The logisitics and supply chain of Dell

This is the era of globalisation which means that individuals are living in one world. There are no more limitations, and boundaries are diminishing in every possible ways. Moreover, trading worldwide has become very common now. This scenario leads us to have greater and detail knowledge on managing international operations and the supply chain. The subject tends to be much more complex than it may sound. Appropriate logistics and supply chain help companies to save huge amount of costs and generate greater revenue. In this report, I have analysed, applied academic modules and put my best effort to deliver the logistics and supply chain system of Dell Inc.

Dell Inc. is one of the largest IT companies providing information technology and business related services, support and solutions worldwide with 100,300 employees. It was established in 1984 with only $1,000 capital in Texas, United States. The unique strategy of Dell to sell custom built PCs (Personal Computers) directly to customers, eliminating middlemen to enhance customers’ savings was practiced at the initial stage of its establishment by Michael Dell. However, as per the sources, the company now operates in four global business segments; Large Enterprise, Public, Small and Medium Business, and Consumer.

The focus of this case study is the supply chain management practices of Dell. Dell has been following its unique ‘direct build-to-order’ sales model for more than 20 years. Customers can plan their own configuration and place orders directly with the company via the phone or its Web site. Over the years, Dell’s supply chain efficiencies and direct sales gave it a competitive advantage.

The nature of logistics and international trade:

Globalisation or international trade has become a common ground for most traders now. It is a general rule for businesses to enhance their potential growth by increasing revenues and cutting down costs. In implementation of this rule, logistics plays an important role in any kind of business operating globally or locally. However, the proper management of logistics is even more crucial when it comes to international traders.

In earlier period, logistics was only described as warehousing or “trucks and sheds”. However, warehousing is one of the fundamental components of logistics.

The Chartered Institute of Logistics and Transport (CILT) in the UK define logistics as, “Getting the right product to the right place in the right quantity at the right time, in the best condition and at an acceptable cost.”

The above definition makes us clear that logistics involve getting everything right in the process to meet customers’ requirements and expectations from beginning to the point of consumption. In general, 8R are followed in order to define and implement logistics. They are; right product, right place, right quantity, right time, right customer, right way, right cost, and right quality.

Our Dell Global Logistics Teams aim to develop and sustain a global transportation and logistics network that uses the most efficient and effective means for us and our transportation providers to distribute our products to our customers. Our job is to get the right stuff, to the right place, at the right time. Furthermore, our Dell Logistics Teams must do this at the right cost. We continue to optimize transportation costs while improving quality and striving to exceed the service expectations of our customers. In fiscal year 2009, many dynamic changes within the Dell fulfillment model challenged our Dell Global Logistics Teams.

During the past year, our Dell Logistics Teams continued to do the following:

Optimize our inbound and outbound transportation networks, focusing on using the most efficient use of air, land and ocean modes of transportation

Work green initiatives that demonstrate that we recognize our roles and responsibilities in being good stewards of the environment

Collaborate with the best logistics and transportation providers, who are focused on providing our customers with timely and damage-free deliveries, and operate their businesses within the principles of environmental stewardship.

Supply chain strategies:

Supply chain strategies are the approaches related to logistics and supply chain that are influenced or related with the organisation’s strategy.

Corporate strategy

Business Unit Strategy

Functional Strategy

As discussed in Pascal Renet (2010), Supply Chain is one of the most crucial parts of an organisation and its strategy lies on aligning and developing it according to the nature of an organisation. The figure below demonstrates the alignment and development of supply chain strategy.

Many Supply Chain strategies are formed by using the above mentioned variables. However, there are two principle strategies practiced widely in the real world situation. They are; lean and agile.

Lean strategy has been a huge success from the early years of 1930. Its main aspect is to add value (which includes efficiency and effectiveness) at each stages and steps of the process and eliminate processes that do not contribute in value adding of the system, services or product. Some of the most popular processes used in lean strategy are; Just In Time (JIT), Pull based system, Make-To-Order (MTO).

Agile strategy is practiced to effectively deal with uncertainties caused by various factors, which may include terrorism, natural calamities, demand system of the market and many more that vigorously affects a business environment. The main technique in agile strategy is mass customisation which follows the production philosophy known as principle of postponement.

Leagile strategy is the combination of lean and agile strategies.

Michael Dell (2007) states, “As we continue to grow worldwide, it is important that we increase our ability, via the direct model, to manufacture close to our customer and fully integrate our supply chain into one global organization. This will allow us to drive for even greater excellence in quality, cycle time and delivered cost. We will innovate and adapt our supply chain model to help drive differentiated product design, manufacturing and distribution models.”

Directs Sales

The direct model refers to the fact that Dell does not use the retails channel, but sells its PCs directly to customers through its website, Dell.com, as Figure 4 shows. This way the intermediary steps that may add time and cost are eliminated, and Dell is directly linked to its customers.

Indirect Distribution Channel of the PC Industry

Dell’s Direct Distribution Channel

Areti Manataki (2007), In fact, Dell sells directly to all its customers, “from home-PC users to the world’s largest corporations” [54]. This way it creates a direct relationship with each individual customer, which turns out to be a great source of competitive advantage.

As Michael Dell has stated, this direct relationship “creates valuable information” about the customer, thus Dell knows who the end users are, what they have bought from Dell and what their preferences are, a fact that allows Dell to offer add-on products and services, and stay, in general, closer to the customer [27]. As Lawton et al [29] suggest, this “provides Dell with a wealth of marketing and product development information”.

Especially in the case of large customers, the above-mentioned direct relationship is upgraded to virtual integration. With the help of information technology and traditional face-to-face human contact, customers work with Dell as partners; this means that “Dell is not going to be just their PC vendor anymore, but their IT department for PCs”, as Michael Dell claims. There are two main facilities that bring Dell and its customers closer: Premier Pages and Platinum Councils. Premier Pages, now called Premier.Dell.com, are customised IT procurement and support sites for big clients, which let them decide and manage their purchases from Dell, thus leaving to salespeople a more consultative role. Premier.Dell.com represents a customised sales channel and as Dell has realised how beneficiary that is, it has increased the number of Premier Pages from 1000 in 1998 to 50,000 in 2000 [36].

Platinum Councils are regional meetings of Dell’s largest customers, where

executives, salespeople and technicians discuss their experience with Dell and their

needs and expectations from technology. Additionally, Dell’s Customer Experience

Initiative, Dell Forums [55], the Direct2Dell blog [57] and the IdeaStorm [56]

illustrate the importance that Dell places on its customer relationships. in the case of Dell, a computer is built only after a

customer has placed an order; then lean manufacturing and just-in-time production

take place. This means that once an order is placed, configuration details are sent to

the manufacturing floor and the assembly begins; once the computer is built and the

requested software is downloaded, it is shipped by a 3PL to the customer.

The choice of a build-to-order and JIT manufacturing procedure has several

advantages for Dell. First, the level of inventories is very small, leading to low

inventory costs and faster response to demand changes – for instance, when a new

microprocessor comes out in the market, Dell can immediately order it from its

suppliers, as there is no excess inventory to get rid of first. Also, it is common that

customers pay for an order before Dell pays its suppliers for the product’s

components, thus letting Dell operate on a negative cash conversion cycle [27]. Not

to forget the fact that this way customized products are offered, and instead of

guessing, Dell knows exactly what its customers want before producing it.

What is special in the case of Dell is its relationship to its suppliers, which also

facilitates its build-to-order model. Dell fully adopts the approach of the extended

enterprise by viewing its suppliers as an integral part of doing business and a key

factor for its success. “The supplier effectively becomes our partner”, as Michael

Dell states [15].

Logistics service providers:

Third Party Logistics Service Providers both at global levels and local levels form major partners to manage and offer Supply Chain services and the second major factor being the internet and IT technology which helps manage information and data ahead of or along with flow of materials and goods.

Dell has manufacturing facilities located in Austin-Texas, North Carolina, Miami, Florida that service US Markets. European Markets are serviced from its plants in Ireland and Poland. Asia and other sub continents are supported by its manufacturing facilities in Penang in Malaysia and Xiamen in China along with the latest factory setup in Chennai in India. South America is serviced from its Eldora do plant while the new plan in Brazil supports the African continent.

One can imagine the complexities involved in designing procurement systems. Dell does not buy raw materials and components and maintain inventory. Dell’s vendors use third party service providers to setup logistics parks and distribution warehouses close to Dell’s plants and deliver materials just in time to the plant against an order for production which is triggers based on an order confirmed by the customer on the internet.

Under procurement Logistics in this case, there are number of logistics service providers who play major part in ensuring smooth operations. Vendors are based out of Europe, Taiwan, China, Singapore, Hong Kong, Korea and Japan etc.

Our Dell Logistics Teams continued to explore the use of every mode of transportation and sought opportunities to ship more freight using modes that offer greater reduction in fuel consumption and carbon emissions. Our regional teams examined the ability to upgrade the attach rates for freight that was best moved by sea instead of by air. Feasibility studies are planned for various transportation modes, such as rail from Asia to Europe, sea/air from Asia to Europe and rail network from China to South Asia. In Asia-Pacific/Japan (APJ), the optimal mode of transport is ocean shipment to countries such as Japan, Australia and New Zealand.

Logistics Operations in Supply Chain Network (2011). Management Study Guide. http://www.managementstudyguide.com/logistics-operations-in-supply-chain-network.htm

Procurement and outsourcing:

Dell outsources its supply chain reinvention

14 JUNE 2010 Guy Clapperton

As part of the reinvention of its business model, the computer maker handed the support and operation of its supply chain to a third party

Dell was the hardware manufacturing success story of the 1990s, thanks to such innovative business practices as selling to customers directly and assembling devices to order. The past ten years, however, have seen Dell rather lose its edge to Apple in the consumer space and to Hewlett-Packard in business.

That has prompted an attempted reinvention at the company. One of the most conspicuous facets of this has been Dell’s acquisition of ITservice provider Perot Systems in the second half of 2009. Just as significant, though rather less visible, has been the expansion of its global supply chain to include both retailers and so-called original design manufacturers, which sell complete devices for Dell to rebadge.

This transformation placed a significant new burden on Dell’s supplier engagement processes, and the disparate systems that supported them. The company therefore decided to outsource these processes and systems to Inovis, a US-based ‘business-to-business’ outsourcing provider.

http://www.information-age.com/channels/it-services/features/1261013/dell-outsources-its-supply-chain-reinvention.thtml

Inventory, warehousing and materials management:

Transport planning:

While the shipments are in transit, the freight forwarders electronically transfer shipment information and documentations to their overseas offices or agents at the destination and keep Dell and vendors informed of the status of shipments.

Freight forwarders at the destination ports file advance shipment documents with customs and on arrival of cargo, complete customs formalities and custom cleared cargo is then transported to freight forwarders warehouse or customs bonded warehouse or to another designated third party warehouse which houses all inventories meant for Dell.

The third party service provider who manages the inventories in his warehouse receives the cargo, unpacks the shipments from bulk skids to individual carton level and completes inbound formalities including up dating of inventories in its system and stocks the materials in designated rack locations. Both vendors and Dell are continuously kept informed of the data regarding shipments and stocks. The warehouse stocks inventories in the name of various vendors at SKU level. Most of the times these warehouses are situated adjacent to the plant or at close proximity. Upon receiving a production order from Dell, as per Bill of Material received through DELL ERP system, items are picked up, loaded into the supply cages and trays as per pre determined design and delivered to the plant after completing documentation and system entries to remove inventory from its system held in vendors name, invoice raised and physical delivery accompanied with documents completes the supply chain cycle of Raw material supply.

The revenue recognition happens when material is transferred out of the warehouse and its system and invoiced to Dell.