Dell Supply Chain Managment

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Supply Chain Management
Term Paper
On
INVENTORY DECISIONS IN DELL’S SUPPLY CHAIN MANAGEMENT

Submitted to
Dr. P.R.S SHARMA

Gitam School of International Business

Submitted by
UKR PRASANTH BABU.K
1226111138 (IB)
SECTION-A

INVENTORY DECISIONS IN DELL’S SUPPLY CHAIN MANAGEMENT

EXECUTIVE SUMMARY
Dell is the largest computer-systems company based on estimates of global market share. It is also the fastest growing of the major computer-systems companies competing in the business, education government and consumer markets. Dell’s product line includes desktop computers, note book computers, network servers, work stations and storage products. Michael Dell founded the company based on the concept of bypassing retailers and selling personal computer systems directly to customers, thereby avoiding the delays and costs of an additional stage in the supply chain. Much of Dell’s superior financial performance can be attributed to its successful implementation of this direct-sales model. While the computer industry has grown tremendously over the past decade, firms in this industry face their own challenges. First, Rapid changes in technology make holding inventory a huge liability. Many components lose 0.5 to 2.0 percent of their value per week and a supply chain packed with yesterday’s technology is nearly worthless. With its direct sales, however, Dell carries very little inventory, the whole organization concentrates on speeding components and products through its supply chain. Dell delivers new products to market faster than its competitors and does not have to sell old products at a discount, because it has none. Second, the traditional model of vertical integration that the original equipment manufacturers follow to manufacture all of the major components of their products has almost disappeared in the computer industry. Research and development costs are too high and technology changes for one company to sustain leadership in every component of its product lines. Dell has close-relationship agreements with its suppliers that allow them to focus on their specific components. At the same time, Dell concentrates its research that on customer-focused, collaborative efforts to leverage the collective R and D of its partners INTRODUCTION

Dell management was concerned that, although the firm carried almost no inventory, its suppliers might be holding much more inventory than was needed to provide desired customer service. For this reason, Dell asked a team from the Tauber Manufacturing Institute (TMI), a partnership between the engineering and business schools at the University of Michigan, to study this issue. Dell sought recommendations for a sustainable process and decision-support tools for determining optimal levels of component inventory to support the final assembly process .Dell bases its business model on integrating five key strategies: rapid time to volume, products built to order, elimination of reseller markups, superior service and support, and low inventory and capital investment. We designed our project and the resulting tools to support Dell’s low-inventory and low-capital investment strategy and to extend its impact beyond the plant floor into the preceding stage of its supply chain. Tom Meredith, at the time chief financial officer, said in the May 18, 1999 earnings conference call:“Customers see no advantage in a manufacturer lowering inventory to six days if there are still 90 days in the supply line.” Our project was the first step takento combat the “90 days in the supply line. DELL’S SUPPLY CHAIN

Dell’s supply chain works as follows. After a customer places an order, either by phone or through the Internet on www.dell.com, Dell processes the order through financial evaluation (credit checking) and configuration evaluations (checking the feasibility of a specific technical configuration), which takes two to three days, after which it sends the order to one of its manufacturing plants in Austin,...
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