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Semester 1 2009
CASE STUDY; DELL INC.: IMPROVING THE FLEXIBILITY OF THE DESKTOP PC SUPPLY CHAIN
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Table of Contents
1.0 INTRODUCTION...............................................................................................3 2.0 FORECASTING ACCURACY..........................................................................3 3.0 SUPPLIER ISSUES (THIRD-PARTY INTEGRATORS)..................................6 4.0 QUALITY ISSUES............................................................................................8 5.0 RECOMMENDATIONS....................................................................................9 6.0 CONCLUSION................................................................................................10 7.0 REFERENCES (HARVARD STYLE).............................................................11
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1.0 INTRODUCTION
In the world of superior technology and computers today, Dell Inc. is one of the leading low cost computer manufacturers in this era and is still growing strong against their competitors. Dell is one manufacturing company that has a direct business model (supply chain) that has no intermediary involvement but starts and ends with their consumers. Dell also utilises on the unique integration of level 5 versus level 6 manufacturing process with more reliance on third party integrators. In this procedure, there are two different manufacturing processes of assembling components of a desktop PC and this may be an issue which needs to be looked into further. Though, Dells one key strategy and strength is basically having customer loyalty, the company manufactures to the preferred configuration of the customer demands which then is directly shipped to the customer, who generates a more reliable and satisfying customer experience. Dell could be the leading low cost computer manufacturers in the world but there are some problems that could evolve from inefficiency from their supply chain management. Through out this paper, it will be looking at the different issues of: Forecasting accuracy Supplier issues (third-party integrators) Quality issues
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The problem which arises at Dell is when the actual demand surpasses the forecast which Dell than needs to source extra supply or risk the possibility of not meeting customer demand. This problem occurs because the lead time for manufacturing, assembling, testing and delivering the product is on average 13 weeks, such a long lead time makes it difficult for the suppliers to provide the additional supplies in order to meet Dells demand schedule (Simchi- Levi et al., 2008, p.185). As stated above, forecasting accuracy is difficult due to the inter-related nature of data series (Fildes et al., 2008). Thus, the high demand forecast error has a detrimental impact on supply chain performance, resulting in lost sales, obsolete inventory, and inefficient utilisation of resources (Simchi-Levi et al., 2008). The forecasting accuracy problem which potentially happens at Dell is the cause of lead-times that is generated between Dell and the suppliers. Lead-time is made up of time devoted to processing orders, to procuring and manufacturing items, and to transporting items between various stages of the supply chain (Simchi-Levi et al., 2008). The longer the lead-time, the excess inventory inherently presents a great deal of waste, not to mention quality issues (spoilage), storage requirements, investment of funds, limiting cash flow and among others (Ritzman & King, 1993). Stalks (1988) noted as lead-time lengthens, the accuracy of sales forecasts declines this than incurs forecasting errors, inventories expands and the need for safety stocks increases. Karmarkar (1987) noted other potential issues which may happen with longer lead-times in an organisation; Long lead-times lead directly to proportionally larger work-in-process (WIP) inventories. Long lead-times force final schedules to be frozen over long horizons, thus increasing the chance of schedule changes (forecasts).
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Finally the competitiveness of the firm can be eroded by the poor responsiveness and distant due dates engendered by long lead times.
As annotated above with the potential issue occurring at Dell, it must be addressed immediately or suffer loss of competitive advantage against the competitors, time-wastage and profit loss if it becomes a bigger problem. To improve this problem at Dell, there is a few ways to minimise this from happening. According to Jain (2004), its not humanly possible to have forecasts free from errors but to only minimise the forecast errors. The recommendations for Dell to decrease the forecasting errors within the organisation is to aggregate the forecast. Aggregate forecasting is an estimate of sales, often time phased, for a grouping of products or product families produced by a facility or firm (Wacker, et al., 2006). Huntress (2004/2005) stated that aggregate forecasts tend to be more accurate than detailed forecasts. Also, aggregate forecasting drives effective decision-making, as well as operational plans. Whilst, reducing the long lead-times at Dell is by having the strategy to have shorter lead-times and better communication with suppliers. Research has shown that the lead-time reduction strategy is not merely to cut the amount of total lead time but to increase the speed of throughput (Tersine et al., 1995). Also, Tersine et al. (1995) stated that organisations producing products in a make-to-order environment begin with material procurement, have the opportunity to reduce lead-time by the reduction of procurement lead times. Some of these strategic responses to reduce the lead-time are implementing just-in-time (JIT) and purchasing programs. Overall, forecasting accuracy is difficult; it can be reduced to aggregate forecasting but cannot be eliminated.
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Moreover, unexpected problems such as lack of flexibility and new challenges would transpire when dealing with reliable satisfactory and timely approach in this kind of mutual partnership. Conversely, Ndubsi et al. (2005) have found that the manufacturing flexibility is affected by the upstream and downstream uncertainties. This is where upstream doubts are failures for suppliers on delivery and performance, machine breakdown, rejects, inconsistent task times, and downstream doubts are due to demand instability and changes in product mix, price and competition engagement. To overcome these related issues, the importance scheme is cutting down the suppliers would be a vital impact to the organisation. When considering the on time deliver issue and uninterrupted supply inconvenience, third-party logistics meet the diverse issues in order to source the goods and services to the manufacturer. High transportation costs and long transit times would involved when the contracts are being moved into China for lower product prices and labour costs (House and Stank, 2001). It would affect the critical bioregional operation for Dell to synchronise all areas of the supply chain system. In addition, issues recounting the essential economic efficiency where, size and mix of the transportation would fleet with different capacity of vehicles that would face comparative cost of fuel consumption, utilisation of maintenance and depreciation, capital cost and a range of wages defiantly (Feame & Fowler, 2006). Also, this issue has been highlighted at Dell, level 6 (L6) chassis manufactures in Mexico who are retaining a difficulty of transportation and unfavourable customer infrastructure in relation to providing equipments as well. On the other hand, Choy et al. (2007) noted that the most crucial decisions manipulate by cost of raw materials in the transportation optimisation process. Furthermore, Mexicos poor infrastructure and lack of efficient transportation also make company to avoid choosing the contract manufacture in Mexico (SimchiLevi et al., 2008). In contrast, many suppliers involvement is stepping towards the
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risk side than the controlled manner. This mean it would significantly affect the firms profits inadequately and inexistence to attain desired products in the long run development. Generally, number of suppliers needed to ease because many firms and most of purchased material requirements are being assigned to a single source due to fewer suppliers in contact for orders given on short notice (Chen & Paulraj, 2004).The optimistic relationship between the primary suppliers and manufacturer leads to numerous benefits in the process. Ultimately, the issues would be assessed from these stated implications to minimise and overcome the obstructions of the supplier issues and also create a valuable and effective supply chain in the long run process for Dell.
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sharing information with contract manufacturer can help to solve quality problems by introducing quality professionals from the traditional engineering and science fields need to continue contributing to the advancement of quality engineering (Hassan et al., 2000). It would be a successful approach which will result in producing standard quality motherboards in the long run without any failures.
5.0 RECOMMENDATIONS
FORECASTING ACCURACY To decrease the forecasting errors within the organization, aggregate forecasting is a resolution. Huntress (2004/2005) stated that aggregate forecasts tend to be more accurate than detailed forecasts. Also, aggregate forecasting drives effective decision-making, as well as operational plans. Research has shown that the lead-time reduction strategy is not merely to cut the amount of total lead time but to increase the speed of throughput (Tersine et al., 1995). Some of these strategic responses to reduce the lead-time are implementing just-in-time (JIT) and purchasing programs. SUPPLIER ISSUES Cooperation is a key element in the third party involvement, which links with strong and effective communication system to keep the least service providers and to build a good relationship. Cooperation and teamwork is essential not only between a company and a provider but also across providers and suppliers (Smith, 2008). Furthermore, Sridharan & Canies (2005) state that the planning procedures should precisely consider the cooperation element which can be expected from the suppliers to increase effectiveness of the supply chain management of the organisations. Moreover, Chen & Paularaj (2004) stated that for a decision in the long run, few elements needed to considered, such as reduced management costs, minimized
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logistical costs, enhanced trust by reason of communication and improved performance. QUALITY ISSUES If contract manufacturer capabilities and supply chain requirements become mismatched, gaps will appear between quality and requirements (Noonan & Wallace 2004). Inclusively, Dell needs to develop an effective plan regarding functionality, quality or delivery with considering the capacity of manufacturer.
6.0 CONCLUSION
Dell Inc. could be the leading low cost computer manufacturers in the world but there are always some problems that could evolve from inefficiency from their supply chain management. Based on the literature shown throughout the report, research shows the potential problems at Dell can be resolved in a number of different approaches. If these problems arent embarked early, Dell may be at risk of a fall of competitive advantage, a loss of profit, and a diminish in customer satisfaction with the products.
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Stalk, G. (1988), Time The Next Source of Competitive Advantage, Harvard Business Review Article, (n.d), pp. 42-52. Tersine, R. J., & Hummingbird, E. A. (1995), Lead-Time Reduction: The Search for Competitive Advantage, International Journal of Operations & Production Management, vol. 15 no. 2, pp. 8-18. Ting, S., & Cho, D. I. (2008), An Integrated Approach for Supplier Selection and Purchasing Decisions, Supply Chain Management: An International Journal, vol. 13 no. 2, pp.116-127. Togar, M., Simatupang, T. M., Wright, A. C., & Sridharan, R. (2002), The Knowledge of Coordination for Supply Chain Integration, Business Process Management Journal, vol. 8 no. 3, pp. 289-308. Wacker, J. G., & Sheu, C. (2006), Effectiveness of Manufacturing Planning and Control-Systems on Manufacturing Competitiveness: Evidence from Global Manufacturing Data, International Journal of Production Research, vol. 44, no. 5, pp. 1015-1036.
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