Traditional Supply Chain Vs Modify Supply Chain Commerce Essay

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In this assessment, I will analysis the supply chain management is less about managing the physical movement of foods and more about managing information. I will illustrative the case study of Dell Inc. I will talk about the key issue of supply chain management in Dell. PEST and five force analysis is used to show the market position of Dell. Finally, I will show you how the information system could enhance the decision making.

Introduction of Dell

Dell is a multinational computer company that has a manufactures and sells of computers. They also provide other computer derivative products and personal computer supporting. In 1990s, Dell becomes the largest seller of computer and servers. The company sells personal computers, software, network switches and servers.

Traditional supply chain VS modify supply chain

The supply chain management (SCM) is important in the business of Dell because the complexity manufacturing processes of Dell include assembly, functional testing, software installation, and quality control. Dell needs to manage with more than 250 suppliers, handling more than 4000 similar components of computer. The well-development of system for the inventory management could increase the efficiency and effectiveness with lower cost.

The simple supply chain model is the one core-competence in Dell. Dell has developed the closely relationship with supplier and customers. Therefore, Dell could directly sell the computer to customers. The traditional supply chain included the parties of distributer, retailers, resellers, and integrators while modify supply chain is excluded. As a result, the agency fees and costs can be eliminated with reduction of middlemen. Dell calls it as a "Direct model" that the company directly sells the computer to customers.

I2 (SCM) system implementation

It is difficult for Dell to have an assignment of handling the physical stocks movement. There are world-wide suppliers and customers who have a relationship with Dell. In the SCM, they needs to consider important parties related to company. Therefore, the operating, inventory and storage cost should be increased.

To dealing with the complex issue of SCM, Dell choses to managing the information about the supplier, customers and inventory flow rather than focus on the physical goods control. Dell has developed the i2 Trade Matrix supply chain tools. Dell co-operate with I2 SCM Company to develop a customized and tailored SCM system. It can optimize and matching of existing resources. I2 system provides the well platform to improve inventory planning and forecasting. Dell can typically get monitoring of whole supply chain process. Through the system, Dell can have a global view of inventory flow. The management can predict and forecast the level of supply and demand in the future. It is easy for Dell to modify the decision making when the uncertainty events occur, such as the level of supply or demand have been drop suddenly. The Real-time review and real time modifications of decision are provided by the i2 SCM system to deal with the uncertainty.


Dell's direct selling model selling computers directly to the consumers without distributors and middlemen. The orders received by Dell through telephone, internet or e-mail. Customers could choose from a variety of products ranging from desktops, notebooks servers or printers.

The understanding of the needs of customers is important mission in Dell. Dell uses of demand pull rather than supply-push to manufacture and sell of computers. Customers can configure the computer themselves to achieve the specific requirements. Dell decided to produce each computer as per the orders received. They don't want to hold excess inventory or finished products. The Dell's Direct Model can help to balance the supply and demand if the company obtains more information on the needs and requirements of the target customers. When the demand increased, the company then purchases the sufficient material and component for the production. Management of the Manufacturing and Marketing departments decided to reduce component inventories.


In order to manage the operations with low inventory levels, the closely relationship between suppliers and Dell is important. Dell believes that company could obtain zero inventory levels when some of the partnerships are developed with suppliers.

To maintain a close relationship with its suppliers, all the inventory data, including the long-term planning data, volume expectations, and stock's replacement data was shared with suppliers. The confidential internal information is only share with the Dell's top 30 suppliers.

The company's procurement decisions were based on some factors, such as cost, delivery time, logistics issue, quality, technology, sustainability of supply, quality services provided and geographical issue. The selections of suppliers are also based on these criteria.

When Dell has identified their target suppliers, the data related to sales forecasts within one month are shared with the target suppliers. Dell constantly transfers the data about demand and supply trends to its suppliers. The suppliers require sharing information about their capacity to deliver products on time. Dell will have a detail analysis on each supplier to determine which supplier is the best.

More information to share with its suppliers, it could shorter the time spend on ordering and receiving material from suppliers. The safety stock level can be minimized.

Through the internet communication with suppliers, it is more efficient to balance the supply and demand of material requirement. For example, Dell can share the orders received with supplier on real time. Both of them have a quick response to deal with the unexpected change in demand.

However, when the component failed in problem was related to supplier, Dell will transfer the information through internet to supplier for correction of mistakes. Dell will select an alternative supplier when the components always have defects.

Production processing

All of Dell manufacturing center have the same system, process and measure in the same way. This ensures the consistent award quality across the global network.

Customer order pull > Kitting > Building > Software installation and testing > Boxing

In manufacturing center,

Dell received an order from order management system. This information will transfer electrically to manufacturing scheduling system within every two hours. The unique sequence of number is created to identify each order.

In kitting part,

Staffs can see each order from the server. They will match the material of product into each order from customer. The unique identifier a computer name or service strip number is created and printed on a label and both human readable and machine readable bar code format. They will scan the tap and bar code to distinguish difference component to difference orders. Ensure that all component and material are included in each order box set.

In Build area,

The material and information will transfer and delivery to the factory from kitting. Each component has a unique code number. They will scan the bar code to obtain an instruction of customer's requirement. Also they can to verify the order number through the bar code scanning before the assembly. Each component and machine body have a bar code for the clearly indication of the computer assembly.

In software installation and testing,

The customer requested software will download on the machine. Testing all components has a normal operation. Final test is needed to ensure both hardware and software is workable.

In boxing,

The computers are built and tested then transfer to the boxing line. The barcode will be scan upon verify. The computers will securely to place in the shipping boxes. Scan each component barcode to ensure the delivery what exactly customer's order.

Order accumulation area,

An order may not be consist of a computer. It should be waiting for the all element are built and tested within the order.


Dell has a world-wide based merchandise transit system for delivery the products to customers. Dell manages the complexity network for distribution the products. Sometime Dell will outsource the shipping activities UPS, China Airlines, and other cargo carriers.

Pest and five force

PEST analysis is considered of the political, economic, social and technological factors leads to describe the macro environment of the Dell computer industry.

a) Political

Government regulations and legal issues Political factors are included for determining the conditions faced by companies. Due to Dell is a global company, different country will have different corporate tax rate. For example, the corporate tax rate in Hong Kong is 16.5% while 35% in US. The tax rate will affect the net profit earned by Dell. Each country will have restrictive policies to maintain and protect domestic industries and production. Therefore, if Dell wants to expand the business in the world-wide, they may fight for these policies to earn more profit.

The environmental issue and sustainability development concept become more popular. Many countries have developed the laws and regulation on wastes treatment, carbon tax, or pollution tax. This will increase the total cost in the business operation. Such as the cost used for handling non-functional electronic products, develop a sufficient recycling procedure. Dell has focus on producer-responsibility aspect. Although the cost is increased by develop the practice of responsible recycling, the brand image and reputation are also build up. It is because Dell focuses on reducing waste from electronic equipment Dell help to improve the environmental performance with consider the life cycle of the equipment.

b) Economic

The economic environment refers to the nature and direction of the economy in which a firm competes.

The growth rate of computer industry is expected to have ten percent growth in next few years. The economic environment of computer industry will affect the purchasing power of potential customers. It seems to have a positive impact. The GDP growth rate is also expected to increase. Therefore, sale of computers may have a positive effect. More people will trend to buy a computer for personal use.

In addition, price fluctuated by the currency exchange rates in difference country will have the greater impact on global company. It will affect the profit margins in the computer industry.

c) Social

The socio-cultural segment is concerned with a society attitudes and cultural value. The demand for computers is dependent on the educational level in a country.

Nowadays, computer becomes a necessary tool for learning, studying, working, entertaining, etc. Most of the information could find on the internet through computer. Increase of younger population and working population has led to the increase of the use of computers.

To fulfill younger consumers, Dell likes to develop a brand new laptop which can attract and expand attract the younger market.

For the company and staff, they are spending more time working away from the office. It is trend to develop home offices. It implies that the demand of telecommuting will increase and trend to be more main stream. The demand of laptops is rising in daily.

d) Technology

Due to the rapid development of information technological, technology will easier to become obsolete. If the computer company cannot follow the trend, the business would be failure. The company should have a forward-look on the future environment to develop suitable products for the customers. To fight for the technological changes, Dell has increased their product line. It is adapting to the technological changes. The technology changes are the signal of demand increasing. Dell has excellent e-commerce capabilities, which can be predict the future needs of customers.

Five Force

The level of Threat of New Entrants is moderate.

The entry of new comers in quite difficult because of the entry barriers is quite high. The new entrants should create the Buyer loyalty, Brand name, Low price model and customer service which is difficult. The investment capital is also high. Computer is not a standard product. The Customization product will drop down the profit which is a threat of new entrants.

The Rivalry is high.

\Due to the price War, it has decreased the profit margin. All the competitors want to reduce the selling price to attract more customers. It is difficult to increase the market share in computer industry unless there is a breakthrough of bottle neck. There is low differentiation of computer where the buyer decision always focuses on the price. Dell can gain market share on the heavy competition environment which is the evidence to prove business strategies have been successful.

Threat of Substitutes is moderate.

The previous year is lack substitutes of computer but smart phone could be a substitutes nowadays. In addition to computer industry, the mobile phone will become indirect competitors. Mobile phone is easy carry and user friendly. This multi-functional product becomes more attractive in Hong Kong. Difference age and gender are also having a smart phone.

Bargaining Power of Buyer and supplier is high

The computer is a highly price sensitive product. If Dell computer have increased the price, customers will shift to the other brand to buy a computer. The maintenance of cost leadership is very important. If the raw material and component suppliers have increased their selling price, the customers would bear the increased cost. The cost leadership will destroy. Dell has develop a closely relationship with customers and supplier to deal with this problem.

Enhancements to the decision making process achieved by SCM

Dell Inc. always needs to deal with a number of activities, such as: procurement, production, warehouse management, selling, marketing, and customer servers. The management of Dell would like to consider the whole company view to enhance the decision making. SCM can help to integrate some of them in a single process. SCM aggregate all the information about the suppliers, customers and production processing activities. Some report can be generated for the management to have the best decision making.

The management decisions include many aspects and prospects. Such as inventory planning, inventory level, sales forecast, logistics management, material requirement planning, production capacity, forecasting supply and demand, quality and quantity control. Both of them are related to cost and benefit factors. To be simply, SCM system can provide the information to increase the profit with lower cost. In Dell, the i2 Trade Matrix supply chain tools is a tailor made system for control the inventory movement.

Case 1:

How many inventories could be stored in the manufacturing center? What is the optimal inventory level of the company? Increasing inventory stored will higher the cost incurred while out of stock will loss the sales opportunity. Determining an optimal stock level is depended on the well-developed SCM system. It has provided the information for minimizing the inventory level. Therefore obsolete stock is reduced. For the ideal case, it can help you to maintain nearly zero inventories when the stocks reorder level is accurate.

Due to the uncertainty of the supply and demand, Dell should have the well contingency plan to deal with the unexpected and unpredicted issue. The safety stock is important but it has incurred cost.

I2 Trade Matrix supply chain tools could gathering all information and data about the supply chain. The management could easily to review and make a decision on the inventories issue. They can consider all alternative method to deal with the above problem through SCM system. The system could generate some report and graphical report to present the complex issue.

Case 2:

Which supplier can provide the lowest cost of the computer component and raw material? Selection of the supplier with the lowest cost of raw material could reduce the operation cost. The management uses the i2 system for reviewing all the information about the suppliers, such as the creditability, delivery time and product quality, etc. All the suppliers' information could record. Then the system could provide some report for comparison.

Case 3: Pricing problem (consider the selling price and sales volume)

Dell decided on the optimum price of the PC for achieving a high sales volume. SCM system could help to consider a target price and the expected volume. The system could provide a quick response for calculating the profit margin. There are many combinations between suppliers and customers. Dell's management could easier to implement a best an approach for pricing issue through the SCM system.


The simple SCM is the core-competence in Dell. I2 system is used to deal with the complex issue in supply chain which could increase the effectiveness and efficiency of the operation process. In addition, i2 system could also enhance the decision making.

The external environment is favorable for the computer information technology industry. Therefore, Dell gains an opportunity for expand their business to increase the market share. Due to the brand loyalty is well-developed; the effect of competitors could be show down. The lowest price computer would attract more customers.

2513 words excluding subtitle and referencing


1 Dell's Direct Model

2 Production process flow of Dell

3 Information flow and physical goods flow