Dells Value Chain

Supply Chain Management

Dells Value Chain

History

Founded by Michael Dell in 1984 The single concept: Selling computer systems directly to customers Designed and built the first computer system of its own design in 1985 Was one of the first computer companies to send a technician to homes to service personal computers in 1985

Dells Value Chain

History

Introduced the 316LT, the companys first notebook computer in 1989 Joined the top-five computer system makers worldwide in 1993 Earning appr. $1 million per day 7 months after the launch of dell.com in 1996 Introduced E-Support, an online tool to provide technical support to customers in 1999

Dells Value Chain

History

For the first time, Dell achieves No. 1 ranking in global market share in 2001

Dells Value Chain

Dells Value Chain

How has Dell used its direct sales and buildto-order model to develop an exceptional supply chain?
Close relationship with customers and suppliers

First-hand and pure customer feedback

High volumes of customer information
Huge amount of customer information ANALYSE

Exceptional and Excellent Supply Chain

Dells Value Chain

These relationships with customers and suppliers allow us to know what we must be able to supply in real time and then very quickly and precisely meet that demand while maintaining low inventory. says Dave Schneider, continuous improvement engineering manager of Dell.

Dells Value Chain

How has Dell exploited the advantage of the Internet to improve performance?

Dell established a unique e-commerce model by embracing the Internet in its supply chain.

Dell brings products to market faster than its competitors Customization and quick response

Attract large business customers

Reduce Bullwhip Effect Collecting the payments

Dells Value Chain

Dell brings products to market faster than its competitors

Dell uses direct sales via Internet, whereas Traditional PC manufacturers previously assemble PCs ready for purchase at retail stores.

PCs have life cycles of only a few months

Thus, Dell enjoys early-to-market advantage.

Dells Value Chain

Customization and quick response

Dell uses the Internet to sell its products offers a virtually unlimited variety of PC configurations.
Buyers can click through Dell and assemble a computer system piece by piece, based on their budgets and needs

Dells Value Chain

Attract large business customers

To facilitate B2B sales, the Dell site offers each corporate customer an individualized interface called Premier page

purchasing managers log on and order using an interface customized for their company's needs

While Dells consumer sales are highly visible, its business sales are a much bigger revenue source

About 15 percent of our total revenue is consumer business and the rest is B2B says Bob Kaufman, Media Relations manager of Dell.

Dells Value Chain

Reduce Bullwhip Effect

Dell constracts special Web pages for suppliers, allowing them to view orders for components they produce. This allows suppliers to plan based on customer demand

Dells Value Chain

Collecting the payments

Because of direct sales, Dell can collect payments in averagely 5 days after they are sold. However, Dell continues to pay their suppliers according to the traditional billing schedules.

Low level of inventory and negative working capital helps Dell increase its performance.

Dells Value Chain

What is the main disadvantage of Dell selling PCs over the Internet?

High Shipping Costs

Economies of Scale

Dells Value Chain

Dell company cant enjoy EoS (Economies of Scale) in shipping because it sends individual PCs to customers from its factories. Competitors

sell through distributors and middlemen ship their products with EoS using large truck shipments to warehouses and retailers

The transportation cost of a PC relative to its price is generally between 2-3%.

Dells Value Chain

How does Dell compete with a retailer who already has a stock? (Continued)

Advantages of Direct Sales system over Brick and Mortar system

Price Advantage

Differentiation advantage

Dells Value Chain

How does Dell compete with a retailer who already has a stock? (Continued) Price Advantage of Dell

Increase in Dells profit margin

Elimination of retailer and distributer margins

Decrease in Inventory Costs

5 days inventory vs. 30-45-90 days inventory Decrease in costs of materials

Negative Working Capital

Suppliers financing Dells growth

Better Forecasts due to better sales information/feedback

Cheaper Prices

Dells Value Chain

How does Dell compete with a retailer who already has a stock? (Continued)
Differentiation Advantage of Dell

Feedbacks and Evaluation

Dells Value Chain

How does Dells supply chain deal with the bullwhip effect? (Continued)

Bullwhip Effect

The phenomenon in which order variability is amplified as it moves up the supply chain from end-consumers through distribution and manufacturing to raw material suppliers.

Supply Chain Management

Dells Value Chain

How does Dells supply chain deal with the bullwhip effect? (Continued)

Materials costs account for about 74% of Dells revenues Around $21 Billion is spent on material every year 0.1% Decrease in Material Costs

Making Supply Chain Management very critical for Dell

Dells Value Chain

How does Dells supply chain deal with the bullwhip effect? (Continued)

Sharing Data with suppliers

Flexibility

Investment Privileged Suppliers Long time relationship with suppliers

Helping suppliers become more like Dell

Dells Value Chain

Conclusion

Mission
High Customization (Mostly based mission on High Customization) Fast Response Lowest Cost (Highest Value) Fast response and cost considerations are not as high as customization considerations.

Benefits

Early to Market Payment Advantage Customization Option

Expert Supply Chain Management

Dells Value Chain

References

http://corp.bankofamerica.com/public http://courses.washington.edu/smartman/DellStumble.htm http://www.ecommerce-guide.com/news/news/article.php/2013731 http://www.oracle.com/newsletters/information-indepth/lean-supply-chain/jun07/dell-supply-chain.html www.isye.gatech.edu/~jvandeva/Classes/6203/BullWhip.ppt

Dells Value Chain

THANK YOU

Dells Value Chain

Supply Chain Management

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