Example Answers for Questions on Dells Supply Chain

Supply chain is around the core business and controls information flow, logistics and capital flow (Tarantilis, 2008). It starts from the procurement of raw materials to intermediate products and final products, and the final product will be sales by the sales network to reach consumers. It is the whole functional network chain structure links suppliers, manufacturers, distributors, retailers and consumers. It is not only a logistics chain, information chain and the capital chain connects provider and consumer, but also it is a value-added chain (Yao, 2008), and materials in the supply chain due to processing, packaging, transportation and other processes to increase their value, bringing income to the relevant enterprises.

Identify and explain the components of the supply chain

In general, the basic elements constitute the supply chain contains: suppliers: provide raw materials or parts and components to the manufacturer; manufacturers: that is the product manufacturing. It is the most important part of production, and it is responsible for production, development and after sales service; distribution company: agents that are set for products distribution to achieve the geographical scope; retailers: retailers sell product to consumers; logistics: specializes in providing logistics services to companies outside of the enterprise mentioned above. Wholesale, retail and logistics can also be referred to as circulation (Green & Whitten, 2008).

Why is managing the supply chain a very complex process? Explain the issues to be managed and the trade-offs to be made in its management.

First, the supply chain is a complex, dynamic network. This network is composed by companies (or business) with different targets. This means that looking for specific supply chain management strategies for specific company will face enormous challenges (Riedel, 2009).

Secondly, supply and demand often conflict in the marketing practice (Gundlach, et al. 2006). The difficulty lies in that before demand, manufacturers have to produce a certain level of production, which means that manufacturers must bear the enormous financial risk.

Thirdly, supply chain systems change with time is also an important consideration. Even if the demand can be accurately forecasted (for example, long-term cooperation contract signed by both supply and demand), the planning process also need to consider the demand and cost parameters change in a period of time due to seasonal fluctuations, trends, advertising and promotions, pricing strategies of competitors and other factors. These needs and cost parameters which change over time make supply chain management strategies more difficult. In fact, the most effective supply chain management strategy is the one that can make the supply chain system to minimize operating costs and meet customer demand.

Fourth, new problems in some new supply chain system are emerging and cannot be clearly explained in the life cycle of their products. For example, in high-tech industry, product life cycles are becoming shorter and shorter. On the other hand, in these industries, the rapid technological development and dazzling product innovation making the accurate prediction of demand for a particular product become more and more difficult. And ultimately lead to a number of the manufacturer’s price war, which not only reduces the value in their life cycle, but also shorts the product life cycle.

In addition, in certain highly homogeneous product market, supply chain management may be the single most important factor to determine the success or failure. For example, in laptop computers and inkjet printers market, many manufacturers are taking the same OEM route or adopt the same suppliers of raw materials and the same technology, and in this case, the enterprise’s competition is the competition of brand marketing, cost and service, while cost and service levels are two key elements in a supply chain management.

In short, supply chain management issues relates to many aspects of activities, from strategic level to the tactical level to operating level (Tsiakis, 2008). Strategic level relates decision-making which have long-term impact on the company, including the number of manufacturing plants and warehouses, layout and size of production capacity and material flow in the logistics network and decision-making of other aspects. Tactical decision-making generally include the procurement and production decisions, inventory policies and transportation strategies. The operating level contains the decision-making of daily activities, such as plans, estimates of stocking, arranging transportation routes, shipping and so on.

There are some important issues in the management, such as:

Reconfiguration of distribution network: this may be due to lease contract termination of the few existing warehouse or number change of the channel changes.

Distribution strategy: in the supply chain management, distribution strategy is critical. Which strategy should be adopted? Direct transport strategy, distribution strategy classic or direct transport strategy? How many transfer points? Which strategy is more suitable for the majority of the enterprise in the supply chain?

Supply chain integration and strategic partners: owning to the dynamics of the supply chain itself as well as conflicting objectives exist in enterprises with different nodes, supply chain integration is very difficult. Such questions as what information should be shared, how to share the information become the most critical issues.

4. Inventory control: Whether the terminal channel order quantity should be greater than, less than or equal to the demand forecast? In order to minimize inventory and storage costs, how many products should be set?

5. Product Design: When the product should be designed to reduce logistics costs or shorten the cycle of the supply chain; whether product design can compensate for the uncertainty of customer demand; in order to take advantage of new product design, what kind of changes should be done to supply chain?

6. Information technology and decision support systems: How to analyze and use data? What is the impact of Internet? What is the role of e-commerce? Whether information technology and decision support system can be the main tool of competitive advantage?

7. Customer value measurement: customer value is a measure of a company’s contribution to its target customers. In different industries, what factors determine the customer value? How to measure customer value? In the supply chain, how information technology can be used to enhance the customer value? How supply chain management impact on customer value?

Question 2

Map out Dell Supply Chain

Suppliers

Dell Manufacturing

Customers

The supply chain of Dell only includes customers, Dell and its suppliers. Supply chain map is shown above. This supply chain rules out the presence of middlemen (wholesalers, distributors and retailers) and it takes customer order directly from the hands of customers, and the omission of the link significantly reduces the cost of a variety of distribution channels (excluding the profits partition of middlemen), and the cost of products significantly decrease, which lays the foundation for Dell’s low-price competition (Dell returns such cost savings to the customer, so its products more competitive)

Provide evidence of conflicting objectives in the supply chain

The conflicting objectives in the supply chain in Dell are the manufacturing cost and its quality, cost and the speed reach customer. As the case study material says, Dell’s manufacturing costs has continued surge. One of its division’s directors, Tom Wilson, says that the increase recently in Level 5 manufacturing is marked in Dell. From the perspective of Dell, this cost will increase the cost to the overall manufacturing process. That way, Dell cannot be able to use advantages as Dell should for the lower cost structure of its contract manufactures. Instead, Dell has to rely more heavily on the 3rd-party integrators. That way, not only Dell get products with lower quality because they do not perform integration unit testing by using 3rd-party integrators, and the Dell also has some difficulties to foresee for the 3rd-party integrators about how much manufacturing capacity they should have to support the demand of Dell.

There is also contradicting in the cost and the time. In Dell, customers can select the components when making an order, hence if Dell manufactures a fully completed product and transports it by shipping form the contract manufacturer in China to the customers living in the United States would be time-consuming, and if they manufacture a completed product and transport it by air, then it is cost-consuming. Therefore, for Dell, the contract manufacturers in China manufacture and transport half-assembled products by ship to its factories and once the order reaches and the components selected by the customer is ready, the factory assemble the components and manufacture a completed computer and deliver to consumers timely.

What are the risks that rare or unexpected events pose in this supply chain?

Although the supply chain of Dell only contains suppliers, Dell and customers, there are still some risks that exist in this supply chain and make the inability of Dell. For example, many issues will cause Dell cannot provides motherboards timely to contract manufacturers for L5 manufacturing.

Chipset suppliers de-commit or supply issues. When chipset suppliers cannot provide qualified chipsets, it will disrupt the supply chain. And the data reveals that this reason takes up more than 60% in the manufacturing of L5. According to the data form Dell’s Worldwide Procurement organization, it accounts for 63.5% of expedites expenses.

Quality/engineering issues. These issues will cause the motherboards with dysfunction and problems which need to be modified or substituted by a new supply. This will lead to an additional unexpected need for motherboards, and these parts of motherboards are not the part of the forecast. This reason accounts for 24.5% of expedites expense, following that of the chipset suppliers’ issues.

Dell forecast accuracy. When the real need of customers is more than that of the forecast, Dell has to purchase extra chipsets, and if it does not to do so, it will take risk that it cannot meet the needs of customers. Generally, the time for manufacturing, assembling, testing and delivering a chipset is 13 weeks on average, and this time is long which makes it difficult for the chipset supplier to provide the additional chipsets to satisfy the need plan of Dell. This accounts for 8.3% of the expedite expenses.

New product introduction. Since the need for newly developed PC products is changing fast and the development of the market is volatile, it is difficult to forecast, which may make an extra needs to air-transport more motherboards which are not required when the product is mature. At that time, the level of L6 manufacturing will not change and the need level keeps consistent. This changing demand can make the L5 manufacturing increase. That is, the motherboard-chassis assembly in the United States will increase to diminish the time to sale for a new developed product. This account for 3.8% of the expedite expenses.