Critical Evaluation of DELL's Suply Chain Business Critical Essay

This assignment was a critical evaluation of DELL's supply chain.

“Critical Evaluation of the

Dell Supply Chain”

Table of Contents

1. Executive Summary 3
2. Supply Chain 4
3. Supply Chain Management 5
4. Dell’s Supply Chain 7
5. Critical Evaluation of the Dell Global Supply Chain 9
6. Conclusion 15
7. References 16

1. Executive Summary
In today’s world of increased trend towards globalization and customer-
orientation, the businesses are operating in a highly competitive
environment to improve on their core competency and focus on the
customers globally. For the purpose of any business to be successful, there
is a strong need to build up strong supply chains and lower the supply
chain management costs to increase effectiveness and efficiency in the
business processes.

Whenever we talk about a strong supply chain, the name of the PC Giant
“Dell” comes to our mind. Dell has, over the period of time; build a very
strong and efficient supply chain management system by improving on it
continuously. Although Dell has a well-managed supply chain, but when
we talk about so much of the positive aspects of the system, it does not
definitely means that the negatives don’t exist. Thus, the supply chain
system of Dell does possess shortfalls and improvement areas do exist.

This paper serves the purpose of critically evaluating the Dell Supply Chain
and envisaging not only the efficiency of the system but its inefficiencies
as well. The paper firstly describes what a supply chain is. The next
section presents what is actually supply chain management. Dell’s Supply
Chain is discussed next following the critical success factors adopted by
the Dell Supply Chain Management. Then a major section of the paper
presents a critical evaluation of the Dell Supply Chain. And then the
conclusions are finally presented.
2. Supply Chain

Constituents of Supply Chain

Supply Chain involves every person and stage that is involved in satisfying
the customer’s demands. It includes every party from the manufacturer to
the customers. The supply chain involves the chain that starts from
manufacturer, suppliers, transporters, warehouses, retailers and ends on
the customers (Chopra and Meindl, 2004). The supply chain of every
company is active and ever changing. Information and products are the
crucial and continuously involved constituents of every stage in the supply
chain.

The key to successful supply chains are the customers because the basic
intention of the supply chains is to fulfill the customers’ requirements
(Chopra and Meindl, 2004). Every party involved in the supply chain works
to fulfill the customers’ demands because when the customers are
satisfied and are getting what they actually want, they are willing to pay
even high prices for the products and making profits is what every
company lives for.

The supply chain is an entire network of various parties striving towards

the fulfillment of the demand (Chopra and Meindl, 2004). Thus every
supply chain is demand-driven i.e. the whole of the chain of supply works
to fulfill the demand (R Ernst, B Kamrad, 2000). The different stages
involved in the supply chain involve stocks and inventory which are
updated at every stage (Alan Johnson, 2006).

Supply Chain and the Competition

The competition in the entire global industries is now based on the
competition of the supply chains. The approaches different companies use
to run and deal with their supply chains are crucial for their construction
or destruction (David A. Taylor, n.d.).

Supply chain also has a great impact on the cost that the organizations
incur and the savings that it makes. Enhancements in supply chains are
not just beneficial for the baseline operations but they are also important
for the top line operations because an efficient supply chain can increase
the competitive advantage of the organizations over the others (David A.
Taylor, n.d.).

Therefore, the organizations today are focusing on the lowering of costs

mainly through their supply chains and through these low-costs, fulfilling
the demands of the customers. Thus, resulting in an efficient
‘management of the supply chain’; which is again a crucial concept
because just having a supply chain is not enough, proper management and
monitoring is significantly important.

3. Supply Chain Management

Like effective management of any business processes is important, the
management of the supply chain and its proper monitoring is also
extremely crucial. Whatever the size of the organization may be, the
management of the supply chain is done in similar ways. Just even minute
changes in the supply chain management have considerable impacts on
the performance of the entire organization
Effective supply chain management is to deliver the right quantity of
product, of right quality to the right customer, at the right time when the
customer demands for it Essentials of Supply Chain Management

• Value to Customers: Proper management of the supply chain includes

the capability to convey great value to the customers and measurable
amount of savings and cost reduction to the organization (Ehsan, 2006).
• Reduce Costs: The appropriate management and forecast of the
procurement and logistics costs is crucial in supply chain management
(Ehsan, 2006).
• Separate Waste from the Processes: Supply Chain Management is
concerning separating or discarding waste away from the actual processes
that the organization undergoes by tracking the waste through process
mapping. Keeping storages in bundles and towers is not effective supply
chain management (Alan Johnson, 2006).
• Flexibility: Appropriate management of supply chain also demands
flexibility. The organizations need to be flexible in the fact that a
particular process is to be carried out in-house or should be out-sourced
(Fred Andrews, 2000).
• Technology Improvements: Supply Chain Management also requires
continuous improvements in the technology being used to monitor the
supply chain processes (SE Fawcett & GM Magnan, 2002).
• Change Management: Whenever a new process or technology is
introduced in the organization to improve the supply chain management,
it also brings about a change in the organization, management of which is
very essential (WD Presutti, 2003).
• Commitment and Support: Commitment of the employees and Top
management support are very essential for the effective supply chain
management (SE Fawcett, GM Magnan, 2002).
• Well-Administered Data: Efficient management of Supply Chain involves
cleaning the inefficiencies in the data and sorting out inaccurate data.
This will lead to processed information in an accurate form through which
exact forecasts can be made on the right time (WD Presutti, 2003).

In today’s competitive environment, strong and integrated supply chain

management is very essential as a core competency. Thus, a prime focus
on the management of the supply chain processes is required in order to
bind the supply chain processes directly with the customers (Dick Hunter,
2005).

4. Dell’s Supply Chain

The supply chain of Dell includes the customer who makes an order
online, the website through which the customer gets to know about the
price and features of the PC and builds his own PC and then the inventory
level is upgraded, the assembly plant of Dell where the finished products
are assembled, the suppliers who provide with the components to Dell and
also those suppliers through which the suppliers of Dell get their supplies.
Thus there is a continuous flow of products and information through the
supply chain of Dell (Chopra and Meindl, 2004).

Direct Model Approach

Dell follows a direct model approach in which it sells directly to the
customers (WD Presutti, 2003). Dell’s ‘build-to-order’ supply chain has led
it to have a competitive edge in the market. Dell builds the systems when
the customer themselves ask for it. Thus, the process of manufacturing a
system begins when the customer makes an order. Thus the intermediaries
like the retailer, wholesaler or distributor are not included in Dell’s supply
chain because deals with the customers directly (Chopra and Meindl,
2004) without any intermediaries in between.

For the purpose of delivering the customers what they want directly, in a
cost-effective manner and also in a lesser amount of time, Dell is highly
dependent on the continuity of supply and its suppliers for the purpose of
bringing in the inventory at the right time and within the given amount of
time (Fred Andrews, 2000). Thus, the demand of the customers has to be
monitored accurately and should be communicated properly to the
suppliers so that the required amount of inventory can be brought in (Fred
Andrews, 2000).

Just –In-Time Inventory System

Dell has built such an efficient Supply Chain Management System through
the use of i2 solutions. The suppliers are upgraded after every two hours
based on the requirements that the customers specify (Kapuscinski,
Zhang, Carbonneau & Moore, 2004). Dell runs the programs for Business
Process Improvement (BPI) in its supply chain. Thus, the Dell’s staff thinks
in requisites of the problem and its actual cause (Alan Johnson, 2006).
Through a proper understanding, the enhancements are made in the
supply chain management of Dell.

Dell keeps inventory for just 5 days having a yearly 76 inventory turns
which is a major reason of its efficient supply chain. Dell has a number of
suppliers of it near its factories only so that the timely supplies can be
received as Dell gives its suppliers a very less amount of time to bring in
the inventory (Alan Johnson, 2006).

Serialization
Most businesses that manufacture products put a serial number on the
products at the end of the processes but in the Supply Chain of Dell, it
assigns the serial number in the beginning and through the serial number
it tracks the serialized parts in machine from the beginning to the end of
the manufacturing process (Alan Johnson, 2006).

In this way Dell traces every part from the beginning till the end and
enhances the quality of the supply chain processes by providing the
customer exactly what he wants through the tracking of the parts from
the suppliers to the customers (Alan Johnson, 2006).

6. Critical Evaluation of the Dell Global Supply Chain

Although the supply chain of Dell is very efficient and has adopted
procedures and processes that continuously work towards the further
improvements and enhancements in the supply chain and its management,
but still it is not just faultless and it is not the case that that everything is
just perfect at Dell Global Supply Chain. There do still are present
inefficiencies as well at the Dell Supply Chain and it is also subject to
certain constraints and restrictions without which it cannot survive.

The Just-In-Time Method –Not Perfect

Although there are a lot of advantages of using the just-in-time method as
mentioned earlier, but this technique also comes with certain limits on
the supply chain of Dell. What actually the industry though when Dell
adopted this technique was that (Bill Breen, 2004):

“Will Dell be able to mange without warehouses filled with the required
inventory?”

The entire industry was of the opinion that Dell would be left over with
nothing to sell in some days and will not be able to meet the customers’
demands and will result in loosing the market share from the industry. But
Dell proved itself as an emerging and efficient manager of the supply
chains and through a prime focus on direct delivery and continuous
supply, it was able to become an example for the entire global industry.

But what if some natural catastrophe occurs? Will Dell be able to manage
its so well-known ‘Just-in-time Inventory method’? Will it be able to then
run successfully its ‘direct model approach’ then? Thus, the drawback of
such an approach that Dell follows is that it then has to respond most
quickly to such hazards than any other business and any kind of any delay
is even not accepted by the industry in which Dell operates. Dell therefore
need to plan in advance, else its success is critical. Dell is thus surviving
at the edge of success and failure.

Direct Model –Elimination of Inventory

For connecting directly to customers, the initiative take by the Dell
Corporation is appreciable and is a positive aspect of the organization.
Although such a step is very critical and can result in either success or the
failure of the entire organization, but still it proved its innovative
capacities through the successful initiative of the system. For this purpose
the supply chain of the Dell Corporation was completely transformed
which was again a challenge.

Although very efficiently managed, this step requires Dell to speed up its
all supply chain operations. This is again very critical to any business
because once the processes are speeded up, it requires second to second
monitoring in order to get each and every process on the right track and
deliver the customers exactly what they want. Dell thus needs to keep the
customers updated as well in order to have mastery in its operations.

Dell believes that inventory should be kept minimal. This is probably

because inventory is like a fish. The more period of time it is kept before
it is cooked, the more rotten it gets and at the end what happens is that
such a fish is not left in a condition that it can be cooked or eaten.
Therefore, keeping the inventory levels low is although a good decision
due to the changing technology as well but then again when there is no
inventory, the conditions can again be not handled that much efficiently
in very urgency situations.

Regular and accurate forecast of the demand also becomes crucially

important. If now Dell fails to forecast demand accurately, not only it
supply chain but all of its processes can collapse within hours. So what
Dell is doing is highly risky and instantaneous counteractive action is
required else it can lead to great losses just due to the lack of proper
monitoring.

Financial Evaluation
In the supply chain management of Dell, inventory lowering has also
resulted in positive financial impacts. Dell has a practice of receiving
payment first from its customers through their credit cards which they
enter when they make an order, although the suppliers are paid a month
or so after the delivery of the products to the customers. Thus, it takes
the payments from its suppliers first and then pays late after the
receivable of the payments.

This practice of Dell Supply Chains is although very efficient for Dell itself
but not beneficial for the suppliers. Therefore, there is a probability that
the suppliers stop supplying to Dell due to the fact that Dell is making its
suppliers bear the costs of Dell’s operations and processes. This fact is
although positive for Dell but entirely negative for the suppliers with
whom Dell is doing business with.

Supplier’s Need to Hold Inventory

Dell Supply Chains keep minimal inventory and for that purpose it requires
that it gets inventory just when it needs the inventory. For this, the
suppliers who supply Dell the inventory should hold inventory so that
whenever Dell requires inventory and asks fro it, they have in stock what
is needed by the suppliers. The suppliers thus cannot work on the
principle of just-in-time approach and cannot make their supply chains
efficient through keeping minimal inventories.

This need for the suppliers to hold inventory for Dell leads to the fact that
if the suppliers once realize that they can do better by forecasting
demands and keeping inventories to minimal, they will stop supplying to
Dell because every organization seeks for improvements and strive fro
increasing its profits in the long run which is not possible for them with
holding inventories for such long times.

Thus, although Dell’s supply chain is gaining advantages through the

holding of inventory by its suppliers but the suppliers are just been taken
for granted. What is critical right now for Dell is that it should reengineer
its processes so that it can build up good buyer-supplier relationships.
Otherwise, in the long term, the success of Dell Supply Chain is at stake.

Supplier Relations
The critical evaluation of the Dell’s Supply Chain greatly involves
analyzing the supplier relationships Dell Supply Chain has maintained
throughout its road to success. Although Dell gets its supplies on time
from its suppliers but it is not definite that it keeps getting supplies in
time from the suppliers after the relationships that it has with its
suppliers.

What Dell’s relationships are with its suppliers is based on the fact that
Dell gives no flexibility to its suppliers in order to delay even by a second.
They say that if a particular supplier is unable to supply, they can easily
switch to the other and is least concerned about its supplier’s
performance. They want that their supplier update and enhance
themselves continually in terms of quality, technology and demand.

Thus, although there is nothing as such mentioned about Dell having

‘worse’ supply chain relations but the attitude of Dell towards its
suppliers which is very cold is not a part of today’s buyer-supplier
relationships. In today’s competing world the tightly integration of supply
chains should be accompanied by good relations with the suppliers as well
without which the success of any organization is critical.

Demand and Supply Forecasts

The success of Dell’s supply chain is on the boom and it is making
customers through its build-to-order system but it is really amazing to
know that more than 80% of its customers are the large enterprises and
the government bodies whereas less than 20% are the consumers who
build their systems on the internet and order (Karthik Mani, 2005).

Accurate supply is critical to Dell Supply Chain but it is not necessary that
the systems do the right thing every time. Dell do faces the problem of
making wrong demand forecasts of it systems and sometimes even the
estimated market share is not accurate and is overestimated and even
sometimes Dell becomes over optimistic about its sales which results in
considerable losses as the increase in the volumes also result in
substantial amount of loss (SCDigest Editorial Staff, 2006).

6. Conclusion
For most of the organizations today, warehouses are a key to secure
business but Dell has replaced the warehouses full of useless inventories
with loads of information to its customers and suppliers. Dell’s Supply
Chain is a dynamic and an efficient one through which it has gained a
competitive advantage in the industry.

Dell has achieved the success through a transformation in its supply chain
including prime focus on quality, customer-satisfaction and velocity of the
supply chains resulting in a cost-reduction for the business. But still Dell
faces great challenges in future relating to its supply chain which still
possesses some inefficiency.

Dell is often wrong about the prediction of the demand-supply balance; it

becomes several times over optimistic about its sales and also its least
consideration for its suppliers and the attitude of forcing suppliers to
meet its expectations all the time can lead in the future fro the Dell
Supply Chain to result in great inefficiencies which can cost Dell a lot.

7. References

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