Introduction to Supply Chain Management (SCM) System
Supply chain management (SCM) is the combination of activities which help a company to improve the methods to make a product or service and deliver it to customers. (Larson, 2004) SCM encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management activities. More importantly, it includes coordination and collaboration with other people who are associated with the business like suppliers, intermediaries, third-party service providers, and customers.
SCM of Dell Computer Corporation
For studies purposes, the SCM System of Dell Computer Corporation could be categorized into following two periods:
Dell’s SCM System from 1984 to 2008:
Supply chain management of Dell in this period was mainly based on following aspects:
Direct Sale and Configure to Order (CTO) platform
Dell was founded in 1984. It was the first computer company which sold its computers systems directly to end customers, bypassing distributors and retailers (resellers). The company was one of the first to introduce a configure-to-order (CTO) model where customers could have millions of configurations to customize their PCs according to their requirements. Through the direct sales approach, Dell builds systems to order, which helped the company to introduce new products and technologies faster than its competitors. Dell’s unique model helped the company in estimating customer requirements, forecasting demand, and providing low-cost PCs to customers. Dell's supply chain basically consisted of three stages— the suppliers, the manufacturer (Dell), and end users. ("Supply chain management (SCM) of Dell Computer Corporation", 2011)
Dell matched supply and demand as its customers ordered computer configurations over the phone or online. These computer configurations were built from components that were available. Dell’s strategy was to provide customized, low cost, and quality computers to customers within the stipulated timeframe. Dell implemented this strategy through its efficient manufacturing operations and better supply chain management system.
Eliminate/bypass market (Middlemen & Intermediaries)
By taking orders directly from the customers, Dell reduced the cost of intermediaries that otherwise would have added to the total cost of PC for the customers. This saved time on processing orders that other companies normally incurred in their sales and distribution system. The genius behind the “direct model” is that every PC that Dell built had already been sold, a concept that proved attractive to other companies and industries as well, such as consumer packaged goods and automobile manufacturers. (Dell online, 2008)
Just-in-Time and low (minimum) inventory counts
The direct sale business model helped Dell to reduce its cycle times to levels that had been unthinkable for the high-tech industry, allowing the company to carry inventory for just a few days rather than for weeks and months. Dell negotiated with its key suppliers to establish their inventory hubs near its own assembly plants. This allowed the company to communicate with supplier inventory hubs in real time for the delivery of a precise number of required components on short notice. This “just-in-time,” low-inventory strategy reduced the time it took for Dell to bring new PC models to market and resulted in significant cost advantages over the traditional stored-inventory method. This was particularly powerful in a market where old inventory quickly fell into obsolescence. In 1997, Dell reorganized its assembly processes. Rather than having long assembly lines with each worker repeatedly performing a single task, Dell instituted “manufacturing cells.” These “cells” grouped workers together around a workstation where they assembled entire PCs according to customer specifications. Cell manufacturing doubled the company’s...
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