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Supply Chain Planning and Design (MGMT6019)

Assignment 2 – Report Writing

Under the Guidance of DR. KENG SENG CHOONG

SUBMITTED BY:

Rakshith Pyaram Rajendrappa [19435196]

Sujay Thippeswamy Sajjan[19425715]

Prithvi Mohan Dwarapureddy [19433653]

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TABLE OF CONTENTS

1. Introduction.

2. History of Dell.

3. Importance of Strategy.

 Strategies of Dell
 Competitive environment of Dell

4. Different types of Methodology.

 Indirect Channels
 The Direct Model
5. Management principles of Dell.

 Exchange inventory for information


 The Focus of Dell on velocity, volume and value
 Change is the only constant in this world
 Coordination is critical

6. Business model of Dell.

 Distribution and supply chain innovation


 IT strategy on Virtual Integration
 Customer Oriented - SANDWICH ARTIST MODEL
 Supplier Partnership
 Mass Customization
 Just-In-Time Manufacturing

7. Recommendations.

8. Conclusion.

9. References.

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1. INTRODUCTION:

A key success of any organization is based on its Business Strategy, which

emphasises the company to look into short Term goals and Plan for Long term goals

and future plans. It not only provides the company the capability to face a problem but

also helps to find the root cause of it so as to avoid such consequences in future.

Strategy of an organization can be divided into three components: Objective of

the company, Scope of the company and Competitive advantage of the company.

These strategic key objectives help employees to know about the strategy of the

company, Roles and responsibilities inside the organisation. The purpose of this case

study is to understand the Strategy of “Dell” which is world known as the market leader

of “IT Industry”.

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2. History of DELL:

In the year 1983, A 18 year old kid named Michael Dell decided to discontinue

his education at University of Texas at Austin in order to work for full time in the

company so he founded the company and named it as ‘DELL’. Initially Dell was

serving corporate companies by providing computer hard drive upgrades and built-in

IBM PC computers using stock Components. Dell had annual sales of $6 million till

1984. In the year 1985, Dell came up with a new strategy by offering customers to

personalize built-in-order computers. And there by Dell generated annual sales of $70

million in 1985. Dell preferred lower cost for marketing strategies. It placed

advertisements in magazines, provided discount to merchandise company that brings

in the customer who is expecting high quality configuration at lower cost and also

assigned a Dell toll-Free number thereby encouraging customer to reach the company

through telephones to place an Order and enquire about the product. These factors

helped dell computers to reach top position in the direct-mail market. Within a decade,

Dell has reached an annual sales of around $1000 million, and by the end of 20th

century, Annual revenue of Dell reached $25 billion. Now, Dell Inc. is known for its

innovative techniques in the market. It not only builds up and repairs computers but

also supports services of other accessories. Dell carries its hold in personal computers,

hard drives, HDTV, MP3 format games, cameras, hosting space, circle switches,

printers. The Key for Dell success was not only due to Innovations manufacturing and

supply chain but also due to Distribution strategy implementation. Analysing the

emerging market trends of personal computers and changing the present strategy of

value chain, Dell Inc. topped in PC Market sales and is still dominating as a global

leader in IT Industry.

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3. DEFINITION OF STRATEGY

Strategy aims to find ways to achieve goals, which even helps in solving many

issues of the company facing in between the parties. The companies in the current era

have a competitive strategy to gain more profits or else to produce in a bulk so that the

turnover will be high. The strategy can be developed by planning directly or indirectly

the activities of different departments of the company. The key strategies of a company

comprises of leadership in costing, differentiation with other companies and the focal

point at which the company needs to focus. If these strategies aren’t applied then the

company could face problems in competitive industry.

Strategies of Dell

Dell is one of the top competitors in market but even then it faced many challenges

due to instability with its strategy and the change in environment. The Dell’s strategy

from beginning is Build-to-order, customization, making partnership with suppliers,

just in time inventories, direct sales, customer service and the data sharing with

suppliers and customers. The Dell has managed to make the profit margin while prices

are falling too. The Dell’s successful business strategy is cost leadership. The

company’s success is mainly depends on the customization, delivery and costing of

the product. In effect to the losing momentum in performance the company had to

adapt new strategic approach to supervise frequent changes in market conditions.

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Competitive environment of Dell

The Dell’s competitive advantage is the direct sales. Dell monitors its supply chain,

which makes it easier to build a computer with the requirements of the customer, which

is termed as customization. Dell has strong customer relationship. Dell has some minor

points to be considered as that can affect the company's growth because Dell mainly

depends on suppliers. The Dell has opportunities in applying various strategies, which

is by meeting product demands. Dell also has direct sales in which the company sells

the products directly to retailers and corporate customers. The threat Dell is facing is

competitive rivalry from HP and inconsistency in currency markets which effects the

sales.

4. METHODOLOGY:

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The research includes information and data obtained from several journals, books, and

articles. The companies involved in research are HP and DELL. The reports, which

are made annually, and websites of the companies are the references for the

information and data. In addition the strategies for managing and models for business

of both the companies are scrutinized and discussed in arrangement with financial

performance and results.

1. Indirect Channels:

The manufacturers of personal computers are using indirect distribution channels for

sales. The sales of personal computers in indirect distribution channel is shown in the

below figure. In this process the distributors purchase the computers directly from

manufacturers and will sell to the corporate customers who buys in bulk. The resellers

also purchases directly from manufacturer and the computers are customised according

to the requirements of the customers, facilitating the customers by giving required

software and additional support as well as services.

Figure 1: Corporate PC Sales through Indirect Channels

2. The Direct Model:

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The direct sales of the computers from manufacturers is shown in the below figure.

The DELL company has developed a new prototype in business which helps in

reducing time for execution and minimum inventory, by doing this the company

avoided the dealer channel and started selling products to the customers directly even

with the required customization by the customers. This eradicated the resellers to mark

the costs properly and taking the risks of finished products in the inventories. The

DELL direct model of computer is distinguished by high-velocity, low-cost for

distribution, maintaining direct relations with the customers, computers are Build-to-

order, Just-in-time manufacturing, goods and services focussed on specific market

segments. This direct model of computers have lead advantages by eradicating

intermediate channel which helps in reducing channel costs. The DELL computers are

build-to-order so that customers can have their computers with their requirements. The

DELL Company has very quick supply chain and in which the products are moved

quickly rather than the indirect channel. Dell depends on IT to strictly control its

supply chain value to gain high level coordination within their suppliers, but not only

that but Dell also maintains quality and data links are built to supervise real time flow

of materials throughout the chain. Suppliers are informed exactly about the daily

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requirements for production. The dell uses IT to maintain logistics so that if defect

product is found then it can be repaired or else it can be replaced.

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5. Management Principles of DELL:

Dell has many advantages as Dell mainly focuses on customer satisfaction

ideology. Dell is using this strategy to be very different from the competitors. Dell

has won many awards in customer service and it is one of the companies which has

achieved growth in a short period of time. ‘Direct’ means Dell is having direct

relationship with the customers by avoiding retailers, traders or resellers. This helps

the company in maintaining a fixed price as there is no variation in the price of end

product as well as any part of discounts involved from any new retailers. Dell is

using this strategy to provide customers high quality configured systems for a much

cheaper price compared to competitors. Dell has the most efficient manufacturing

and distribution processes. Dell offers customization and every system

manufactured by dell is based on Build-to-order principle. Dell is providing

customization to achieve customer satisfaction by meeting customer’s

requirements. Dell also gained more data on which configuration are in demand

and which spares could be manufactured in excess to meet consumers demand. Dell

also uses the data to keep the customers in touch before and after sale of the systems

to provide better customer service by taking feedback. Dell is more efficient in

providing the customers product in a very less period of time as the inventory is

changed every 10 days on an average by keeping the inventory cost to be very less

.Due to all these reasons the stocks of Dell has a massive gain every year making it

a top company.

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The Dell Direct model explained above how the Dell is managing the Build-to-

order technique. The Dell’s direct model is known to everyone giving more

visibility among the other competitors making it a sole competitor in this principle.

The Direct model in the means that anyone who buys the product is an end

customer. For example, if any other company first sells its products to distributors

and then in turn sells it to retailers and then the retailers sells the product finally to

customers and taking effective feedback might change from the hierarchy but in

case of Dell it is direct and so the budget will come from each of its trade units. The

Dell’s survival was mostly based on customer satisfaction and this made the Dell

to be most successful and rapid increase in its business as it managed to cater to the

needs of the ordered spares to be delivered before the finished product was

assembled. This time management and all the processes involved in it were required

to run the company successfully.

The Dell was not only based on customised order and direct sales but it also has

some key features to make the difference and few other principles were also

included that were very much essential for the business and these included:

a) Exchange inventory for information

b) Velocity, value and volume

c) Constant change

d) Criticality of coordination

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A. Exchange inventory for information

Dell has a strategy of collecting data and analysing and using the data for its

business. In this strategy, Dell has exchanged inventory data in order to fulfil the

supply and demand. Dell does not keep the inventory ready in a warehouse or in a

retail outlet but will be stored as an information. Dell analyses the information and

forecasts if the customer demands are more. Manufacturing in Dell depends on the

data forecasted and in turn at the same time the suppliers of parts or spares would

be informed in advance for the spares which have huge demand. Dell also forecasts

in the staffing of people in advance according to the growth and increase in

business. The information can be stored much effortlessly. The company no longer

needed the investment for storage of goods in a warehouse or a retailer. The

company had to store only information which was very easy even to discard. The

information was much cheaper than to store the inventory. This was made linked to

the same principle of Dell’s made to order strategy and to eradicate the middlemen.

This strategy made them deliver cost effective products for a very competitive

pricing. In case of the other competitors would put the finished goods and when the

technology is advanced or changed they had to dispose the out-dated product and

this did not happen in case of Dell as they reduced these to stop this type of losses.

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B. The Focus of Dell on velocity, volume and value

The idea of Dell exchanging the data for inventory increased the company’s

business processes. The increase in company’s changing business processes was

termed as velocity. The focus on velocity was the main criterion of the company. In

order to fulfil the change in technology and change in products accordingly was very

important. The objective to respond quickly to the change was termed as velocity at

Dell. Michael Dell explained the same as a “Time driven culture”. The volume in the

business would increase rapidly when the velocity increased. The volumes were also

the result of the information collected through the online stores and processes involved

in the same .The majority of the values were given to customers, stakeholders and

staffs. The Dell’s systems provided gave the data of customer demand in time to time

basis and this helped in Dell to negotiate favourably with the suppliers of the products

because Dell had grown out to be a huge company in a short period of time compared

to other competitors in the same business platform. This was termed as ‘value’ for Dell

customers. The velocity, values and volume wanted the improvement in the systems

in Information Technology and hence they did not make any new decisions in

management. The company wanted to reduce the problems incurred in the data flow,

origin of data, and everywhere the company could find data. Time was most valued

parameter in Dell and reduction in time in processes added value to all stakeholders.

The reduction in task and process time was done to all processes. Value was offering

the products at low cost to customers and in turn the business would be more and the

stakeholders also profited. The company even shared the bonuses with employees. The

compression in time led to the increase in value in all the business processes.

C. Change is the only constant in this world.

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The change is the only constant in this world and environments in every

businesses change rapidly due to the change in technology and Dell managers knew

that everything would change from time to time and even processes change. The

change made the Dell to focus more on velocity and to engage the managers to be

aware of the changes in the environment and adapt to the changes. As there was an

emergence of a new technology the product would change again and the processors

inside the computers keep changing every 3-4 months on an average as very large

scale integration makes processor chipsets to change giving faster processing time.

Dell predicted the change would be very often and used strategies to be a sole

competitor in the fast changing environment and Dell predicted the changes would

be constant at a definite time intervals and by adapting to this Dell emerged

successful than any other competitors. Dell is also advancing at a same pace as a

time changing environment.

D. Coordination is critical

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The efforts to coordinate to the company’s objectives were very difficult initially

in a fast paced changing environment. The top management team in the Dell consisted

of 16 professionals and they will meet every month to discuss about new strategies and

new products to be developed under proper authorization and optimization. The most

of the time spent in Dell is planning and coordination between employees. The

empowerment is critical in the company like Dell. The coordination in a company to

keep all the employees moving in the same direction as there are rapid changes in the

environment and coordination between employees and business units are very critical.

The business model is made initially and according to that model the coordination is

achieved at Dell. The proper training is issued on how to collect valuable information

and how to forecast the information.

In Dell the most of the budget is spent on training new employees. The new employees

are given their specific job role and specific training on product is given and a CD is

given to each employee to teach the overview and essential information required for

an employee and this provides the virtual guided tour of Dell before the employee

starts working in the company. This is how the coordination is achieved in Dell by pre-

training new employees and allowing the managers to coordinate with the velocity of

the change in environment.

6. What is a Business Model?

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A Business model is a strategic plan of a company to generate revenue and

operational profits. It includes functional components of the business. This variable

expenses incurred in day-to-day business is not dependent on competitors and market.

It is efficient to study actual market status considering the customer’s expectations,

segmenting the product based on customer requirements and price and improving

service quality thereby reaching customer satisfaction.

Business model describes the structure of the company and the methodologies

applied to increase the profits of the company. Business model and business strategy

are different from one another. Strategies deal with implementation of different ideas

from competitors so as to attract customers and satisfy their requirements. Where the

Business model deals with the basic structure of the business. A company has to

indulge in both market strategy and an ideal model to succeed in the market. Business

model is a fundamental element for a Strategic planning of the business. This type of

strategic planning is the key for altering the present business plan to improve

performance financially and thereby company gains higher capital returns for its

investment.

Business model of Dell

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Business model of Dell is a combination of Built-to-order production and its direct

sales strategy. This model might look so very simple conceptually, but its execution is

very complex. Dell puts its own efforts to reach customers but other PC makers depend

on retail sector, resellers and distributors and other marketing agents to improve sales.

Main agenda of Dell is to build PC based on customer specification and requirements

thereby saving 6 percent of the product cost when compared to competitors who follow

Indirect selling method.(Rappa, 2007). This direct approach helps Dell to analyse

about the present trends of customer requirements and thereby can respond to market

quickly than the competitors. Dell has classified its customer base into three categories

namely Relationship customers, Transaction customers and Public customers are also

known as international customers. This classification of customer segments helps Dell

to act on changes in Customer demands. Production system of dell follows certain

principles like Lean Manufacturing and JIT [Just-In-Time]. And the main reason for

these principles is to reduce the Inventory stock based on regular consumption. The

Common point of contact for Sales, Manufacturing, logistic and delivery domains is

the Built-To-Order production. (Shetty, 2012)

A. Distribution and supply chain innovation

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Dell initially sold the products directly to the customers using E-mail ordering system.

The emerging Internet technology was used to benefit as it turned out to be an online

sales platform. As Internet technology was new, a lot of customer support had to be

deployed to help the new users in ordering the product successfully. Dell started

generating an approximate revenue of 4 million per day by the year 1997. The

competitors of the dell which were other PC (Personal Computer) and Laptop

manufacturing companies designed the products according to the standard requirement

or their requirements which they thought would suffice the customers and this was a

standard product as it was a finished end product which cannot be altered or changed

according to customer’s requirements. The customers had to select among the different

models and adjust the specifications to their criteria and buy the pre-configured

products whereas Dell offered customer to select their own specifications like RAM

(Random Access Memory) size, ROM (Read Only Memory), Hard disk size,

Processor, Graphics configuration, screen size ETC. This initiation from Dell was

accepted by majority of the customers as the people could as per their custom

requirements .The people would not buy the parts which they never use and thus the

laptops and PC’s were available for a cheaper price compared to the competitors. The

use of online platform eradicated the middlemen, traders and retailers. This ideology

used by Dell helped the company in its initial growth of the company as the products

were much cheaper and good quality .The company generated a lot of customer data

by using internet sales .The company could recognise the demands based on the data

collected and could analyse the future demands and based on that could divide the

most selling spares and this developed product development and production as which

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product should be produced more and is likely in demand and these information’s

helped in profiting Dell in each of the significant customers segments.

B. IT strategy on Virtual Integration

Virtual Integration technique is an aggressive and vital approach at the

manufacturing sector. Dell ensures that the quality of the component manufacturers

are up to industrial standards. Vendors and suppliers had a long term agreement by

developing its components based on Brand name and Barcode. Dell undergone

agreement with suppliers ensuring to establish a place to stock their inventory near its

Assembly Plant. This move from Dell helped them to communicate in real time with

suppliers. This new concept of “just-in-time” overruled the Inventory storage concept.

It gave a significant advantage in Production Cost and avoided investment on

construction of Warehouse for Inventory storage. This close relation with suppliers

helped Dell to take an advantage of Virtual Integration strategy.

Information technology is used to make sure that there wouldn’t be any boundaries in

supply chain that is between Supplier, manufacturer and customers. This helped the

firm to increase their manufacturing Efficiency and thereby cutting down the

Operation cost to the minimum. This results in gaining more profits to the Investors.

C. Customer Oriented - SANDWICH ARTIST MODEL

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Consider a Situation where A Customer by name ‘YOU’ walks into a Subway for a

MEAL, reaches Counter for placing an Order and finds a Touch screen virtual access

for accessing the Menu of the restaurant.

WWW.DELL.COM is a Virtual Counter for accessing MENU of Dell Computers

on Internet. More than 3 Million Customers view this website weekly. www.dell.com

not only provides wide range of information about product line up but also offers an

option to configure systems and purchase it online. It also provides information about

Technical support, Information about its technological innovations, Service request

and database of the purchase, Helpdesk online and lots more.

Sales planning and strategy of both ‘DELL’ and ‘SUBWAY’ are quite similar to

one another. They help the customers to plan the module based on the necessity and

thereby improving the quality of purchase as well as delivering customer satisfaction.

The Web Pages also contains information about features and benefits of both hardware

components and software modules. One-on-One customer interaction with customer

at the time of customising a personal computer will provide an opportunity to predict

market demand and understand customer requirements.

The Sales and Customer database helps all the departments of the company like

Logistics and supply chain, design and Manufacturing, Production and quality control,

Sales and Marketing and all the employees to improve the performance in their

domains. It facilitates the organisation to measure the CSAT [customer satisfaction].

About the product by analysing the number of Promoters towards the company and

number of detractors of the company, It also helps in testing new products and services

before introducing to the Market.

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The sales strategy of DELL remains in service after customization. IT plays a vital

role in DELL Success. Website will provide the tentative amount of the product which

helps customer to estimate the actual price as per their requirements.

As no middleman is involved between Customer and Company, Transaction cost

which will be imposed in competitors can be excluded here at DELL. With the help of

these Internet Sites, Company operates paperless purchase, desired configuration of

the product, universal pricing and Purchase order tracking using real-time tracking

technique, Customer Purchase history and Audit trail of the product service

information, virtual help desk which can help customers to access information in

different major languages.

D. Partner Relationship.

Dell maintains a minimum stock level time in order to avoid Inventory

obsolescence. A major KPI of DELL is ‘Inventory movement TAT’ [Turn-around

Time]. Dell gives more priority to inventory movement rather than its Inventory stock.

It ensures higher pace in refilling the inventory to its MSL. Virtual integration plays a

vital role in maintaining better relationship with Suppliers. This technique helps Dell

to share its complete information with external suppliers in real time. On the other

hand, this also helps external suppliers to keep a track on its daily material

consumption trends. This information sharing feels Suppliers as a part of company

which also adds value to the collaboration.

E. Mass Customization

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Dell webpages Offer customers to virtually customize their PC’s in thousands of

different configurations. Customization includes permutation and combination of all

the components of the computer including Processor, Internal and External Memory

hard drive, Operating system, RAM, video card, Graphics card, CD-ROM and DVD-

ROM drive, Inbuilt Antivirus, zip drive, sound card, networking options for LAN,

Outer looks and Colour, Panel, Touch Screen. Dell ensures that technologies

incorporated for manufacturing customer desired are desired to Industrial standards.

The development team of Dell include program developers, Project managers

and Engineers who are qualified and capable of validating the quality Check in

different areas such as Design of System Architecture, Designing Logic Board layout

and module, Manufacturing Quality of components from suppliers, Communication

channels like WIFI, Bluetooth and LAN port, Operating Systems speed, Audio and

Display check, Battery backup, LED and LCD Display screen quality, Etc. This

Performance check and Internal Audit is to ensure that the PC manufactured from Dell

is up to the industrial standards and thereby meeting the cost objectives of the company

below the market price.

F. Just-In-Time Manufacturing

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The Dell has this concept of Just in time manufacturing and this means that after

the customer has given confirmation or ordered a product. The product is assembled

after that according to the customer’s requirements in a very short period of time and

delivered to the customers address directly. This concept is called just in time

manufacturing. The assembly of the components to make a complete system is done

by a small group of employees. The small work group is well trained and each one of

them have a designated work to carry on effectively. The inventory control is based on

customer satisfaction and is carried on at the point of assembly. After the order is taken,

the required components customized by customer are automatically delivered in trays

and baskets. The computer is assembled by the small group of employees. Each

computer is made separately. To manage the whole world, the people should work in

all shifts making to suffice the product with quality and time providing the customer

satisfaction. In a tightly coordinated supply chain it is all about how the managers

execute the process says Michael Dell.

The Dell’s ideology of maintaining closer relationships with the customers gives some

value delivered to them from factory. As Dell loads the software in the factory itself

and initially it was like an employee would visit the each desk manually and install the

software one by one and it would take a lot of time to do the manual process and the

labour cost involved was too high and so Dell came up with an idea to create a massive

network of high speed 100 MB Ethernet and by using this network a software can be

installed in a short period of time by providing the network cable in the each

workstation and when the system is identified automatically and the software’s are

automatically installed on the hard disk of a computer. The process involved would

initially cost around 100-200$ but after this technique was developed it cost them

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around 15-20$, which made the products and services more valuable to the customers

and the cost saved by this ideology was to reduce the product cost. Michael Dell stated

that the virtual integration model helped them to meet the customers faster and to be

more efficient than any other model. By using the virtual integration, makes the

company to be more efficient and to be able to respond to changes at the same time.

The main goal of the company is to be in advance of the change always and knowing

the change a little bit in advance to respond to the change and adapt to it more quickly.

This is the reason why Dell spends most of its time with customers.

The use of Virtual integration with IT by Dell has created a lot of competitive

advantages in the industry.

G. Manufacturing Process

Dell has a strong priority towards its operations. The computers manufactured by dell

are designed according to the customer requirement and there wouldn’t be any

warehouses or inventory, it shows the status as work in progress. The parts come from

the suppliers just in time and then directly the manufacturing process starts so that the

storage can be avoided. Several teams are present for building the computers from

initial process till the end, the team members have share in profits and incentives, the

performance of the teams are monitored hourly in the factory. There is no inventory

for finished products, once the computer is ready it is directly taken out from the

factory, this is achieved by maintaining close relationship with the supplier. Dell main

focus is on reducing inventory levels and to speed up the process.

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7. Recommendations:

Dell is facing more strategic issues being a top company in the market and the company

is also having many drawbacks as the current trend of selecting PC’s is based on only

IOS or windows software. There are many competitors for Dell like HP, Lenovo and

Acer ETC. The competitor companies also get the same manufactured products from

china and now a days the price of all the components has become the same everywhere

and people are giving more importance to quality of product and services offered. The

company takes 7 days to assemble and deliver the product as in the Dell’s website but

the current trend is that time is one of the important factors that play a vital role in

selecting Dell PC’s. The Dell should also come out with having own retail stores

making the product to be available instantly. The Dell can also launch pre-configured

systems and as well as provide customisation to the people who have enough time to

wait. The Dell is also not able to supply to all market needs due to the current strategy

of having limited vendors in the supply chain. The company should consider more

diverse suppliers enabling the company to offer more customised products. The Dell

should manufacture its own components rather than depending on suppliers to

maintain good quality of the product.

8. Conclusion:

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The Dell continues to be a top leading company by its unique ideas such as

customization and customer service. Dell is also able to cater quality products at

nominal pricing rates. The parts are readily available and they are just assembled and

shipped out in a few hours and Dell is able to maintain this consistency by using data

analytics. The Dell will always respond to the changes very quickly making it to adapt

to any environment. The Dell will focus more on Information Technology to make the

company to provide Information systems solutions. The Dell has an effective supply

chain management strategy to cater direct sales and it is also improving on technology

of fast information flow mechanisms like POS data .The risks associated with finished

inventory is completely minimized in Dell. The Production and distribution of Dell is

demand-driven and coordinated with true customer demand. Dell has decreased lead

time and variability in the manufacturers supply chain. Overall these factors of

managing supply chain makes Dell to be a top company in this world.

Summary of Zero-Time Disciplines

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Models of Instant Customization

9. References:

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