Dells Just In Time Inventory Management system

Just-in-time (JIT) manufacturing is specific type of inventory production strategy that is used to improve a company’s return on investment through a cutback of stock held. ”The primary goal of JIT is the achievement of zero inventory, not just with within the confines of a singe organisation but ultimately throughout the entire supply chain” (Hutchins 1988). Many companies are making the transition into adopting JIT manufacturing; however it was the automotive industry sector that initially pioneered the principle. It was first developed by Toyota in the 1980s and it is now frequently used within the production of a diverse range of different goods. Nowadays company’s inventories are shrinking to almost nothing mainly because of the large increase of JIT manufacturing. Dell is probably the most well known business that had implemented the lean manufacturing process. Therefore for the purpose of this report I am going to focus on how Dell the computer producer has integrated JIT, a particular type of inventory management into their firm.

2.1 Dell company analysis

The Dell Computer Corporation is one of the leading sellers of PC’s with its main rival being the Hewlett Packard Company. (Mintel 2009) claims that Dell is ‘the the number two supplier worldwide’. It is a very successful firm that has gained exceptional sales accomplishments because of its unique direct marketing model. They have had the right amount of resources within their business to develop an extremely successful inventory production model. As a result Dell has gained competitive edge and many rival computer companies are now starting to replicate Dell. However simply imitating Dell’s strategy without fully researching the management theory behind it is not an ideal approach for other firms to adopt. Most of the enterprises that have tried to do this have not succeeded, to much of a degree that Dell has. The competitive advantages of Dell over its competitors are that Dell has well thought out JIT inventory system and very good supplier integration. This has helped in cutting down inventory costs within the business and has also reduced the lead time in serving customer orders for computers and laptops. This had caused Dell to gain a very successful process improvement within their enterprise.

2.2 Dell JIT strategy

It is quite clear that these JIT inventory systems have evolved over the years. (Helo 2004) states that JIT is ‘believed to enhance productivity and build a leaner manufacturing system which minimises inventories’. This is because Just-in-time makes production operations much more efficient compared with other methods of production, as it is a cost effective approach. Dell realised that this would be a excellent opportunity for their business processes before any other computer firms did and have therefore have cut their inventories from having ’20 to 25 days of inventory’ to having ‘no warehouses…and no more than two hours of inventory in its factories’ (Mishra 2009). By doing this Dell reached one of their main goals of constantly improving performance of their business. They also recognized that they could reduce expenditure by integrating and optimizing their computer manufacturing system. Overall such a system builds a leaner supply chain for Dell, so that their inventories are minimized.

2.3 Requirements for JIT manufacturing

Establishing a JIT company like Dell requires commitment from every department and a lot of support from the company’s strategic management team. A pull production method of work flow needs to be put into practice for JIT systems to be useful within Dell. The entire supply chain system is built around the flexibility and speed therefore customer demand is the factor that activates production of Dell computers. Normally this is fine within Dell’s business as they use the direct marketing model to sell their computers. However sometimes demand for computers can rapidly increase without any significant explanation. Dell has to have a contingency plan in place in case this happens unexpectedly. Even though inventory is low Dell still have the ability to stretch and push the factory processes to the capacity at times when demand succeeds supply.

Table 1. Key Requirements for JIT Production (Lubben 1988)

1.High quality standards

2.Demand or pull scheduling

3.Level production schedules

4.Sufficient lead time (minimum setup time) to change to new products

5.Long term contract commitments from customers and with suppliers

6.Contiuous improvement of the production process

7.Minimum inventory in the manufacturing system

2.4 Advantages of Dell adopting a JIT system

There are a wide range of benefits that JIT manufacturing can have on an enterprise. Firstly JIT appeals to a wide variety of businesses as it helps to prevent manufacturers from getting stuck with outdated or unusable inventory. Dell only has 2 hours worth of inventory in their manufacturing plants. This ensures that they are controlling their production of computers fully. In addition to this it has been found that JIT adoption has significant positive results on the financial figures of a business. Dell has achieved a cash conversion cycle from implementing JIT systems. This allows a healthy flow of money within their business, which will have an encouraging impact on their profitability. Another one of the many advantages to just-in-time manufacturing is the reduced cost. This is only achieved after the JIT systems has been in place for quite while, but it reduces capital tied up in stock, which allows a company like Dell to spend money on other areas of the business such as advertising and marketing. Just-in-time also has a much faster setup and saves resources by streamlining production systems. This as a result prevents overproduction of computers, which will therefore help Dell with the elimination of waste within their company. As a further point JIT systems also abolishes costs of warehouse space and storage facilities. This also allows Dell to inject cash into other parts of their enterprise and can also keep travel costs to a minimum.

2.5 Limitations of a company such as Dell implementing JIT manufacturing

Just as JIT manufacturing has many strong points, there are some weaknesses as well. The Just-in-Time system may not suit every business, thorough research needed to be done by Dell to ensure such inventory management would work in the way they wanted it to, before they executed it. This would have been a very long process as they would have needed to weigh up the risks it could have on their business. In addition to this it is difficult and very expensive to introduce as there is possible large initial set up costs, which may put some businesses off. This did not put Dell off as they knew the long term benefits would mean that they would become more profitable if they introduce this method. They also found that it would allow them to gain continuous improvement within their business practices in the future, which could allow them to become the superior computer manufacturer over the Hewlett Packard Company who currently has the top spot in the industry. It is also true that JIT processes can become vulnerable to market demand fluctuations and unforeseen production interruptions. Again Dell had to look in depth into the buying patterns of their customer base, before investing in JIT systems within their firm.

Conclusion

Just in time manufacturing can have a positive influence on an enterprise such as Dell and by utilizing JIT systems they have gained a competitive edge against similar rivals in the computer industry. The direct selling model compliments their JIT systems which could in the future make them the worldwide leader in computer manufacturing. However as an important point inventory management systems do not appear to be consistent across all industries. Dell Computer Corporation must critically evaluate the strengths and limitations of implementing Just-in-time systems within their operations. Nevertheless Dell has done their research correctly and as a result JIT is rather successful within computer manufacturers. It is true that the computer industries do not have the experience of JIT systems that the automotive industry has, but it has successfully implemented JIT principles over the past 20 years and will continue to in the future. In addition to this implementing a new concept such as JIT systems requires a constant support from each and every aspect of the organization. It demands complete support from every department operating in the organisation. If a company like Dell accomplishes the implementation of JIT purchasing systems it can result in improved productivity. Despite JIT process it self is not complicated, the implementation stage is not easy to face at all. However it is possible the system can bring high levels of competitiveness to big companies such as Dell and they have proved this with their financial status in the market. The most important factor Dell has to remember, is that they have to sustain good working relationships with their suppliers for JIT to work within their organisation in the first place. For the reasons highlighted in the paper above I can come to the conclusion that Dell have successfully implemented JIT inventory management within their business processes and they are using continuous improvement within their company to maintain to be one the leading manufacturers of computers and software.

References ALPHABETICALLY

Helo (2004) ‘Managing agility and productivity in the electronics industry’ Industrial Management & Data Systems

Hutchins (1988) ‘Overview of JIT’ Just in Time

Lubben (1988) ‘Pull production system’ Just-in-time Manufacturing

Mintel (2009) ‘PCs and Laptops’ [online] Available at: http://academic.mintel.com.lcproxy.shu.ac.uk/sinatra/oxygen_academic/search_results/showHYPERLINK “http://academic.mintel.com.lcproxy.shu.ac.uk/sinatra/oxygen_academic/search_results/show&/display/id=474522/display/id=475761#hit1″&HYPERLINK “http://academic.mintel.com.lcproxy.shu.ac.uk/sinatra/oxygen_academic/search_results/show&/display/id=474522/display/id=475761#hit1″/display/id=474522/display/id=475761#hit1 [Accessed 30 April 2010]

Mishra (2009) ‘Just-In-Time production: the Dell Way’ [online] Available at: http://penofaparanoid.blogspot.com/2009/06/just-in-time-production-dell-way_18.html [Accessed 30 April 2010]

http://www.ehow.com/about_5099120_pro-just-time-inventory-system.html