Dell Production To Distribution Model Information Technology Essay

An essay demonstrating the application of the theories, methods and techniques of warehousing and distribution on the theme selected by the lecturer.

For years distribution and warehousing processes were considered only a cost to the product. According to Cass Information Systems 1998 report on Logistics impact on USA market, distribution accounts for 11% of Gross Domestic Product.

Figure 1.0 [1] 

There are many value adding opportunities within the operations of distribution such as: pull and push systems, network rationalizations, customer service, strategic planning and inventory reduction.

Push system is inadequate and outdated as the vast amounts of product are being “pushed” onto consumer.

The pull system is based on the consumer demand, locating point of sales and then restructuring the distribution channel according to them.

Customer care should be especially focused upon as building long term B2B2C relationship is essential in modern world. There are 4 criteria that should be met in order to bring customer satisfaction: reduced cost, teamwork/partnership, responsiveness and quality.

Distribution efficiency depends on the strategic location of distribution centres and time and precision of order processing. Efficient order processing shall minimize the amount of required distribution centres.

Reduced inventory means that company can reduce the size of distribution centres and thus reduce capital associated with warehousing costs, the threats of losing capital on obsolete inventory is also reduced. It enables the companies to act much more quickly to changing customer demand and needs.

Strategic planning is now a very important function of the company. Many Companies have at least a 5-year strategic distribution plan.

One of the pioneers companies that successfully implemented innovation and new production and delivery models is DELL. DELL is multinational information technology corporation based in Round Rock, Texas, United States, that develops, sells and supports computers and related products and services. The company is employing more than 96,000 people worldwide.

Dell practices Build to Order (BTO), and Build to Stock (BTS) approach. Build to Order in an automotive context as a demand driven production approach where a product is scheduled and built in response to a confirmed order received for it from customer. Build to Stock is the dominant approach used today across many industries and refers to products that are built before a final purchaser has been identified, with production volume driven by historical demand information [2] . BTO is used for high specification machines while BTS for low spec, low-cost machines.

1.1 DELL production to distribution model.

Figure 1.0 [3] 

Value is a superior strategy that increases the worth of the product in the eyes of the customer. Dell is able to offer a low real cost of ownership to the customers by utilizing its high-tech order-manufacturing model and extremely accurate delivery and warehousing service. Customers assess a product’s value by looking at many factors including those that surround the product (i.e., augmented product). Several surrounding features can be directly influenced by channel members, such as customer service, delivery, and availability. Consequently, for the marketer selecting a channel partner involves a value analysis in the same way customers make purchase decisions. That is, the marketer must assess the benefits received from utilizing a channel partner versus the cost incurred for using the services.

DELL has many strategic centres located across the globe.

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Figure 1.1 Dell manufacturing centres strategic location.

While on the surface it may seem to make sense for a company to operate its own distribution channel there are many factors preventing companies from doing so.  Dell Computers sells mostly through the Internet and not in retail stores however they still need assistance with certain parts of the distribution process for example they use such parcel post shippers such as FedEx, UPS, DHL, CEVA, ODFL, SAIA and SHNEIDER. In Dell’s case creating their own transportation system makes little sense given how large such a system would need to be in order to service Dell’s customer base. Thus, by using third-party shipping companies Dell is taking advantage of the benefits these services offer to Dell and to Dell’s customers. Dell uses most of the modes of transportation such as freight, rail and road.

Figure 1.2 Manufacturing centre basic plan.

It is noteworthy that DELL does not have any storage facilities on the factory site as all components are delivered every 2 hours form the suppliers. This eliminates the needs for storage and warehousing cost, a benefit that enables DELL to lower the real cost of ownership, thus passing value onto the customer. Needless to say that such approach requires very intimate relationship with suppliers. From order accumulation area the products are distributed either straight to the customer (shipping) or to the Merge Centres a facility that linked manufactured processing units with required hardware. The hardware is linked to the product via barcode.

DELL’s advanced order processing servers enables dell to efficiently distribute its product reducing wasted time and transportation waste.

Figure 1.3 Dell server/order processing room.

The unique barcode/serial number is created after each successful order. This number is used to link the right components with the ordered machine and to track the progress of machine throughout whole supply chain.

Dell offers complementary services throughout its distribution service. For example both business and leisure customers may request a Dell specialist that can arrive with the product to set it up. Dell’s distribution network also provides the opportunity to return/exchange/repair products. (For a fee. A fee is calculated by taking into account the period of time for which the product should be covered and lever of coverage i.e. repair, parts replacement or complete product replacement).

Conclusion

Dells direct distribution model was performing poorly. In 2006 Dell’s stock price, which had fallen over 30 percent in the previous year while rivals such as Hewlett-Packard had performed much better. Dell could still enjoy competitive advantage from customizing computers and selling them directly to consumers, but the market for such offerings has shrunk, largely because customer needs and related supply chain costs have shifted in the mature PC business. Such drastic change in the market provoked Dell to change it tactics and move from Direct to Hybrid Distribution System. In a New York Times article on May 25, 2007, the manufacturer announced that it would begin offering two PC models through Wal-Mart stores. While retaining the centralized direct distribution model Dell

Figure 1.4 Dell stock prices, October 2005 to October 2007. [4] 

The distribution decision is primarily concerned with the supply chain’s front-end or channels of distribution that are designed to move the product.

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Figure 1.5 Supply Chain [5] 

Thus to increase value and as such gain competitive advantage a company need to take into account the following factors.

Cost Savings in Specialization – Members of the distribution channel are specialists in what they do and can often perform tasks better and at lower cost (i.e. DHL, Hermes and UPS parcels can go as low as $5 per 10 kg) than companies who do not have distribution experience. Marketers attempting to handle too many aspects of distribution may end up exhausting company resources as they learn how to distribute their product. Dell demonstrated the use of the services of courier companies thus increasing its efficiency and adding value.

Reduce Exchange Time – Not only are channel members able to increase value through reduction of distribution costs by being experienced at what they do, they often perform their job more rapidly resulting in faster product delivery. Without Dell merger centres and courier’s warehousing hundreds of trucks would line up each day to make deliveries, many of which would consist of only a few boxes.

Resellers Sell Smaller Quantities – Not only do resellers allow customers to purchase products from a variety of suppliers, they also allow customers to purchase in quantities that work for them. Suppliers though like to ship products they produce in large quantities since this is more cost effective than shipping smaller amounts.

Offer Financial Support – Resellers often provide programs that enable customers to more easily purchase products by offering financial programs that ease payment requirements. These programs include allowing customers to: purchase on credit; purchase using a payment plan; delay the start of payments; and allowing trade-in or exchange options.

Provide Information – Companies utilizing resellers for selling their products depend on distributors to provide information that can help improve the product. High-level intermediaries may offer their suppliers real-time access to sales data including information showing how products are selling by such characteristics as geographic location, type of customer, and product location (e.g., where located within a store, where found on a website). If high-level information is not available, marketers can often count on resellers to provide feedback as to how customers are responding to products. This feedback can occur either through surveys or interviews with reseller’s employees or by requesting the reseller allow the marketer to survey customers.

By taking into account the above