Analysis of a Supply Chain: Dell Computers
Analysis of a Supply Chain:
The report contains an analysis of the supply chain of Dell Computers using metrics to support an understanding of the performance of its supply network together with an understanding of emerging issues. The analysis shows that Dell has a simple and stable supply network because of its long-term fiduciary relationship with consumers and direct links with customers. The application of metrics in the three areas of order planning, supply link, assembly and delivery link shows that Dell has achieved a satisfactory supply chain. However, it still experiences the issues of uncertainty and risk since aspects of its supply chain rely on its partners and its understanding of customer demand. As such, the company needs to maintain and enhance its relationship with suppliers as well as continue to devise means of effectively keeping track of changes in demand.
The report analyses the supply chain of Dell Computers using metrics to support recommendations on the means of improving the supply chain process. Supply chain pertains to the processes and relationships arising from or involved in the creation and distribution of products and services. This involves the procurement of raw materials or supplies, conversion of these materials to finished products, and distribution of finished products to retailers and/or final consumers. (Ganeshan & Harrison 1995) Analysing the supply chain of Dell provides an understanding not only of the importance of supply chain management but also the issues requiring consideration. The report is limited only to the supply chain of Dell Computers, covering the major players in the process, using widely available secondary data. The report commences with a background of the company, followed by a discussion of the supply chain process and the players involved in the process, then an analysis of the supply chain using metrics, before providing an assessment and recommendations of the means of improving the supply chain.
Dell Computers operates via a build-to-order system at low prices (Thompson et al. 1997). Michael Dell’s vision in starting the company was to sell customised computers by becoming an assembler of computers using purchased parts from suppliers and selling these directly to consumers by removing the chain of retailers. This innovative strategy allowed the company to sell computers according to the specifications at a price less than its closest competitor IBM. In 2000, the company was gaining revenue amounting to fifty million per day to make Dell the leading seller of computers around the world in 2002. By 2005, Dell formed part of the Fortune 500 companies. At present, it remains a leading international retailer of computers. Concurrent with its fast growth, Dell also continued to update its system to support effective fulfilment of customer demand. Its core strategy is to develop long-term business relations with suppliers of quality products and sell these directly to consumers via its own channels of distribution. (Dell Computer Corporation 2007)
The supply chain of Dell Computers as shown below shows the parties involved and the relationship between or among the parties. Although the company started to Dell Computers receives computer components or parts from various suppliers. The company selects suppliers able to provide the company with quality components and products at low wholesale price. The different assembly plants in the United States, Ireland, Poland, Brazil, India, Malaysia and China order and receive parts or components from Dell’s supply partners. The ordering system depends on customer demand so that the parts ordered are the specifications required by customers. This ensures increased turnover of parts in the warehouse. At the assembly plants, orders from customers from the in-house sales team and outsourced sales team go to the assembly teams for fulfilment. The outsourcing of sales and customer service constitutes a recent augmentation of the supply chain of Dell Computers. After the assembly, testing and packaging of the computers ordered by consumers, transportation and shipping to consumers follows via its partner shipping companies. After sales services to customers go through the outsourcing company handling customer service and forwarded to the assembly plants for consideration.
The figure below, specifically describes the processes in the supply chain of Dell Computers. Dell’s supply chain aligns supply with the demand of consumers by taking the orders of customers through telephone and fax or its online website. By taking the specifications of customers, Dell is able to provide configurations and software that the customers demand. This means that after delivering the assembled computers, consumers can already use their computers. The in-house sales team or outsourced sales company receive calls and fax depending on the channel of communication preferred by customers. Regardless of the means of communication employed, Dell utilises the Internet and networking to link the in-house and outsourced sales teams with the assembly plants as well as to link the various assembly teams with warehouse and logistics.
Apart from the ability to link the different areas of operation through its supply chain to match its supply function with consumer demand, Dell is also able to establish long-term working relationships with its suppliers as well as establish links with consumers. Thus, the supply chain of Dell Computers allows the company to achieve efficiency in meeting the demands of its consumers as well as effective long-term relationships with suppliers enabling the company to maintain its level and system of production.
Although Dell Computers continue to become a top global seller of customised computers, it is important to assess the performance of the supply network to determine how effective it is in meeting the goals of the company together with the determination of issues arising from the supply chain. Metrics comprise a means of assessing the performance of the supply network of Dell Computers. The metrics employed pertain to four aspects of the supply chain, including order planning, sourcing, assembly and delivery.
Order planning refers to the system established by Dell Computers in receiving and processing orders from customers.
A metric used to assess order planning is the order entry method, which applies through the determination of the extent that customer specifications translate into data exchanged via the supply chain links for conversion into products (Mapes et al. 1997). Dell Computers utilises a networked system so that orders and specifications directly received or made through its website are placed on a standard order form and sent via Internet and/or network system to the assembly plants. Local orders are sent to the assembly plant in that country or region while international orders are assigned to the closest assembly plant to the customer. The process of ordering takes only a number of minutes depending on the mode for ordering. If the order was made via the Internet, then the specifications are received by the sales team and assigned to the assembly plant nearest to the customer with the transmission again taking only some minutes. If the order was through telephone directly or through the outsourced sales team, then this might take longer depending on the specifications of the customer. Orders are assigned to the assembly plant through the network system so that orders are processed in the same day these are made. On the average, Dell is able to process 1,400 orders per hour because of its networked system and order plan.
Another metric used to assess the effectiveness of order planning is order-lead time, which pertains to the period from the receipt of customer order to the delivery of the finished product to the customer (Mapes et al. 1997). Dell ensures delivery to the customer within 48 hours. This means that supply network of Dell is able to take orders and translate these into order data sent to the assembly plant in just a few minutes making fulfilment possible within 48 hours. This represents a reasonable period from the perspective of customers considering that the computer ordered is customised when compared to its competitors selling already assembled computers.
Overall, Dell is able to convert customer orders to final products efficiently since assembly plants receive orders in just a few minutes, assembles the computer in 2.5 seconds, and delivers the computer to the consumer within 48 hours. This means that Dell has a very high turnover in its warehouse, also because of just-in-time inventory.
Sourcing refers to the process and relationship with suppliers. The assessment of suppliers covers three measures pertaining to strategic, operational and tactical levels. Strategic level assessment covers lead-time of the firm as opposed to the industry norm, the level of quality, cost savings, and the pricing of suppliers as opposed to the market price (Gunasekaran, Patel & McGaughey 2001).
In terms of lead-time, Dell Computers is able to deliver orders to consumers within 48 hours, which is a reasonable time for customised computer products. The competitors of Dell sell pre-assembled computers in retail centres, so that these are already available for sale. However, when considering the aspect of customisation, then 48 hours is by far the fastest lead-time in the computer sales industry. The company can attribute its speedy delivery to its just-in-time inventory that works through reliable suppliers of computer parts. This means that the suppliers trusted by Dell Computers are able to deliver the components or parts needed by the assembly plants as these are needed so that parts are delivered to the warehouse for pull out in the assembly process in the same day.
With regard to quality, Dell Computers have built supply relationships with firms known for quality in the long-term. Dell selects brand names of computer processors, memory drives, speakers, multimedia components and software aligned with the quality of the Dell’s computers and establishes long-term partnerships with the companies supplying these brands. This means that Dell is able to build the quality of its computers by aligning with quality brands.
In terms of cost savings, Dell is able to cut back on cost in a number of ways. One, its just-in-time inventory system enables the company to minimise warehouse expenses and losses through unused components and parts. Another, the long-term partnership with suppliers ensures that the company is able to receive parts for wholesale price relative to the market price.
Tactical level assessment covers the extent of efficiency of the purchase order period, booking, quality assurance, and flexible capacity (Gunasekaran, Patel & McGaughey 2001).
Dell is able to rely on its supply partners to deliver its orders for components and parts. Depending on the proximity of the supplier to the assembly plant, the period of delivery is within hours to twenty-four hours. Although Dell assembles 1 computer every 2.5 seconds and delivery of parts occurs in twenty-four hours, the company practices trend evaluation to ensure that it is able to anticipate the components or parts required for continuous production.
In terms of quality assurance, the components and parts ordered by Dell are known quality brands made by companies exercising industry quality standards so that Dell is assured that the parts it assembles into a computer for its customers are of standard quality. Ordinarily, suppliers of parts and components such as Sony have a defect rate of 1,000 for every 1 million.
With regard to flexible capacity, Dell has been working with its suppliers for years so that these also anticipate potential changes in demand by looking at demand trends and the changes in the orders of Dell. This is made to ensure that the company is able to meet the orders from Dell for components as these are made.
Operational level assessment covers the daily schedules and processes intended to avoid complaints (Gunasekaran, Patel & McGaughey 2001).
Normally, Dell makes orders once or twice a day to its suppliers so that it is in constant contact with companies from which it sources its components and parts. This means that the company is also able to get updates from its suppliers regarding the availability of parts, especially in case of new components and highly demanded parts.
In terms of the avoidance of complaints, Dell’s close relationship with its suppliers ensures that it is able to directly air complaints to its suppliers in case of any defective parts or different components from the order made. In addition, it is standard procedure for the parts to be tested for functioning and quality before these are delivered to Dell and Dell personnel check the delivered components.
Overall, the supply network of Dell supports the relationships and processes to ensure that it is able to receive the parts it ordered from its suppliers in time and of standard quality. Its supply network developed close and direct relationship with suppliers similar to its customers that support the speed and alignment of processes and relationships with the goals of the company.
Assembly pertains to the utilisation and transformation of the components and parts into a finished product that meets demand. This is an important aspect of supply chain requiring assessment to support continuous improvement. A number of production level measures exist.
One measure is the range of products and services provided by the company. A wide product range affects the ability of the company to introduce new products in a slower manner when compared to a narrow product range that allows for an easier introduction of new products (Mapes et al. 1997). This means that the extent of product range affects the performance of the supply chain. In the case of Dell, it offers only one product, computers. However, it is the component and parts of the computers that vary. This means that Dell has a narrow product range allowing it to provide customised computers and update its components inventory whenever new parts come out. By focusing only on the assembly of computers, Dell has been able to develop a simple and stable supply network with an efficient assembly process.
Another measure is capacity utilisation, which refers to the extent of speed in responding to the demands of customers in terms of delivery, flexibility, and lead-time. This is important in determining the effectiveness of the supply chain in meeting customer demand by focusing on timely response. (Slack et al. 1995) In relation to Dell, its capacity is 1,400 per hour or one computer every 2.5 seconds. However, by increasing its personnel and optimising its resources, the company targets to reach a capacity of 3,000 per hour or one computer for every .83 seconds. In addition, it has an average turnover rate of 3 days with some parts replenished everyday that it is able to control via the inventory-tracking capabilities and market demand updates. Moreover, its lead time of 48 hours for delivery is already top speed when the assembly plant is in another country from where the customer lives together with the lesser time for delivery in case of local demand.
Last measure is scheduling techniques, which refer to the period within which activities should be undertaken (Little et al. 1995). Dell has a network or computerised scheduling system that collates all orders made by consumers classified into specifications, location, payment, and delivery period as well as the orders made with the suppliers. Personnel have access to the schedules so that they are able to prioritise and map out the process that needs to meet the activities contained in the schedule on time. Although, the ability to meet schedules depend on the rate of customer demand together with compliance by suppliers, Dell practices forecasting to ensure that it is able to anticipate changes in demand or delays in order delivery from suppliers that would affect its schedule.
Delivery link is a component of the supply chain with direct impact on customers because this pertains to customer satisfaction. The measures for delivery assessment include the frequency and errors or delivery errors, changes in the cost of delivery, queries posted by consumers, and post-sales transaction feedback. (Van Hoek et al. 2001) In the case of Dell, errors in delivery is less than 1 percent when considering the volume of computers delivered to the frequency of errors in delivery. The cost of delivery does not change radically but the changes are highly affected by shipping companies. Post transaction queries received by the in-house and outsourced teams of the company are mostly linked to usage rather than complaints about the computer purchased. As such, as added benefit to consumers, Dell has incorporated technical consultations by customers with customer service representatives of the company to facilitate the effective use by consumers of the computers they purchased.
An effective supply network is the key to business success, especially in manufacturing firms. Fisher (1997) explained that poor coordination with partners in the supply chain could lead to waste accumulation and business failure. This is akin to pipe carrying water from the source to the recipient. If the case of a clogged pipe, this has to be flushed and cleared to ensure the smooth flow of water. Similarly, a supply chain could also give rise to problems of efficiency and effectiveness that the company should recognise to determine and implement the appropriate solution.
Slack et al. (2004) provided that supply chain management is the process of controlling the supply chain to ensure efficiency and effectiveness. The proper management of a firm’s supply network involves being on top of issues and understanding problems. Metrics support an understanding of the performance as well as the issues faced by business firms as shown in the previous discussion. Metrics should focus on both the process and relationship within which the parties involved in the supply network operate. In addition, the metrics should also be multi-dimensional to cover different levels of the supply chain.
Further improving supply chain performance of Dell Computers involves the continued application of supply chain management, particularly the metrics mentioned to determine the extent that the supply chain supports business goals as well as identify and provide solutions to problems. As such, Dell was able to recognise that its ability to meet schedules largely depend on the ability of its suppliers to provide parts as needed and changes in consumer demand. The solution is to establish long-term fiduciary relations with suppliers and establish close links with customers. Dell has to continue keeping track of changes and assess its supply chain relative to changes to determine areas that require concurrent change. It also has to determine the appropriate measures that support its information needs.
Metrics are important tools in assessing the performance of supply networks. However, it is also important to select the measures and combination of measures used to assess the supply chain to encompass all levels and aspects of the supply network and draw comprehensive information to support sound decision-making across the supply chain.
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