Case Study: Dell Computer – Organization of a Global Production Network; Using E-Commerce to Support Its Virtual Company

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Case Study: Dell Computer – Organization of a Global Production Network; using E-Commerce to support its Virtual Company

1.0 Executive Summary

Dell’s Direct Model of selling PCs directly to the consumers, bypassing the distributors and retailers (resellers) channel, has been pioneered and provides distinct advantages over the indirect sales model. Customers have the ability to contact Dell directly and order technologically advanced systems at competitive prices. This direct contact with consumers gives Dell the unique opportunity to know exactly what its consumers want and offer products that would satisfy their specific needs.

To fulfill the orders quickly and in supporting the “Build-To-Order” strategy, Dell has developed an excellent manufacturing and logistics capabilities supported by information systems that enable it to substitute information for inventory. Dell coordinates a global production network that spans the Americas, Europe and Asia, combining in-house final assembly with heavy reliance on outside suppliers and contract manufacturers.

The use of Internet and E-commerce has further giving Dell a means for extending the reach and scope of its direct sales business model at a relatively low marginal cost. It has done so in part by automating its functions such as product configuration, order entry, and technical support, enabling the company to grow revenues without a corresponding increase in customer service costs. Also, it has used the Internet to coordinate a network of suppliers and business partners who carry out many of the processes involved in building, distributing and supporting personal computers.

In short, Dell's supply chain consists of only three stages— the suppliers, the manufacturer (Dell), and end users.

Dell’s direct contact with customers and its use of e-commerce allows it to:

• offered competitive prices, high levels of support
• properly identify market segments,
• analyze the requirements and profitability of each segment, and develop more accurate demand forecasts. • cut on the standard supply chain cycle and deliver goods directly from the manufacturer to the customer. • turn its inventory over 60 times a year

• introduced new products without having to clear out old inventory in the channel • minimize the rapid depreciation costs that mark the PC industry • operated on a negative cash conversion cycle – by receiving payment from its customers before it paid its suppliers for components • build strong, stable relationships with the large corporations and other organizations who are its core customers

Table of Contents


1. Executive Summary2

2. Key Success Factors4

3. SWOT Analysis of Dell Computer6

4. What SCM strategies Dell had implemented?8

5. What are the values of the Dell’s strategies?10

6. Conclusion11

2.0 Key Success Factors

• Supply Chain Know-How - A key component of Dell's supply chain management was having materials in close proximity to Dell factories; therefore suppliers are required to have inventory hubs near the manufacturing plants. A huge benefit of this supply chain solution is communicating with these hubs in real time to deliver the required materials. Dell had reduced its inventory to an all-time low of a 5 day supply, which comparatively was 20 to 70 days for its major competitors, thereby creating a competitive advantage. By operating on a just-in-time basis, (a result of an 87% reduction in primary suppliers) Dell was able to provide better service with a faster turnaround time. Also by reducing the total vendor pool and choosing suppliers physically close to Dell’s factories, supplier loyalty was increased, leading to further economies of scale.

• Strong supplier relationships – Dell seeks long-term single source relationships in situations where alternative sources...
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