Dell’s Supply Chain

Supply Chain Management

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 WHAT IS SUPPLY CHAIN
• Supply chain is the system by which
organizations source, make and deliver their
products or services according to market
demand.
• Supply chain management operations and
decisions are ultimately triggered by demand
signals at the ultimate consumer level.
• Supply chain as defined by experienced
practitioners extends from suppliers’ suppliers
to customers’ customers.
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• SUPPLY CHAIN INCLUDES :

– MATERIAL FLOWS

– INFORMATION FLOWS

– FINANCIAL FLOWS

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• SUPPLY CHAIN MANAGEMENT IS
FACILITATED BY :
– PROCESSES

– STRUCTURE

– TECHNOLOGY

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• Supply chain serves two functions:

– Physical

– Market mediation

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• Supply chain objectives may differ from
situation to situation.
• For functional products, cost efficiency is the
critical factor.
• For innovative products, responsiveness is the
important factor.

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 North Carolina Manufacturing

First customer shipment September 19, 2005

Total economic impact over 5 years estimated at $3.5B to $4.0B*

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 DELL’S

• 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

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 Dell’s Supply Chain

• History
 Introduced the 316LT, the company’s 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

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 Dell supply chain management (SCM)
database
• The Dell supply chain management (SCM)
database systems handle key business
functions that support worldwide
manufacturing operations, including the
efficient Dell inventory management model
and fast, direct delivery of computers,
accessories, parts, and supplies.

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• Cost
It runs mostly in batch mode to calculate the costs to
Dell for all BOMs.
These batch jobs run weekly, monthly, and quarterly,
with each job aggregating total material costs.
• Inventory
The inventory component manages more than 3
million inventory movements daily from stock rooms
to factory floors across all Dell sites, along with the
corresponding 3 million messages transmitted to
different systems for reporting, analysis and factory
scheduling

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• Accounts payable
• It handles approximately 15,000 items per
day, including payments to Dell suppliers,
invoices, and receipts.

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• In the North America region, the Oracle
Database application for SCM consists of
approximately 3,000 database objects
(functions, packages, procedures, tables and
views).
• This SCM system is supported by six Power
Edge 2650 application servers, five internally
developed Web-based applications, more than
50 system-to-system integrations,
approximately 125 batch jobs, and
approximately 500 user interfaces.
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 Dell’s Supply Chain
Direct Relationship

Single Point of Build to Low Cost Standard

Accountabilit order Dealer
y
Based
Technology

DIRECT MODEL

Highest Quality & Customized Superior Products &

Relevant Systems Tailored Service Service are
Technology & Report easy to Buy &
Use
Customer Relationship

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Supporting Dell’s competitive advantage
through a new operational model
• 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 Worldwide
Europe, Middle East and Africa
•  Austria • Ireland • Russia
•  Belgium • Italy • Saudi Arabia
•  Czech Republic •  Luxembourg  • Slovakia
•  Denmark • Morocco •  South Africa
•  Finland •  Netherlands •  Spain
•  France • Norway •  Sweden
Americas   •  Germany •  Poland •  Switzerland Asia Pacific
•  Argentina •  Greece •  Portugal •  United Arab Emirates •  Australia
•  Brazil      •  Romania • United Kingdom •  China
•  Canada    •  Hong Kong
•  Chile •  India
•  Colombia •  Indonesia
•  El Salvador •  Japan
•  Mexico •  Korea
•  Panama •  Malaysia
•  Puerto Rico •  New Zealand
• United States • Philippines
•  Singapore
•  Taiwan
•  Thailand

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 Dell’s Product Portfolio
Dimension OptiPlex

Client Portfolio Enterprise Portfolio

Precision PowerEdge Servers
PowerVault &
Precision Dell|EMC Storage

Latitude
Inspiron

Printers
Software & PowerConnect Switches
Peripherals

Storage & Networking

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Dell’s Supply Chain
• How has Dell used its direct sales and build-to-
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 ANALYSE

Exceptional
of customer and Excellent
information Supply Chain

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 Dell’s Supply 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.

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Dell’s Supply 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

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Dell’s Supply 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.

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 Dell’s Supply 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

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 Dell’s Supply 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 Dell’s 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.

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 Dell’s Supply 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

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Dell’s Supply 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 Dell increase its performance.

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 Dell’s Supply Chain

• What is the main disadvantage of Dell selling PCs

over the Internet?

– High Shipping Costs

• Economies of Scale

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 Dell’s Supply Chain
• Dell company can’t 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%.

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 Dell’s Supply Chain
• How does Dell’s supply chain deal with the bullwhip
effect? (Continued)

– Materials costs account for about 74% of Dell’s revenues

– Around $21 Billion is spent on material every year

– 0.1% Decrease in Material Costs

Making Supply Chain Management very critical for Dell

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 Dell at a Glance
Net Revenue (in billions) Worldwide Share of PC Shipments
$55.9
$49.2 18.2%
17.8%
$41.4

16.7%

FY04 FY05 FY06 2003 2004 2005

Global Headcount (in thousands)

Global Square Feet (in millions)
14.8 65.2
55.2
11.3 11.7
46.0

FY04 FY05 FY06 FY04 FY05 FY06

8.6M in the US

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 Supply Chain Management
Advantaged: Simple, Focused, Efficient

Cycle Time
• 3 days of inventory 1 – 7 Days
• Inventory turns of 122 per year
Customer

Dell Factory
Cycle Time
Cycle Time 6–8
1-30 Days
HUBs Hours

Dell Factory
Cycle Time
6–8
Hours
Suppliers Local
Suppliers

Dell’s supply chain symphony – one of the wonders of the flat world

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 Dell’s Supply 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

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 Dell’s Supply 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/jun-
07/dell-supply-chain.html
– www.isye.gatech.edu/~jvandeva/Classes/6203/BullWhip.ppt

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 THANK YOU

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