Dell Supply Chain Management Essay

1. Introduction Companies, nowadays have to face global competition in order to stay in the market. To be competitive, they have to employ new strategies based on new technologies. Supply chain management plays an important role in the success and growth of an organization. Efficient capitalization of supply chain management enables an organization not to bother about competitors in same line. Customer’s needs and demands play a vital role in making and implementing new strategies and reviewing the made ones time and again in order to stay in a market. Innovational steps in carrying out supply chain Management of an organization will help a lot to be competitive and leading in a same type of activities like enabling the organizations to transact online by improving transactions on traditional supply chain management arena to a technologically improved supply chain management. Web equipped supply chain management is an improved shape of technology these days. Dell a renowned follower of web equipped supply chain management technology is becoming famous among customers due to its real time dealing. Dell since 1984 is proving itself a hot cake for the customers all over the world. Disintermediation, just in time and technologically web based supply chain management made this product a real time choice of professionals. This results in competitivity growth, higher profits and more satisfied customers. 2. Literature Review First supply chain management will be viewed in the terms of already made studies and then Dell’s whole online operational process will be discussed including its founder, history, background, online process, supply chain management, benefits from online processing like just in time technique and its benefits towards human beings. A supply chain is a mixture of all participants involved, directly or indirectly, for providing convenience to customer request (Chopra and Meindl, 2003). We can say that a supply chain involves all organizational components that merge themselves to extract and furnished a complete package for the final customer. Supply chains can manage their structure differently in size, complexity and comprehension of relations between the participants of their carriage mean the operators and the location. In this sense supply chain has two main shapes: spontaneous or direct, in which only one supplier and one member of a party involved. Extendedly it works beyon d a supplier and a customer involving supplier’s supplier and a customer’s customer. Second the normal or general the supply chains have different appearances responding to the demand and thus involve systematically flowed information, gadgets i.e. products and resources between different stages (Lee, 2000). Supply chain management continues its journey with a motive to handle the appropriate needs and demands in the appropriate volume at the appropriate competitive cost (Cutting-Decelle et al., 2006), a situation that would respond highest level of services for the customer and highest reputed performance for the organizations. This proclaims that supply chain management considers the optimal appropriate management of operations between and among participants of the supply chain for the purpose of optimal profitability through the supply chain management’s operations.(Chopra and Meindl, 2003). Mentzer et al. (2001) suggested that Some researchers view supply chain management as a management interaction with structure approach, strategically oriented and custo mer oriented as its key focus, others used it in a sense to elaborate the group the systematic steps to disciplinal implementation of management concepts with integrated tendencies, commonly information sharing, risks and rewards, mutual understanding and collaboration of hardcore activities. Then the third step is a group of management activities (Chopra and Meindl, 2003). In this activity the researcher will follow the third term because it coordinates the others. Fugate and Mentzer (2004) described that the Dell’s phenomenal agenda related its supply chain is â€Å"the right mergence of activities and people elements† (Refer Table 2.1). This is clear from Michael Dell’s sense that â€Å"our research and development (R&D) keenly interested in activities and quality betterment in manufacturing† and that â€Å"one of our biggest challenges is finding managers who can share and respond to rapid changes† (Magretta, 1998). Michael Dell became the father of Dell in 1984, in spite that he was a student at the University of Texas in Austin. Initially the Michael Dell adopted the direct sales model. During this era the computers were sold over the phone and parts were joined according to the customer’s demands and specifications (Kramer et al., 2000). Retail channel was also introduced during the 1990 to 1994 and Dell again returned to direct model and furnished the Dell rapidly in the mid 1990s, In 1999 this made him the number one PC seller in the US and number two in the whole world (Kramer et al., 2000). Dell’s success was incredible because he made the Dell conceit. It became a big company of approximately 35,000 employees and over 25.000 million dollars’ sales in 2000 (Koehn, 2001), thus competing big rivals such as IBM and HP. By 2008, Dell had attained annual revenues of $61 billion and net income of $2.9 billion (Dell, 2009). Dell has decided to enter into new regions and to expand its product line i.e. Servers, workstations, printers, flat-screen TVs and digital cameras. Due to these certain reasons Dell changed its name in 2003 from â€Å"Dell Computer Corporation† into â€Å"Dell Inc.†, to â€Å"reflect the evolution and growth of the company from a computer manufacturer to a company that operates a wide variety of technology-related services† (Rivkin and Giorgi, 2004). The core ingredients of Dell’s business structure are its direct sales model, usually named as â€Å"direct model†, and the build-to-order mean just in time str ategy. Dell has operational facilities in Austin, Limerick, Ireland, and Penang, Malaysia. To make sure the uninterrupted flow of production supplies into these facilities, Dell has developed a two-ended strategy that follows different sourcing arrangements and supply schedules for custom and system parts. According to a recently published report by research firm IDC (Appendix 1), Dell’s hard competitors in its vital corporate PC market are IBM and HP. It faces competition from fellow direct vendor Gateway HP and Apple in the consumer and small business market. In the portable PC business, the key competitors are Toshiba, Lenovo, and HP. In the critical server and Internet infrastructure markets, Dell competes with Sun Microsystems, HP, and IBM. In Internet hosting, it faces competitors like Exodus and Corio, some of whom may also be Dell customers. Outside the United States of America (USA), Dell competes with regional and local vendors in many markets, such as NEC, Fujitsu, and Toshiba in Japan, Fujitsu-Siemens and Acer in European, and Lenovo in China. It also faces hard competition from HP and Acer in Latin America and the Asia-Pacific region. Dell now has 13.7 percent of the world market, down from 14.6 percent for the same period a year ago. Kraemer and Dedrick (2001) claimed that the superior supply chain is driven by Information Technology (IT), e-commerce and virtual corporation. Online selling strategies are backed by online support and Infrastructure. According to Kraemer and Dedrick (2001), the mandatory principles for Dell’s business process are Build-to-order i.e. just in time, direct sales, customization, quality, quantity and periodical made changes. 3. Supply Chain Management Supply chain management is the systematic, strategic collaboration and coordination of the business functions that requires flow of materials, final goods and interrelated information among suppliers, company, retailers and ultimate consumers. The supply chain system must be rejoinder of customer specifications. Council of Supply Chain Management Professionals (CSCMP) defines the supply chain management as it comprises the planning and management of all jointly held activities involved in sourcing, procurement, conversion, and logistics management. It also shows respect for the core elements and components of coordination and collaboration with channel partners, which are suppliers, intermediaries, service providers i.e. third party, and customers. Managing a supply chain is ‘supply chain management. A supply chain is a set of organizations directly linked by one or more of the upstream and downstream flows of products, processes, services, finances, information and operational model from a specific source to a customer. 4. Components of Supply Chain Management The under explained are five basic components of supply chain management. * Plan— This is strategically oriented phase of supply chain management. Organizations require a strategy for managing all the resources which are needed toward satisfying customer need and demand for their product or service. A big piece of supply chain management planning is developing a set of techniques to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers. * Source— secondly companies have to choose suppliers after an in-depth evaluation to deliver the goods and services they need to manufacture their product. So, supply chain managers must develop a set of pricing, delivery and payment integrations with suppliers. * Make— This is the manufacturing and operational phase. Supply chain managers schedule the activities compulsory for production, assembly, testing, packaging and preparation for delivery. * Deliver— This is the part that many supply chain management examiners see it as logistics in which companies make sure to coordinate the receipt of orders from customers, develop a network of warehouses, and intelligently considers carriers to get products to customers and to set up an invoicing system to receive payments. * Return— This can be a head aching part of the supply chain for many companies. Supply chain planners have to create a responsive and flexible enough network for receiving defective and excess products back into their hunt from their customers. 5. Process approach in Business through SCM According to Lambert and Cooper (2000), in many companies management has reached the conclusion that optimal product flows cannot be managed completely without implementing a process approach to the business. The core supply chain processes stated by Lambert and Cooper (2004) are: * Customer service management * Procurement * Product development and commercialization * Manufacturing flow management/support * Physical distribution * Outsourcing/partnerships * Performance measurement * Warehousing management * Customer service management process The Customer Relationship Management totally explains the coordination and the relationship between the organization and its customers. Customer service is the only authentic source of customer information. It also provides the customer with real-time information on scheduling and product availability with the company’s production and distribution operations. Successful organizations follow the following steps to determine customer relationships: * Mutually backed goals for organization and customers * establish and maintain customer rapport * produce and prevail positive satisfactory feelings in the organization and the customers * b) Procurement process Strategic plans are planned in accordance with suppliers to support the manufacturing phase and the development of new products. The desired outcome is a mutual win-win relationship where both sides benefit, and a reduction in time span for the design circle and product development. The purchasing advancements developed a truly rapid communication system, such as electronic data interchange (EDI) and Internet linkage to transmit possible requirements. Obtaining products and materials from outside suppliers involve a number of activities like resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage, handling and quality assurance, many of which include the responsibility to coordinate with suppliers on matters of scheduling, supply continuity and research into new sources or programs. * c) Product development and commercialization In recent days as product life cycles shorten, the quality products must be developed and successfully launched with ever shorter time-schedules to remain competitive. According to Lambert and Cooper (2000), managers of the product development and commercialization process must have to: * interrelate with customer relationship management to identify the actual customization * Arrange materials and suppliers appropriately with procurement. * d) Manufacturing flow management process Manufacturing processes have to be responsive to daily based occurring market changes and must address mass customization. Orders are processes operating on a just-in-time (JIT) basis. Activities like planning the essentionals, scheduling and supporting manufacturing operations which controls an array of activities like work-in-process storage, handling, transportation, and time phasing of components, inventory at manufacturing sites and maximum flexibility in the coordination of geographic and final assemblies of physical distribution operations are carried out in this process. * e) Physical distribution The customer is the final destination of a marketing channel in this phase. This phase requires the availability of the product/service of each channel stakeholder’s marketing tiredness. Due to the physical distribution process the time and space of customer service become a vital part of marketing, so it coordinates a marketing channel with its customers (e.g. manufacturers, wholesalers, retailers). * f) Outsourcing This is not just about outsourcing the strategic planning of materials and components, but also outsourcing of services. The reason behind this tendency is that the company will surely shift its focus on those activities in the value chain where it has a distinctive competitive advantage i.e. expertise, and will outsource everything else. This movement has been particularly evident in logistics where the provision of transport, warehousing and inventory control is increasingly subcontracted to specialists which are named as logistics partners. * g) Performance measurement Competences taken from supplier capabilities and diagnosing a long-term supply chain commitment with a tacklance of customer relationships can both be interrelated with organizational performance. A.T. Kearney Consultants (1985) noted that firms engaging in comprehensive performance measurement realized improvements in overall productivity. Internal measures are generally collected and analyzed by the firm itself including; * Cost * Customer Service * Productivity measures * Asset measurement * Quality. External performance measurement is examined through customer shifts and benchmarking. * h) Warehousing management Warehousing management as an important source of reducing company cost & expenses is carrying the valuable role in company’s success. Storing and office with all facilities, reducing manpower cost, dispatching authority with on time delivery, loading & unloading facilities with proper area, area for service station, stock management system etc. 6. Dell Computers Dell Computer Corporation founded in 1984, headquartered in Austin, Texas. Dell is now reputed as one of the world’s most preferred computer system icons and a provider of products and services that customers globally need to set up their information-technology and Internet infrastructures conveniently as Dell always favors the customization. Dell is only the owner of the market leadership ladder because it has a strong and persistent focus on delivering the best possible customer requirements. Direct online selling from manufacturer to consumer is a vital element of its strategy. The company was incorporated on a basic idea that Dell is at its best to efficiently understand consumer needs and to provide the most effective and suitable customized computing solutions. This online business model eliminated retailers because all the computer related dealing is totally made through internet and phones. This activity saved time and cost because each and every system was made regarding the made order, offering customers powerful, richly configured systems at competitive prices. With the passage of time Dell introduced the latest technology much more quickly than competitors with slow-moving and turning over inventory an average of every four days. Now Dell has become the number-one retailer of personal computers, outselling IBM, Hewlett-Packard, and Compaq. 7. Direct to Customer Model Dell Computer’s strength is its unique direct to customer model. Through the implementation of model, the company outsourced all the components but it still performs the assembly. In this process the Dell eliminated retailers and directly delivered the computers from its assembly to end customers. This activity enabled Dell Cost leadership holder among the players in the arena. By eliminating the retailers, consumers were buying from Dell without the extra payment to retailers. Another Dell’s strength is its better access to technology compared to its competitors. Dell introduces the latest technology much more quickly than companies with slow-moving indirect distribution channels. Currently Dell’s initiatives include moving even greater volumes of product sales, service and support to the Internet, using the Internet to improve the efficiency of Dell’s procurement, manufacturing and distribution process and further expanding an already broad range of valu e-added services. 8. Dell’s value chain The value chain of a company is its entire product flow from the suppliers to the customers and managing the information flow in such a way that the customer receives maximum satisfaction while the company maximizes its profits. Dell Computer’s value chain is quite different because company sources all its components from vendors across the world and it undertakes the final assembly and sells it directly to the consumer. Dell’s direct model of selling and build-to-order supply chain i.e. just in time strategy have been the core at its policies and practical that have enabled it to gain competitive advantage in the computer industry. The value chain makes sure that all aspects are coordinated into attaining the firm’s stated goals. Dell makes sure that it monitors the value of its initiatives. Dell makes use of online value chain system. Such system helps the company control and coordinate business processes. It provides the company with a system with faster capabilities and lower cost and it eliminates the unnecessary steps which do not contribute the value chain and this also helps the Dell to make a decision regarding its employs’ promotion or demotion. 9. Dell’s Supply Chain Management Supply chain is an integral part of any business because through it raw material is systematically transformed into finished goods; these products are then sold to consumers for the company to have profit. In Supply chain management having a record of supplies is a valuable activity. Having a secured record of supplies gives a company benefits such as efficient list of supplies. Here products are received from a company’s suppliers and they are stored until they are needed on the assembly line of Dell then goods are moved around the organization. Dell relies mostly on its highly reliable supplier, where Dell formulates its operation and relies on its computer monitor supplier to ship directly to the customer. As long as its supplier retains its leadership position, Dell would collaboratively work with it to achieve mutual success. Dell’s Process This process starts when Dell receives an order for a PC, it faxes or phones its requirements to suppliers who pick the ordered parts and pack them in reusable bins with cards attached. Trucks on a continuous connection between suppliers and Dell, known as a â€Å"milk run† deliver the sorted parts to the computer maker’s plant for final assembly. This process frees Dell from having to manage inventories and the costs associated with stock. Dell has made efforts to ensure that suppliers don’t get stuck with much inventory. The computer maker allows suppliers to participate in a â€Å"revolver program,† where they can sell parts stored at the warehouse to other customers than Dell. Dell’s supply chain competency comprises of four qualities which includes demand management, internal collaboration, leveraging partners, and financial fundamentals. Dell’s direct model enables the company to fully hold at demand management. The process of selling d irectly to customers and building product to order creates opportunities for true real-time collaboration between manufacturing and sales. Being in direct contact with the market, Dell can quickly see changes in customer demand. This allows Dell to respond more quickly to customer demand than its competitors can and this true demand management allows for highly accurate forecasts. Second integral aspect of Dell’s success is its ability to collaborate internally. This competency flourishes in a culture which values information sharing and empowers all employees. At Dell, â€Å"direct† refers not only to how the company sells but also to how team members communicate and attack issues to solve. Dell leverages its partners by linking suppliers’ planning and execution activities with Dell’s systems. The company uses information technology to gather and share a constant stream of data on supply and demand trends. Finally and lastly Dell’s entire supply chain is focused on fundamental business performance. Operating margin and not just profits or growth rate is the number that Dell cares about most to ensure long-term profitability. Dell thought differently because when Dell introduced the direct model at the same time its competitors were selling computers to end consumers via distributors. Dell sells directly to consumers and is continuously communicating with them and benefiting. Dell capitalizes the opportunities whenever they arise like seeing sales trends and learning about unmet customer needs. The company also relies on customers’ knowledge of what they want to purchase and when they want to complete the transaction to drive the direct business model i.e. totally customized. The Dell supply chain management system handles a number of transactions and pieces of information, and includes multiple core components necessary to keep operations running smoothly. Some very important components are as follow: †¢ Configuration management; This component manages approximately over 1 million Dell part numbers every year with tackling approximately 200 product families, and over 2 million bills of materials (BOMs) every year. BOMs listing component part numbers are created for manufacturing facilities to build assemblies and subassemblies for Dell products. †¢ Procurement; The procurement component manages approximately 1.8 million purchase order lines every year from more than 5,000 suppliers worldwide. To smoothly process the procurement phase, Dell uses an automated application activity that includes workflow approvals and vendor communication and also enables services such as defective part replacement. †¢ Cost; This element runs smoothly to calculate the costs to Dell for all BOMs. The specific activity runs weekly, monthly, and quarterly, with each job aggregating total material costs. †¢ Inventory; The inventory component manages more than 3 million inventory movements daily from stock rooms to factory floors across all Dell sites. Dell also manages corresponding over 3 million messages transmitted to different systems for reporting, analysis, and factory scheduling. †¢ Accounts payable; this specific measure handles approximately 15,000 items per day which includes payments to Dell suppliers, invoices, and receipts. This component contains some important information under certain categories like vendor information section includes vendor ID number, location, negotiated terms, and contact 9. Significance and Advantages of supply chain management with a glance on disintermediation and Just in Time Explanation Dell’s supply chain consists of only three stages and these stages are the suppliers, the manufacturer (Dell), and the end users. The company’s direct contact with customers allows them to properly identify target markets demands, analyze the target requirements and profitability of each assignment and develop more accurate demand forecasts. Dell matches supply and demand because its customers order computer configurations over the phone or online. These computer systems are built from components that are available in suppliers’ jacket. Dell’s strategy is to provide customized, low cost, and quality computers that are delivered as on ordered time. Dell managed and implemented this strategy through its efficient manufacturing operations, better supply chain management and direct sales model. Dell reduces the cost of intermediaries of distribution channels that would otherwise add up to the total cost of PC for the customer by taking orders directly from the customers. This strategy also saves time on processing orders that other companies normally suffer in their sales and distribution syste m. By directly dealing with the customers Dell gets a clearer indication of market trends and relishes. This helps Dell to plan for the future and forecast properly besides better managing its supply chain. Another integral advantage Dell holds by directly dealing with the customer is that it enables itself to get the customer’s requirements regarding the software to be loaded. The elimination of a PC support engineer to load software, the customers gain both in time and cost. Dell computers have perceived 100% performance in performing a number of important activities which includes on-time delivery, and fill rate. Dell’s supply chain management most efficient trends include increasingly powerful private trading networks, increased transparency in measuring and monitoring the value chain performance, and outsourcing of non-core activities. Cost management techniques with taking practical performance improvement initiatives Dell have revolutionized the entire supply chain management process. Dell uses different software to follow and track its entire activities like Dell uses i2 Technologies software to track its supply chain activities. Dell monitors its supply chain time and again and this activity enables the Dell to make immediate changes (within hours) to respond the fluctuations in consumer demand. The software also alerts Dell to any supply shortages and Dell rapidly communicates order information including automatic replenishment requests to its suppliers through the internet. The company also uses the Web to interact with suppliers this interaction enables the suppliers to be up to date with its volume expectations and long-term planning data. Master production schedule updated after every two hours. Dell’s mass customization program enables 100,000 different computer configurations, 455 annual work-in-process turns, 52 annual inventory turns and a zero finished goods inventory. Dell Computer Corporation successfully uses a build-to-order(just in time) manufacturing program to hold down its inventory to only a five-day supply while shipping 95 percent of customer orders within eight hours. This strategy gives Dell an important competitive advantage as a low-cost producer. Dell can reap the benefits of lower material costs almost immediately and reflect that benefit in its consumer product prices. The Just-In-Time organization has a distinctive culture that gives it a competitive advantage which clarifies its standings among competitors. When big things change in its environment, Dell adapts successfully. People in the Just-In-Time organization are typically motivated more by values and pride in their company. The Coherence Index specifically measures the coherence or consistency of your organization’s strategy. Most Just-In-Time organizations will score moderately high in this area. Coherent companies have a clear set of capabilities that are in line with their strategy and that they use over and over again in their operations. The following are common patterns of behavior in just-in-time organizations. Just-in-time organizations often are often headed by a strong sense of mission. They want to chart new territory, inspire change, and make a big difference. Just-in-time organizations follow two different strategies. first the adventure-seeking and the more cautious professional managers. Adventure-seekers regard the unstructured environment and strained resources of the organization with a certain fondness. Second managers keep the joint running. What they lack in pure passion, they make up for in discipline and managerial skills. They are the more stable and reliable sorts. A great sense of urgency exists in the just-in-time organization. Everything is â€Å"life or death,† and the immediate emergency inevitably takes higher priority over so-called road building for the future. Every day brings fresh fires that need to be put out, and that’s where everyone directs their attention, even though yesterday’s still-smoldering ashes are not yet extinguished. 1 0. Cost effective and consumer friendly SCM of Dell A time when Dell was an infant its IT group ran its supply chain management database applications on large, expensive, proprietary servers based on the UNIX ® OS. As the company grew, servers lacking the necessary capacity had to be replaced with even larger, more powerful servers. The increased performance of industry-standard Dell PowerEdge servers has enabled Dell IT to create cost-effective, highly scalable systems using Oracle Real Application Clusters (RAC) 10g. By sharing a large database across multiple PowerEdge servers, Dell IT can easily deploy additional low-cost servers when necessary to handle increased workloads rather than buying additional large, expensive, proprietary UNIX-based servers. Supply chain management is essential to Dell operations around the world, with both factory operations and internal systems dependent on supply chain management systems to provide real-time information about key business functions. Running these systems on Oracle RAC 10g clusters of industry standard Dell PowerEdge servers enables Dell IT to scale them efficiently and cost-effectively to handle increased workloads. By moving the systems to Dell servers when it did, Dell IT avoided significant additional expenditures for proprietary UNIX-based servers, enhanced performance, and provided a clear path for future growth. 11. Conclusion and recommendation The rapid development of Worldwide Web (WWW) technologies, Internet, and Information and Communication Technology (ICT) have generated the evolutionary online business solution and electronic-commerce (ecommerce) both of which are to provide support for both information and workflow control, and process management as well as enhance the communication. E-commerce technologies are perceived as a mainstream to improve productivity and information flow and communications which all have to process through a systematic phase of supply chain management. Technology based SCM allows the creation of extra value for the customer and have the goal to satisfy the client requirements in the best possible way and in real time. Migration to a technological based approach for SCM applications is required for streamlining Supply Chain activities, maintaining a consistent quality of service and controlled distribution of the data which otherwise cannot be achieved. A technological based supply chain management must have the components like ERP (Enterprise Resource Planning) system which forms groups of business software functions like production, purchasing, CRM. These applications have to be interconnected so that to provide complete reports on customers, demand, suppliers, supply, finance, manufacturing, delivery, etc. 12. Reference Fugate, B.S. and Mentzer, J.T. (2004) ‘Dell’s supply chain DNA.’ Supply Chain Management Review, Vol.8, No.7, p.20-24 Chopra, S. and Meindl, P. (2003) Supply Chain Management: Strategy, Planning and Operation. 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