Dell Supply Chain

Overview

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Michael Dell:
Founder’s milestones:

1965 Born on Feb 23,

1983 Starts rebuilding PCs,
1984 Drops out of college,
1985 At 20, his company reaches 34 million,
1995 Becomes the youngest CEO ever
to make the fortune 500,
1997 At 32 he has over 4 Billion in Dell’s stocks

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 Expanding the operations frontier:
Dell’s “revolution” in the PC
 market
Dell’s competitive advantage: Provide customized PC
configurations, with short delivery times and affordable prices.
 Dell’s success in PC market:

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 Current DELL Supply Chain
Challenges -PRODUCT
Product Scope
COMPLEXITY
1998
22 Product
2004
175 Product
Families
Families
Desktop Dimension
Optiplex Desktop Dimension
Optiplex
Portables Inspiron
Latitude
Portables Inspiron Workstation Precision
Latitude
Servers/ Powervault Dell/EMC
Storage Poweredge

Workstation Precision
Networking Powerconnect

Displays Projector TVs

Flat Panel
Servers/ Powervault Printers Inkjet Laser
Storage Poweredge
Electronics PDA (Axim) MP3 (Dell DJ)
Musicmatch

Services Professional Deployment

Managed Support/Training
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5
Evolution to a faster model
1 Industry Model:

Distribution
Supplier Plant Customers
Channels

2 Dell’s direct model:

Supplier Plant Customers

3 Virtual Integration

Supplier Plant Customers

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 Direct Model

Suppliers Customers

• Product Quality
• Continuity of Supply • Best Customer Experience
• Price for
• E-business • Low Cost Efficiency & Performance
Collaboration Highest Quality
• Customization
• Technology Leaders • Partnering/Virtual
Integration • Reliability, Service
• Low-cost and Support
Manufacturers
• Latest Technology
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 DELL SUPPLY SYSTEM

Dell’s
Hard Drive Orders
Factory
Supplier
(Texas)

UPS Customer

Sony
Monitors
Factory
(Mexico)

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 MAKE IT FAST ….

 Inventory Velocity is tracked closely

 Real time information on demand

 Communicate replenishment needs
regularly, to some suppliers hourly
 Fine - tune the sales forecast with major
customers, individually.

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10
 Quickly Make Product after Sale = Cost Advantage

Mfr Buys
Components
Mfr Assembles
Product Distributor Gets
Cost of Components

Cost to Product from

Competitors Mfr
VAR Gets
Product from
Distributor Customer Places
Mfr Inventory Order

Dell Procures
Components,
Channel Assembles, &
Inventory Ships
Dell Cost

8 Weeks 6 Weeks 4 Weeks 3 Weeks Today

Ago Ago Ago Ago
Time
Consistent
Customer Immediate Response Lowest
Supply
Benefits Globally
to Customer Needs Cost Consistently

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 Dell Vendor Managed
Inventory Approach
VMI (supplier owns until title transfers) Title
Transfer
Embedded Costs Explicit Costs
Materi Factory /
Supplier
al Merge
Manufactur
Transf Center
ing (SLC) er
Warehouse

GCM and Supplier Negotiate Total Landed Cost by Embedded Cost Bucket.
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Dell Supply Chain Model
Global \ regional Demand/ supply
procurement management Demand management
Orders
Orders
Continuity of supply
___
___
___
___ Sales

Build to customer specifications

Supplier

SLC Dell Customer

I I
Supplier

5-10 days 1 - 5 days

Materials ordering cycle – 10-180+ days

1) No system is ever built without a 4) SCM coordinates information, materials,

specific customer order and logistics to support customer requirements
5) Supply constraints are continuously
2) Systems are custom built in ~8 hours
communicated to sales and managed @ POS
and shipped to customers
6) Focus on continuity of supply and direct vendor
3) Material is pulled & delivered from “SLC”
relationships ensure material availability
to the factory every two hours

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Heart of Dell Operations = a
mixed model
“push” “pull”
Buy-to-Plan Build-to-Order
Every Week Multiple times a day in each mfg center
Material requested to build
customer orders

Customers
Suppliers

Dell
SLC
Manufacturing

All material is tied to a

customer order – nothing
gets built without an order.
1) Dell facilities act as Manufacturing Centers, not Warehouses – only inventory needed for few hours of orders is on site
2) Provides direct signal of Dell customer demand for suppliers
3) Dell’s performance to customer orders is directly linked to our suppliers’ level of support
4) Absolute synchronization between manufacturing and sales keeps the process balanced.

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PC SUPPLY CHAINS

Customer Customer
PULL

Virtual Integration
Distribution
Channels
PULL
Dell
PUSH
Manufacturer

Suppliers
PUSH
Suppliers

Typical PC Supply Chain Dell Supply Chain

(Compaq, HP, IBM, etc.)
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The CSF’s underlying Dell’s
competitive advantage
 Very high product (configurable) variety – mass
customization!
 Direct fulfillment - no intermediaries
 No production launch until customer order booked (pure pull!)
 Very low finished goods inventory (costs) – high inventory
turns (raw material inventory influenced by “recommended
configurations”)
 High velocity material flows & fulfillment

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 Emerging factors and trends
enabling Dell’s strategy
 The commoditization of the PC industry
 Standardized and interchangeable components

 Emergence of reliable manufacturing service providers

 Recent advances in Supply Chain Management

 Information Technology (IT) platforms that allow the effective and

efficient information exchange and coordination across the entire

supply chain
 3rd party logistics service providers

 Emerging emphasis on virtual rather than vertical company

integration

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 KEYS TO SUCCESS

1. Virtual Integration (Flexibility)

2. Change the focus from how much

inventory there is, to how fast it’s
moving.(Responsiveness)

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 VIRTUAL INTEGRATION

a Useof technology to enable coordination

across boundaries to achieve new levels of
productivity
b Partners
are treated as if they’re inside the
company
c Focus on creating value for their customers.

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 SPEED TO MARKET

 If Intel comes up with a 500 Mhtz MMX

processor in Oct-1, Dell would deliver it to you
69 days sooner:

Dell = Oct-11

Industry Avg.. = Dec-20

11 Days 69 Days
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Supporting Dell’s competitive
advantage through a new
operational
Focused on strategicmodel
partnerships: suppliers down from 200 to 47
 Suppliers maintain nearby ship points; delivery time 15 minutes to 1
hour
 Suppliers own inventory until used in production
 Demand pull throughout value chain – “information for inventory”
substitution
 Demand forecasting is critical – changes are shared immediately
within Dell and with supply base
 Customers frequently steered to “recommended configurations” with
high availability to balance supply and demand
 External logistics supplier used to manage inbound supply chain

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Dell performance

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 Dell Computers
 Logistics strategy plays an important role in Dell Computer’s
impressive financial performance.
 Dell’s direct distribution eliminates as much as 2 months of
warehouse and retail storage.
 Component prices fall while on the shelves at 30% per year.
 The consequences of logistics delays are overpriced products and
possible obsolescence.
 Direct sales also helps Dell in forecasting.

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THANK YOU

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