Dell Case on Supply Chain

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Michael Dell started his business as a student from his university dorm by using a mail-order approach to selling PCs. This changed the manner in which PCs were sold. The customer did not have to come to a store to buy a computer, and Dell was able to customize the computer to the specifications of the customer. The direct-mail approach enabled Dell to underprice his rivals, who were using distributors and retailers, by about 10 percent. For several years the business grew slowly, but Dell constantly captured market share. In 1993, Compaq, the PC market leader at that time, decided to cut prices drastically to drive Dell computers out of the market. As a result of the price war, Dell Computer, Inc., had a $65 million loss from reduced sales and inventory write-downs in the first 6 months of 1993 alone. The company was on the verge of bankruptcy. The Solution

Dell realized that the only way to win the marketing war was to introduce fundamental changes in its own business and along the supply chain from its suppliers all the way to its customers. In addition to competing on price and quality, Dell started competing on speed. Since 2000, a customized PC ordered on any working day can be on the delivery truck in 2 to 3 days; a complex, custom-made PC will be delivered in 5 days or less. Among the IT-supported innovations were the following. • Dell uses a mass customization approach to production. Though the approach wasn't a new one, Dell was the first to use it in making and selling computers. • Dell builds many computers only after they are ordered. This is done by using just-in-time manufacturing (Chapter 7), which also enables quick deliveries, low inventory levels, little or no obsolescence, and lower marketing and administrative costs. • Component warehouses, which...
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