Logistics and Supply Chain Management of Dell

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In recent times logistics and supply chain management have become the most vital issue for Organizations. Dell has realized this from initial and so by putting more emphasis on its logistics, supply chain management and direct sales strategies it has become one of the most successful PC companies in the world. Dell was founded on November 4, 1984 in Austin Texas, by Mr. Michael Dell when he was a student at university of Texas in Austin. In the beginning only Dell adopted its key supply chain strategy of direct sales, initially they use to take orders on phone according to customer s condition. Then later they do tried to use retail channel from 1990 to 1994,but after that it returned to its direct model and grew quickly and in 1999 it became the number one PC company in United States and two among all pc companies in the world. Michael Dell s this unique supply chain strategies and his successful way of putting them in to practice played considerable role in Dell s success. [Referenceforbusiness, (n.d.)]

Competing against giants like IBM, Hp and Apple, it has now 96000 employers working all over the world. Besides computers, company also sells HDTVs, Mp3, scanners, cameras, PDA S and other electronic equipments made by number of other manufactures. [Dell, (2010)] The company is very well known for its unique and innovative logistics and supply chain management. As Dell reaches world wide it relies on number of innovative personnel, suppliers that can supply or deliver the product with greatest value so that it can have a positive impact on customer relationships and which can help it to maximize its growth, innovation, customer satisfaction and at last profit .Some of the suppliers of Dell are Dataflow Peripherals Ltd Who supplies spare parts to Dell, Intel, Nanya technology corporation, parade, o2 micro, Sonix, Steel series etc. [Dell, (2010)]

Target Audience

The target market of Dell is divided in to 4 segments, large organizations which include big companies and government organizations, small and medium businesses, and home users. Dell satisfies all its customer segments through direct sales models. 70 % of Dells sales correspond to their large organization customers. [Manataki, (pg 11, 2007)]

Performance Objectives and Market Position

The performance objectives of Dell are higher Quality pc at lower Cost and fastest Speed as it gets major cost savings advantage than its competitors because it adopts Direct Sales Model it does not have to pay to retailers and by following Just in Time Inventory Method it does not hold inventory for longer period of time which helps the firm to reduce its cost resulting it to deliver PC at reasonable price, high quality and at the fastest speed than its competitors. In addition to these other performance objective of Dell is high Dependability, Customers can trust it as it gives core importance to its customers by allowing them to make their own pc, and selling them directly. While in case of current market position, Dell is known for its unique above mentioned performance objectives that is higher Quality of Pc and Laptops at lower prices and at a highest speed makes Dell distinctive in the Market. Other than these the efficient and unique supply chain and after sales service of Dell also helps it to get distinctive position in market. [Slack et. al., (2009)]

Performance Objectives model

Figure1

[Slack et. al., (2009)]

4V s of Dell Volume, Variety, Variation, Visibility;

Figure2

HIGH

[Slack et. al., (2009)]

1) Volume The level of volume of Dell is high as it highly repeats the procedure of making computers on a daily basis and adopts specialization and systemization by adopting Direct sales model and Build-To-Order strategies. So this high level of volume helps the corporation to reduce the cost of units.

2) Variety - The level of variety of Dell is low because by and large it does not add more product varieties, as it invest less in R&D field. So usually it satisfies its customers with the current product lines, instead of introducing new varieties of product and increasing complexity to manage it.

3) Variation The level of variation in demand is low and stable, as the corporation follows Build to order strategy , it just makes the pc s according to demand ended by customers no lofty variation in demand can be seen.

4) Visibility The level of visibility is low in Dell because it adopts standardization and centralization at each stage of its production and generally Dell does not expose the internal operations of computers to the customer who have ordered it, it just takes the order and gives an estimated delivery date.

Statement and Analysis of Issue

Key Marketing Channels of Dell;

The marketing channels of Dell contains only its suppliers and customers, there are no intermediaries like wholesalers and retailers and that helped it to provide the orders to the client at the fastest speed. Dell s Channel of Distribution starts with its suppliers which supplies it necessary components needed to build PCs. After building process PCs are directly send to the door of customers. Dell used short channel to distribute its products because it wants to reduce the complexity, time, cost which increases if more number of intermediaries are used.

Distribution Channels and Logistics Flow.

Figure3

Research founded that the key and the most basic element of Dell Success is its 3 key supply chain Strategies. Direct Sales Model , Build-To-Order , Supplier Integration .

2.1 Direct Sales Model

Direct Sales Model Refers to the verity that Dell does not use any retailers or wholesalers for selling its PCs but takes order directly from the customers through its established website and sells directly to the customers as per their order. This model allowed firm be in direct contact with its consumers and know about their need directly. By this, supply chain Strategy it can create direct relationship with each individual customer, also can know about their benefits that they want from Dell computers. With the help of this model, company can also know about whom its last customer was, what they purchased and what were their choices. This data helps Dell to put additional products and services according to the customer s preferences and help it get closer to them. [Nilekani, (2010)]

Direct Sales Model:

Figure 4

No additional time and cost, as PC s are directly delivered to Customers.

Additional time and cost, required to deliver PC s to Customers through Retailer.

This unique strategy has become its marketing strategy and also provides product development information. Dell upgraded its direct relationship to Virtual Integration, So with the use of information technology now its customers can become it s partners , for this it organizes, platinum councils(regional meetings) where its large number of customers comes , share their experience with technicians , salespeople , executives of Dell , discuss about their needs and expectations from technology which help corporation to get competitive advantage on other PC companies , which does not provide such services . [Thompson and Gamble, (1999)]

2.2 Build-To-Order

Build to order strategy is the Supply chain strategy which focuses on building computer only when customers order it. So as shown in figure 5 first customer place orders from Dell s website as per their requirements , then the information about configurations as per customers requirement are send to manufacturing floor and then the assembly begins.[ Thompson and Gamble, (1999)]

Figure 5

If Dell s this Build-to-order supply chain strategy is compared to other pc companies, it is clear Dell had several advantages. Firstly the level of inventories is very small, that results into low cost to maintain and storing them, in contrast other pc corporations had to pay cost to maintain its inventory. Secondly, very fast response can be given to demand changes for instance if some new software or processor comes then Dell do not have to wait till the first stock gets rid off, and can inform the customer about the new components if the customer wants then only it have to tell to its suppliers to supply it so no unused stock will be left and Dell will manufacture exactly what a customer wants. Other than this by following build-to-order strategy Dell gets advantage of just in time inventory which helps it spot out the defective component and replace it quickly before more defective components raises out.

2.3 Suppliers Integration.

Figure 6

Dell has got suppliers from all over the world which includes countries like China, India, and US etc. Some of the big suppliers of Dell are Samsung, Motorola, Sony, Sanyo etc and all this suppliers supplies components according to the code of conduct made by Dell. The relationship of Dell with its suppliers entirely facilitates its two key supply chain Strategies. It considers its suppliers as an important and internal part of its success. The supplier selected by Dell has expertise, experience and capability to deliver value added components and the performance of these suppliers is measured by pre-agreed measures. [Manataki, (pg 13, 2007)]

One of the main objectives of Dell is to minimize the inventory and maximizing speed, so it demands its supplier to provide materials at high speed instead. So for example instead of saying we want 10,000 to this warehouse within two weeks, Dell says we need 10,000 tomorrow by 7am at warehouse. One of the facts is that Dell does not hold inventory more than six days. In order to deal with its high inventory velocity, the suppliers are required to retain their stock near Dell s plant, or start their manufacturing centre around them, build their warehouse near Dell or they can manufacture it elsewhere and supply to the plants. At some plants the company follows Vendor Inventory System that is the components supplied by supplier are kept in truck only and are taken as per need and the suppliers have to look after that inventory till it is been taken off by the company. Many of its suppliers of Asia who supplies hard disk drives, floppy drivers, cable connectors, CD Rom drives supplies it from different location to manufacturing hub. On the other hand large proportion of its motherboard suppliers fabricates components around Dell plant for example Solectron and SCI located at Guadalajara in Mexico supply s Dell US plants. [Christopher, (pg22, 2005)]

For all the process above, Dell has close relationship, common trust with its suppliers in order to switch over key data. In addition to this it distributes information with its supplier by using internet and Information Technology, it established website called valuechain.dell.com which operates extranets between Dell and its suppliers. Through Valuechian.dell.com the suppliers of Dell can get information about stage of inventory in supply chain, require data, the superiority of components .i.e. if any component is faulty they can notice through this chain and change it. Other than this it can also get information about new part transitions. Thus by this system Dell shares demand and production information with its suppliers and by this process it can also avoid bullwhip effect. [Manataki, (pg 14, 2007)]

Manufacturing Plants of Dell and Transformation Process;

Figure 7

Dell organizes its manufacturing plants by region, so it builds only one or two plants to serve its regional markets. For instance, it has manufacturing plants in Austin, Texas, Nashville and Tennessee that serves the market of North America. Plant in Eldorado do Sul, Brazil serves the market of Brazil and North America. While the markets in Malaysia and other Asia pacific regions is served by Penang plant. Xiamen, china serves the markets of china, limerick and Japan. Plants in Ireland serve the market of Europe, Africa and Middle East. Out of all plants the manufactory of Austin is the biggest one, these factory produce all Dell hardware products. [youtube,(2007)]

Transformation Process of Computers

Generally the transformation process of computers of Dell are divided in to 7 divisions, Customer order section, Kitting, Build, Software installation, Final Testing and Labeling, Boxing, Shipping and to operate all these divisions effectively it uses various human resources and technology. [youtube,(2007)]

Figure 8

Transformation Process Model

1) Customer Order Section - In this section , the order of customers are electrically transferred to Dell orders management system and then they are transferred to Dell scheduling system through their software Factory Planner Maintenance Online where all orders are sequenced into the production schedule every two hours and these section act as a brain of Dell manufacturing centers. The servers present in the section serialize each part and tracks the order till it is been made.

2) Kitting The various components needed to build orders, supplied by suppliers are brought to this division and then transferred to build section.

3) Build In this division the components are fitted according to the customers need and a human readable as well as machine readable barcodes are stick so that it can be used throughout the life of machine and it act as a base for quality system.

4) Software installation After fitting components, the orders are passed to software installation division where different types of software are downloaded according to customers requirement.

5) Final Testing And Labeling After installing special software , the pc s are then transferred to final testing and labeling section where , labeling of Dells material is done as well as appropriate quality checking is made

6) Boxing And Shipping After passing through quality system , pc s are brought to boxing and shipping centers where additional items like monitors , printers are brought from Dell s merge centers to complete the orders and combine them in to one shipment which is then delivered to customers.

The decision of location of plant is been done based on combinations of four factors, i.e. it locates the plant where it can minimize costs by recruiting cheap labor, easily available transportation and information , efficient technology , easy market access and availability of government incentives. [youtube,(2007)]

.

Additional Operations of Dell to increase customer value (Customer satisfaction)

Dell also performs some other operations which helps it to follow simple and consistent pattern at each stage and that basically helps to increase customer satisfaction.

Additional Operations of Dell Includes Logistics, call centers, marketing and sales and data centers.

Logistics

Dell s inbound logistics for materials needed to fabricate PCs are handed by the supplier s logistics companies and according to the code of conduct of corporation; the supplier should use a capable logistics company who can deliver components safely and at the exact time given.

In case of outbound logistics, it got number of best transportation and logistics companies like DHL, CEVA, FEDEX, ODFL, SAIA, UPS and SCHNEIDER which ships the exact order to exact customer at right delivery time or day given by Dell which on the whole helps to increase customer satisfaction.[Dell,(2010)]

Call Centers

Figure 9

Extensive use of Call Centers is made by Dell, for sales as well as for technical supports. It tries to establish its call centers close to its major customer segments in order to solve transactions of customers and to increase relationship with them. It generally recruits regional staff for its call centers, to optimize regional language and telecommunication. Some of the examples of regional call centers are,

Bangalore located in India for Asia-pacific.

Round Rock and Nash well for US.

Bra knell established to handle UK customers.

Amsterdam center for clients of Middle and Central Countries. [Dell, (2010)]

Marketing, Sales and Support

Figure 10

Dell does its marketing through its global headquarters which directs special messages to the target audience worldwide. It wins its clients and builds long- term relationship with them by giving the best quality product and services. The advertisement and other marketing materials that Dell makes to its customers are always straightforward and precise. [Dell, (2008)]

While the sales service and support centers are located in different countries in order to provide service to different customers of various countries. In addition to these Dell also serves telephone technical service centers in different countries to solve the problem of customers. So consequently, Dell sales service and support centers are present in 34 countries across the world in urban areas. [Dell, (2010)]

Strength and Weakness of Supply chain of Dell;

Strength

1. Dell s three supply chain strategies are the most basic strength; it helps the organization to lower its cost by holding minimum inventory, reducing number of mediators in distribution channel, helps the customer to customize pc according to their choice.

2. Dell boasts very capable manufacturing, distribution process which helps to offer powerful systems to customers at a competitive price.

3. Use of latest information technology in its supply chain is the major strength of the corporation , for instance the extranets developed by dell helps it to communicate with suppliers at small period of time .It just posts the demand on the extranets and various suppliers supply needed components by viewing the demands on extranets.

Weakness

1. If its supply chain strategies helps it to reduce costs , it also increase s the cost of maintenance because more of use of specialized technology, more specialized labors work needed to operate them which increase the costs of maintenance.

2. Dell direct model might create problem for home user customers, because some customers cannot easily customize pc s according to their specifications, it might take days to finish it and on the other hand they can t go to any retailers if they found any problem.

Conclusion

- Based on the above analysis following conclusion can be made

Dell falls under the secondary sector industries that do not manufactures all components of pc , just fit the components according to customers need , sells them .With its three effective supply chain strategies, Dell Direct Sales that helped to execute the pc exactly according to customer s need, Build - to order that helped to trim the additional stock and take advantage of Just In time inventory , Supplier integration that helped to improve and increase the relationship with its suppliers, and with use of latest technology at each step of supply chain , Dell became one of the successful pc maker company in today pc market.

Dell exists in such market which varies by global regions and by different countries, but special favored location of manufacturing plants in these different regions, countries and its appropriate management coordination, co-operation and powerful technology and staff, helped the corporation to increase its networks from a city of Texas to South America, Europe, Middle East Countries, Africa, Asia etc. In addition to these it also creates customer value by providing price incentives for definite bundles of pc or components and after sales service such as capable call centers and IT centers that are located all around the world which have helped the firm to deal with numerous technical problems and queries of customer which indeed helped to increase the relationship with the target audience across the world.

Thus if it follows the same solitary supply chain techniques it will not take longer time for the organization to become number one in pc market.

Total Words-3282

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