DELL Supply Chain

Agenda
Introduction to Dell Computers

Dells Business Model

Importance of SCM in PC business Supply Chain Competencies at Dell Demand Management, Postponement, Supply Chain Partners, Vendor Managed Inventory, Modularity of Product, Internal Collaboration, Financial Fundamentals, Business Process Improvement. Why the change in Sales Model?

Introduction to DELL Computers

Dell Inc. is a multinational technology corporation

that develops, manufactures, sells, and supports personal computers and other computer-related products
Started in Michael Dells dorm room in 1984
Grossed $75 million dollar sales in 1985 Made the fortune 500 in 1992 Ranks 2nd in computer sales Changed how computers were sold

DELL Business Model

Combination of three things:
A. Direct Sales B. Build to order C. Supplier Integration

Together these allow for maximum effectiveness

with minimum cost

A. Direct Sales
A direct sales system allows DELL to:
Cut Costs Develop exactly what customers want Build relationships with customers

B. Build to Order
A build to order system allows DELL to:
Increase inventory velocity Minimize inventory cost Minimize the need for forecasting

Build exactly that its customer wants

C. Supplier Integration
Supplier integration allows DELL to maximize the

benefit of its other core competencies

How?
Location of Supplier warehouses Extranet Meeting with suppliers

Importance of Supply Chain in PC business

Material Cost account for 74% ($21 billion a

year) for Dell. Improving SCM by 0.1%has bigger impact than improving manufacturing process by 10% Changing technology obsoletes materials value by almost 1% per week.

Dells advantages
90% of supplies ordered online using websites of

suppliers and Dell. 95% of suppliers are situated very close to the assembly plant. Dells factories have only 7hrs worth of inventory for most items whereas industry average is around 10 days 15 suppliers supply nearly 85% of the products. Dell gets paid by the customers and then pays to the suppliers.

DELL Computers Supply Chain

Outsourcing to curtail amount of material

manufactured Advantages:
Avoids obsolete inventory Helps bring new products faster to market than

competition Better Customer Value Company Revenues Fixed

Assets IBM DELL $ 91.1 bn $ 55.9 bn $ 13.8 bn $ 2 bn

Sales/Dollar Invested $ 6.5 $ 28

Supply Chain Techniques

Postponement
Build-to-Order Strategy used

Product assembly begins after order received

from customer and credit cleared Allows for customization. Results in shorter lead time. Dell has 3-4 days of finished inventory as compared to 30-45 days for most of its competitors

Modularity
Organization of complex products by

decomposing it into smaller portions that can be managed independently. Increases opportunity for postponement of final product Slots available within CPU casing to fit different types of components from various suppliers Large number of product variations possible Also assists the reverse supply chain by ease in breaking down components

Vendor Managed Inventory

Supplier to focus on part innovation and Dell to

concentrate on customers and supply chain Inventory replenished 3 times a week Forecast information shared by Dell with vendors to ensure timely supply Inventory held in small warehouses near Dell plants called Revolvers

Vendor Managed Inventory (Contd.)

Supply Chain Partners

Component Suppliers:
Linking of suppliers planning and execution activities with

Dell's systems. It helps to gather real time information about inventory level of suppliers Dell in exchange provides direct signals of customer demand to suppliers and shares current and market shifts. Dell purchases blocks of space on regularly scheduled flights from Asia, where majority of suppliers factories are located. Helps in expedited shipments Feedback is provided by Dell every quarter. Supplier is given a scorecard comparing it against industry peers on cost, quality, reliability and continuity of supply. Training and development provided to suppliers to improve their processes
UPS : Third party Logistics provider
Handles most of shipping of Dell computers Responsible for bringing together CPU, keyboard, and

speakers from Dell assembly plants together with monitor

Supply Chain Partners (Contd)

Customers
Major customers have computer ordering systems

integrated within their ERP Helps in demand estimation and smoothening fluctuations For customers, compatibility of computers reduces maintenance costs

Demand Management
Dealing with certain components
Direct Selling enables real-time collaboration and

synchronization between sales and manufacturing. Synchronization helps Dell to respond quickly to customer demand. If demand exceeds supply company works with third parties to expedite supply of drives, power supplies. If supply side issues cannot be resolved Dell uses demand side alternatives by changing product promotion on its Web portal in minutes to shift customer demand. Eg: When inventory for a component runs low, Dell runs a promotion on another substitute part of equal or greater quality. This helps shift customer demand from standard ordering patterns
Manage Timing of orders
Continuous monitoring of orders in the scheduling queue If backup goes above 2 days, it asks its sales force to pull off

customer demand

Forward Supply Chain

Forward Supply Chain (Contd)

Forward Supply Chain (Contd)

Reverse Supply Chain

Other Supply Chain Competencies

Internal Collaboration:
Dells culture values information sharing and

empowering employees. There is communication from the top management even to the employees many levels below. Dell employees are empowered to take decision so that no opportunities for meeting customer requirements are lost. The Internal collaboration is made possible by the powerful Information Technology system. Dell uses s/w provided by i2 technologies for its SCM system. Every 20 sec the s/w aggregates orders, analyses material requirements, compares Dells on-hand inventory with its suppliers inventory and then creates a supplier bill of material to meet its order needs.

 Financial Fundamentals:
It is the operating margin that is important to Dell. Dell managers update, check, analyse and report

operational numbers every day.

Business Process Improvement:
Dell uses a model called as BPI model which is

designed to continuously listen for, reward and implement ideas that can make a difference to regular operations. Dell follows methods such as Simplified Idea Generation (SIG). Dell has seen more than 1000 SIG projects submitted

From Direct to Hybrid Sales Model

Dell has set up Kiosk locations at Shopping malls

across US, Canada, Japan, China and Australia where people can experience Dells products. Reasons: HP gained market share faster in notebooks because of presence of Retail outlets Low internet penetration in India and China two of the biggest and fastest growing markets. Cater to psyche of customers in markets like India wherein customers believe it only when they see it.

Thank You