply Dell’s U.S. plants from their plants in Guadalajara,
Mexico, and from plants in the U.S.