Supply Chain Management Dell Direct

B-22 Sohil GhoghariB-51 Parth RajyaguruB-53 Dipak SavaliyaA-24 Vishnu Vijayan

The beginning • Started by Michael Dell in a university dormitory room at Texas in 1984.• Initial investment was only $1000.• Company headquartered in round Rock, Texas, USA.• Grew from nothing to US$6 million in 1985.• Introduced support system such as 24 hr. hotline, guaranteed shipment of

replacement parts.• Preferred by technology literate customers due to its efficient low cost operations

as they are looking for quality at a reasonable price.• First PC company to offer next day, on site service.

Contd…

• In the year 2001 Dell became No. 1 computer systems company in the world.

• Dell’s revenue was around US$ 63.07 billion in 2012.• MICROSOFT for Windows, INTEL for Micro processors, NVIDIA for

Graphic chips and SONY for Monitors are the main suppliers for Dell.

• At present Dell is 3rd largest PC vendor in the world.

Product Line• Desktop Computers

• Notebook Computers

• Network Servers

• Workstations

• Storage Products

• Total 1.6 million possible product configurations for all its product lines.

Supply Chain Chart

Customer places an Order

(By phone or through the Internet on www.dell.com)

Dell processes the order

Financial evaluation

(credit checking)

Configuration evaluations

(checking the feasibility of a specific technical configuration)

Sends the order to assembly

plant (any one in Austin, or any other)

Plants build, test & package

the product (about eight hours)

Dell typically ship all orders

(no later than five days after receipt)

2-3 days

SUPPLIERS

CUSTOMERS

The DELL formula of successA successful combination of

• DIRECT SALES • INVENTORY MANAGEMENT

Maximum effectiveness and Minimum cost

Elements of Strategy • Partnership with Suppliers.• Just in time components inventories. • Mass customizations (Each and every order according to

customers requirement).• Market Segmentation.……..

• Customer Service.• Data sharing with Suppliers and Customers.

DELL’s Direct Sales

DELL- DIRECT SELLING• Dell had no in-house stock of finished goods inventories unlike

competitors using the traditional value chain model.

• PULL MECHANISM:- Dell does not have to wait for resellers to clear out their own inventories before it could push new models into the marketplace.

Traditional Supply chain model Vs. Dell Direct.

Component

Manuf.

PCManufact

urer

Distributor

/Reseller Order

Product Product

Forecast

Component

Components

MicroAge,CompuCom

Corporate

customer

Component manufactur

er

DELL CompCorp

Distributor

Final customer

Components

Order

Product

The DIRECT Model• Dell outsourced all components but preformed assembly.

• It eliminated retailers and shipped directly from its factory to end customer.

• It took customized orders for Software and Hardware over the phone or via the Internet.

• It designed Supply chain that links Dell’s suppliers very closely to its assembly factories.

Benefits of DIRECT Model• Channel cost come down to 2% of product revenue compared to

13.5 %- 15.5 % for Indirect sales.• High margin on sales as compared to other competitors.• Low or zero inventory cost due to adaption of Just in time model.• Customer get satisfaction of having their computers customized

exactly as per their requirement.• Took advantage of first mover by introducing new technology since

they are not maintaining any inventory.

Michael Dell remarked, “If I’ve got 11 days of inventory and my competitor has 80, and Intel comes out with a new 450-megahertz chip, that means I’m going to get to market 69 days sooner”

INVENTORY MANAGEMENT

• Dell believes in keeping Minimum Inventory • Follows Build-to-Order Model• Follows Just-in-Time inventory model.

Instruments of Inventory Management

• Build to Order Model• Supplier Logistics Centers• Value Chain Program

Build to Order Program• Dell first receives the order and the money and only then starts

to build, using the money to supply purchase components.

• While other companies had to guess, DELL knows exactly what its customers wanted before manufacturing the product.

• Others had to maintain the inventory in order to maintain their middleman such as distributor, resellers and retailers.

Supplier Logistics Centers

• Most of Dell’s suppliers keep components warehoused less than 20 minutes away from the Dell’s factories to compensate long lead times and buffer against demand variability.

• Each of the SLCs are owned and shared by several suppliers who pays the rent for this centers.

Contd…

SupplierManufacturing

Factory / Merge Center

Material Transfer

(SLC)Warehouse

• Dell does not own the inventory stocked in this centers, this inventory is owned by suppliers and charged to Dell indirectly through component pricing.

• Dell has a special Vendor Managed Inventory (VMI) arrangement with suppliers.

• Suppliers decides how much inventory to order and went to order while Dell sets target inventory levels and record suppliers deviations from target.

• Dell withdraws inventory from SLCs as needed. (every two hours)

• Dell uses weekly supplier scorecard to evaluate how much every supplier maintaining this target inventory in centers.

Value Chain Program• Dell developed an extranet called valuechain.dell.com with

customized supplier web pages to support its partnership with suppliers.

• This extranet allows suppliers to share real time information with Dell on their capacities, inventories, quality metrics and costs.

• Dell provides them information on customer demand, product quality and technical customer requirement.

• INTEL was the first supplier to come on board.

• By June, 2000 most of its suppliers became electronically linked to Dell.

Suppliers Selection and Evaluation Selection:• Quality• Price• Delivery• Response to Feedback

Evaluation:-• Cost• Delivery• Availability of Technology• Velocity of Inventory

Customer Service• Provides support services such as 24 hour hotline and

guaranteed shipment of replacement parts.

• Free Next-day, onsite service for a year. After sale.

• Contracted with local service providers to handle customer requests for repair, however Dell maintains accountability for customer services.

• Technical support via call, fax and e-mail.

Developing www.dell.com• In 1995, Dell started designing its Web storefront.

• Dell’s storefront at www.dell.com was launched in July, 1996

• By December 1996, total sales on the web reached $1 million a day.

• In May 2000, the company’s total online sales generated $40 Million in daily revenue which is about 50% of total sales.

• Dell also designed customized website premierdell.com premier for its corporate customers.

Benefits of Selling through Internet• Corporate and computer-literate customers that were willing to buy over

the phone were among the first to be ready to make purchase on the internet.

• Unlike its competitors Dell did not have an existing indirect channel that would feel threatened by direct internet sales.

• It increases Dell’s service efficiencies. Customer could use website to tracked order status from entry through manufacturing to shipping, it reduces burden of telephone executive.

• The internet enabled Dell to decrease the direct costs of configuration ordering, tracking and support for its transactional business by about 15%.

• Web browsers were about 50% more productive than Dell’s pure telephone based sales reps.

Rethinking about Direct Sales model

Limitations of direct sales model in emerging market.• Buying habit• No access to internet• Lack of online payment (Internet Banking, Credit card)

Arguments against Direct Sales Model

• Nowadays customers are willing to choose from a few standardized PC models.

• Inventory of standardized models moves fast.

• Demand is relatively high for each standardized model.

• PC become popular commodity, price has dropped significantly.

PC Market share-world wide (2006-2011)

Global PC Market Share by Units, Percent. 2006-2011.

Rank 2006  2007  2008  2009  2010  2011

1 Dell 15.9 HP 18.2 HP 18.4 HP 19.3 HP 17.9 HP 17.2

2 HP 15.9 Dell 14.3 Dell 14.3 Acer 13.0 Dell 12.9 Lenovo 13.0

3 Lenovo 7.0 Acer 8.9 Acer 11.1 Dell 12.2 Acer 12.0 Dell 12.1

4 Acer 5.8 Lenovo 7.4 Lenovo 7.2 Lenovo 8.1 Lenovo 9.7 Acer 11.2

5 Toshiba 3.8 Toshiba 4.0 Toshiba 4.5 Toshiba 5.1 Toshiba 5.4 ASUS 5.9

Other 51.6 47.1 44.5 42.3 42.1 40.7

Dell’s Hybrid Model

• In June 2007, Dell offered two PC models through Wal-Mart stores and sell Inspiron computers through Wal-Mart's Sam’s club outlets.

• In October 2007, Dell sold its PCs through, China’s largest electronics retailer Fifty Gomez Electrical appliances stores.

• Dell also extended its international retail strategy by opening its first retail store in Russia.

Direct sell Retail stores

Hybrid business

model

Thank You.