Drivers of Dell’s supply chain performance:

1. Facilities:
Facilities is the physical locations in the supply chain network where product is stored,
assembled or fabricated. And this study will focus on Dell’s manufacturing locations.
While Dell does not manufacture its own components or subassemblies, it does handle final
assembly for nearly all of its laptops. Dell organizes manufacturing by region, operating one or
more assembly plants to serve its major markets. Plants in the Austin, Texas and Nashville,
Tennessee areas serve North America; Eldorado do Sul, Brazil serves Brazil and South
America; Penang, Malaysia serves the Asia- Pacific region; Xiamen, China serves China and
Japan; and Limerick, Ireland serves Europe, the Middle East and Africa.

Dell’s decisions about where to locate are driven by the need to minimize costs while extending
the build-to-order, direct sales model around the world. Given the need to have production and
support capabilities in the major markets, Dell selects specific locations based on a combination
of factors including labor costs, transportation and information infrastructure, market access,
proximity to markets and government incentives. The role of these factors can be seen by
looking at particular locations of Dell facilities

 Texas: Dell’s original headquarters was in Austin, Texas, where Michael Dell founded
the company in 1984. Dell maintains manufacturing facilities in Austin, including it’s a
high-volume Metric 12 plant that assembles estimated 4 million PCs per year. Overall,
Dell has about half of its 36,000 employees in central Texas, owing to incentives, a
relatively low-cost workforce (compared to other U.S. locations), and a tendency to
expand existing capacity rather than look elsewhere as the company grew.

 Tennessee: Dell opened its first North American manufacturing facility outside of
Texas in 1999, in Nashville, Tennessee. Nashville was chosen for very generous state
and local tax incentives, good transport infrastructure, good labor supply and location
central to East Coast markets.

 Brazil: The decision was motivated by the need for production to supply the South
American market. Locating in Brazil enabled Dell to avoid tariffs that can nearly
double the price of an imported $1,000 PC, according to Dell. In any case, Brazil is by
far the largest market in South America, and it would be impossible to compete there
with such a price disadvantage. Also, PCs produced in Brazil can be exported without
tariff to other Mercosur countries, which include Argentina, Uruguay and Paraguay.

 Europe/Middle East/Africa (EMEA): Dell opened an assembly plant in Limerick,

Ireland in 1990 to serve the European market. Dell located in Limerick initially
because of the low cost and high quality of labor. Today labor costs are much higher,
 but the work force is still highly skilled and non-union. Another advantage of Ireland
is its low corporate tax rates. In addition, Ireland is part of the European Community,
so products made in Ireland can be shipped to Europe without paying the value-added
tax. Another factor was the tax incentives and other support offered by the Irish
Development Agency. The agency helped Dell find land, set up its facilities, and
assisted with job training.

Figure 1. Dell manufacturing facilities

2. Inventory:
Famous inventory management solutions of Dell are “just in time” (JIT) and “build-to-order”.
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 third party logistics 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.

Dell requires its suppliers to keep inventory on hand in the Austin revolvers (for “revolving”
inventory) in order to compensate for long lead times and buffer against demand variability.
Because in most cases, Dell has significantly less time to respond to customers than it takes to
transport components from its suppliers to its assembly plants. Many of the suppliers are located
in Southeast Asia and their transportation times to Austin range from seven days for air
shipments to upwards of 30 days by water and ground. Revolvers or supplier logistics centers
(SLCs) are small warehouses located within a few miles of Dell’s assembly plants. Each of the
revolvers is shared by several suppliers who pay rents for using their revolver. Dell does not own
the inventory in its revolvers; this inventory is owned by suppliers and charged to Dell indirectly
through component pricing. The cost of maintaining inventory in the supply chain is, however,
eventually included in the final prices of the computers. Therefore, any reduction in inventory
benefits Dell’s customers directly by reducing product prices. Low inventories also lead to higher
product quality, because Dell detects any quality problems more quickly than it would with high
inventories.

Dell also demands from its suppliers to provide them with goods in a “high speed” – so instead
of orders such as “deliver 5000 to this warehouse every two weeks”, the form of orders is more
like “tomorrow morning we need 6.795 to be delivered at door A3 (of the warehouse) by 7 am”.
A new notion that Dell has introduced is the one of inventory velocity, and it focuses on
minimizing inventory and maximizing speed. It is worth mentioning that Dell holds an average
of less than 6 days of inventory, while the corresponding average of its competitors is 6 weeks.

To help suppliers make more exactly ordering decisions, Dell shares its forecasts with them once
per month. In addition to product-specific trends, they obviously reflect the seasonality in sales.
For home systems, Christmas is the top time of the year. Other high-demand periods include the
back-to-school season, the end of the year when the government makes big purchases, and
country-specific high seasons for foreign purchases. Dell sales also increase at the ends of
quarters (referred to as the hockey stick).

Disadvantages of “build-to-order”:
While “build-to-order” manufacturing brings significant advantages, in negative side, Dell’s
company have a low supply of ready-to-sell products and costumers have to wait longer to
obtain their customized products.
 Low supply: employers do not have a ready supply of inventory to sell. Instead of having
stores filled with inventory, orders are taken by phone or on websites and filled per order.
This eliminates the chance for customers to go into a store and buy something and take it
 home that day. This could cause employers to lose profits from potential sales and it
could also decrease the overall profitability of a company.
 Waiting time: The build-to-order strategy takes longer for customer orders to be filled
(transportation times to suppliers in Austin range from seven days for air shipments to
upwards of 30 days by water and ground). A long wait time could send individuals away
to purchase from other stores with full inventories. A delay in time could cause the
company to lose potential sales and slow cash flow.

3. Transportation and distribution stategy: (Cái này t không chắc có bỏ Distribution

vô được không, vì trong 6 drivers không có Distribution nhưng chapter 6
Distribution với Transportation đi chung!)
3.1. Transportation:
Some transportation partners of Dell are DHL, FedEX, UPS and DB Schenker. There are famous
transportation companies in the world and they ensure transportation of Dell will be efficiency
and environmental stewardship.

According to Dell’s transportation decisions, Dell has introduced that whether they are sending
one laptop to a student in India or thousands to a business in Indiana, they must ship products in
a way that gets each order to its correct destination with all contents intact. And behind the
scenes, they do as much as possible to minimize the environmental footprint of each shipment.
From choosing the right transportation mode to right-sizing our packaging, they continuously
refine our global transportation and logistics network to achieve a smaller footprint.
To achieve these targets, they have had resolutions related to green transportation and logistics,
including:
 Optimizing transportation networks: By working with our partners, looking at more
efficient modes of transportation (shifting from air to sea, for example) and optimizing
route selection, we can cut waste and reduce carbon emissions. This applies both to
outbound and to moving materials around our supply chain as well.
 Right-sizing and container optimization: The shape and size of packaging has a
profound effect on how many units can fit on a pallet or in a container. They’ve
concentrated on reducing the size of our packaging through our 3 Cs strategy, which
allows them to ship more units per pallet or per container. They’ve also refined the
processes for both pallet building and trailer loading to take advantage of changed
dimensions and to decrease load times, helping reduce fuel consumption and carbon
emissions.
 Reverse logistics (product returns): They make every effort to decrease product returns,
but it happens. If an order is cancelled or returned, they will quickly return it to
usefulness by refurbishing (if necessary) and reselling approximately 90 percent of what
comes back – about 800,000 units per year. These are resold via the Global Dell
Outlet and whether they are Certified Refurbished, Dell Outlet New, or Scratch and Dent,
they all carry the Same-as-New warranty. The remaining 10 percent that cannot be
refurbished/resold are responsibly recycled.
 Retail partner expansion: They’ve also found ways to complete retail orders closer to
end customers and consolidate them into fewer shipments. This reduces travel distance,
fuel consumption and carbon emissions. For example, they process some orders in the
U.S. through distribution centers, while others are handled directly. In Europe, they
expanded their fulfillment center network for retail orders on the mainland and changed
the way they deliver accessories. Both changes reduced truckload volumes and fuel
consumption.

3.2. Distribution strategy:

Dell has figured out a new way to sell computer to the consumer, which if through direct
distribution. 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, this way the intermediary steps that may add
time and cost are eliminated, and Dell is directly linked to its customers. The direct approach
allows Dell to build a relationship, which makes it quick and easy for customers to do business
with Dell. By using a direct distribution approach, Dell was able to gain a competitive advantage
by many reasons such as:
 First of all, direct distribution allows Dell to eliminate wholesalers. This is advantageous
because Dell does not have to deal with wholesalers and have to be responsible for
keeping track of inventory for numerous wholesalers.
  Second, Dell has eliminated retailers. This is effective because without retailers, Dell
does not have to receive customer orders through thousands of different retailers- they
can take orders directly from the customer, and eliminate the hassle of selling
their product through retailers.
Dell’s direct sales model has many advantages but there are a few disadvantages of the
direct sales model. The biggest component is the shipping aspect and others include the
customer service component before, during, and after the product is completed, Dell is handing
all aspects of the computer building process directly and sending it to the customer, they have to
pay for the cost of shipping. Other companies produce the computer and send them in bulk. Dell
is at a disadvantage because they are sending individual or very small orders directly to many
consumers. The other issue of the direct sales model is that you have to shoulder all the related
support costs, from handling information requests before the sale to taking and tracking orders to
handling service inquiries after the sale. You do not have the ability to pass any of those costs
into retailers because you are handling every aspect of the transaction. In summary, the direct
sales model provides a cost advantage on the production side, but brings a cost disadvantage on
the support side.

4. Information
4.1. Technology
The Dell supply chain management (SCM) database systems handle key business functions that
support worldwide manufacturing operations, including the efficient Dell inventory management
model and fast, direct delivery of computers, accessories, parts and supplies. These systems must
be designed for reliability and cost- effective scalability. The Dell IT group ran its SCM database
applications on large expensive, proprietary servers based on the UNIX OS. However, as the
company grew, servers lacking the necessary capacity had to be replaced with even larger, more
powerful servers.
Dell’s information system allows customers to use their ERP procurement application to order
products. Dell provides customers with personal support sites where information about the
products and their history conditions are kept and processed. Dell works with various suppliers
for components and software. The effective use of information systems to collaborate with
suppliers gives Dell several important advantages. Dell’s phenomenal success has been largely
due to its strategic use of IS to complement its unique business and organizational strategies.

The IS currently used in Dell are Supply Chain Management (SCM) and Enterprise Resource
Planning (ERP) to identify specific components, check inventory, automatically setup
components and send to the appropriate suppliers when received customers order. Electronic
Data Interchange (EDI) used to transmitting and receiving purchase orders, invoices and
shipping schedules. Dell also uses "just-in-time" (JIT) system for manufacturing approach. Order
Management System (DOMS) used by customer service, sales, finance and human resources
department for entering order data and check payment. Customer Relationship Management
(CRM) used to determine customers target and segment effectively. In additional, Dell used IT
Inventory Management, online system and Wed Pages for customers to get all information and
customized products, E-commerce to improve supply chain and customer services. HR
operations and HR management in Dell used Human Resource Management System(HRM) to
motivate and training employee (Wiley, n.d).

4.2. Coordination and information sharing

To successfully forecast demand, Dell maintains a constant flow of data in two information
loops: one between customers and the Dell sales team, and the other among sales, procurement,
and suppliers.
Key metrics Dell shares with suppliers include forecasted sales dollars, sales quantities and parts
requirements. In return, it receives data about how well suppliers can support these forecasts.
The information Dell receives from suppliers tells its sales team what products it can effectively
promote. "That really goes to a demand-shaping concept."
4.3. Push-pull strategy (thấy trong slide thầy trong phần information có phần
push-pull, tao search gg thì thấy dell có cái push pull strategy nên bỏ vô mà k biết
đúng k nữa)

In many ways, Dell’s process borrows from “Just in Time” (JIT) supply chains in terms of
limiting inventory levels. However, Dell focuses more on a push-pull strategy one where it
pushes options to its customers, and then uses that customer order to pull demand for the
computer manufacturer by dictating what parts, components and consumables are needed within
its supply chain and assembly line. The customer makes a decision and that decision then
determines what inventory is pulled through the supply chain.

Dell adheres to three essential principles in order to ensure that its approach is a success.

 Minimal Inventory Counts:

One of the pivotal rules of Dell’s strategy is that it relies upon maintaining minimal inventory
counts of components and consumables. Inventory obsolescence is avoided at all costs and steps
are constantly taken to reduce the costs of outdated and antiquated inventory. A large portion of
this strategy is borne out of necessity; the company must maintain minimal inventory levels due
to the rapid changes in technology within the computer industry, changes that make consumables
and component inventory all but obsolete from one day to the next. However, the strategy also
helps to reduce the company’s cost of capital. The company lowers its costs of inventory
financing and receivable financing by only taking in what it’s guaranteed to ship to customers.
This allows the company to reduce it costs of capital, improve its cash flow and most
importantly, reduce its financing. In essence, Dell gets paid for its product through a direct sales
model well before the company has to pay its own vendors.
 Custom-Made Finished Goods:
The order fulfillment portion of the strategy allows Dell to provide a custom-made finished
good, one where customers decide upon options that are controlled by the computer
manufacturer itself. There are several inherent advantages to providing custom-made products
directly to end-users. First, the company eliminates the need to sell through wholesalers and
retailers, thereby reducing their markup and eliminating the middlemen in the value chain.
Second, providing finished goods directly to end-users allows the computer manufacturer to
employ a direct sales model, one that it can use to push other products and services to its
customer base. Third, providing custom-made finished goods gives the company an advantage
over its competitors in terms of its ability to provide a value-added product and service, one that
is matched to the customer’s unique requirements and one that is rarely matched by Dell’s
competition.
 Strong Direct End-User Customer Service:
Dell employs a strong direct end-user customer service support system. Customers are able to
deal directly with the company's service technicians and customer support center. Eliminating
those aforementioned retailers allows Dell to have more control over its product offering, and
more control over the type of customer service its customer base receives.
The company gains invaluable insight into its customers’ preferences and the multiple customer
segments within its market. The costs to manage such information are much less than if the
company had to define its market segments and customer preferences through several layers of
retailers. In essence, employing a direct sales model reduces the costs of managing vital
customer data. Dell need not rely upon others (retailers) in order to define their market, their
customers and their business cycles.
5. Sourcing
The demands of Dell’s model have led it to adopt a new organizational structure referred to as a
virtual company or value web. It is marked by a focus on a few key strategic activities, and
extensive outsourcing of non-strategic activities. Dell works closely with external partners to
produce its PC products and to offer its customers an array of additional products and services
that add value and allow Dell to capture a larger share of the customer’s IT spending.

To manufacture its products, Dell coordinates a global production network that spans the
Americas, Europe and Asia, combining in-house final assembly with heavy reliance on outside
suppliers and contract manufacturers. Manufacturing of printed circuit board assemblies
(PCBAs), subassemblies (box builds), and some final products (mainly notebook PCs) is handled
by contract manufacturers or original design manufacturers such as SCI, Solectron, Celestica,
Hon Hai, Quanta and Arima. Like other PC makers, Dell relies on outside suppliers for
components and peripherals such as disk drives, CD-ROM drives, semiconductors, add-on cards,
monitors, keyboards, mice and speakers. Its PCs can be bundled with standard software such as
Microsoft Office or with specialized software requested by corporate customers.
Unlike other PC makers, Dell has avoided outsourcing final assembly of its products. It
outsources subassemblies, such as motherboards and bare-bones PCs, and outsources nearly
complete assembly of notebook PCs, doing only limited final configuration in its own assembly
plants. Also, in 2001, Dell outsourced production of a standard, non-configurable PC called the
Smart Step to Taiwan’s Mitac, which is manufacturing the product in its plants in China
(Commercial Times, 2001). But in general, Dell prefers to keep control over the key final 10
assembly and configuration processes for the bulk of its products. One reason is a concern that
by outsourcing its manufacturing completely, Dell might be creating its own competitors, as U.S.
television makers did when they outsourced to Japanese suppliers. Also, unlike some of its major
competitors (IBM, HP, Compaq), Dell’s main business is PCs, and it feels it cannot afford to give
up its capabilities in PC production (Louise O’Brien, 2001).

A network of suppliers and contract manufacturers supports each production facility. Sourcing
decisions are made by worldwide procurement and product development in Austin with input
from the regions. Most sourcing is global, which means that Dell sources major components for
all locations from their headquarters. This allows Dell to consolidate its buying power and get
better terms from suppliers.

While sourcing of materials for PCs (major components and systems) is done centrally, sourcing
of consumables is local (box and shipping material, printing of keyboards, printing of manuals,
etc.). The majority of sourcing is from low cost suppliers in Asia, but some sourcing is from local
producers. For example, monitors for the EMEA region are purchased from Sony, Samsung and
Acer, and shipped by sea from Asia, but monitors are also purchased locally from Phillips and
Nokia. This might be due to product specifications, need for backup supply or price. For major
components, Dell looks for suppliers with global capabilities such as Intel, SCI, IBM, Samsung,
Toshiba, Sony and Seagate.

For each major component, it usually works with only a few suppliers, e.g., with Seagate,
Maxtor, Western Digital and IBM for disk drives. Local suppliers in each region provide other
parts. Suppliers are required to maintain inventory near or in Dell plants to support Dell’s build-
to-order production. They can produce elsewhere and ship to supply hubs, or they can set up
production nearby. For EMEA and the Americas, Asian suppliers increasingly do both. In some
plants, components are actually kept in trucks backed up to shipping docks, and are pulled off as
needed.

Disadvantages: Dell is dependent upon large number of suppliers in different countries for it
products and components. It doesn’t not have any dealer or retailer relationships, which can offer
significant disadvantages. In addition to that, it does not have any commercially developed
technology, which can be its own patents.

 Dell’s Service Partners

Rather than do everything itself, Dell has made extensive use of business partners to help serve
its customers, especially as it has moved into producing servers and targeting the small and
medium business market. Three functions - systems integration, service and repair, and
consulting - all have to be located very close to the customer, as they involve direct contact with
the customer. Dell partners with companies that can deliver these services globally - or at least
regionally.

 System integration: Dell partners for procurements with integrators like Electronic Data
Systems (EDS) who will install Dell servers and link them up with end user devices.
 Service and repair: Dell also partners with firms like IBM, Unisys, Wang and Banctec for
field service and repair. While 90% of service incidents are handled by telephone in Dell’s call
centers, about 10% involve field calls, which Dell has outsourced to these partners. Their field
service units are tied to Dell electronically, and get the orders for field service within an hour or
two of a call coming in to Dell.
 Consulting: Dell partners with Arthur Andersen and Gen 3 in the U.S. to provide
consulting services to companies that seek to emulate Dell’s success with the direct model and
Internet based IT.

6. Pricing

Gone are the days, when the manufacturers were the price makers, now-a-days, in fact, the
customers are the price makers. In other words, the customers look for the prices from various
manufacturers and finally purchase a product from the manufacturer with the most economical
price, so if a manufacturers pricing is not competitive, then the manufacturer will not stay
competitive. So, the companies should price their products competitively.
Dell adopting the competitive price strategy, namely not the blind entering the market at a low
price, but different from the customer according to the rival, market conditions, make different
competitiveness prices separately. For example;
On the webpage that is set up for the small business specially, the note-book computer pricing of a
Latitude l400 is $2307, on the webpage that is set up for health care enterprises specially; its price
is $2228, cheaper by 3% than that of the price displayed on the web, while the price offered to the
government is $2072. In actual sale, it can also follow the rival and market situation, adjust the
price at any time, even can change the price two times in one day, and the purpose is for keeping
the long-term advantage at this kind of price.

In notebook category, Dell has priced Inspiron series laptops at lower prices followed by XPS,
which is priced premium and Alienware series accounts for highest priced laptop in its notebook
product portfolio. The pricing strategy in the marketing mix of Dell has set different set of prices
based on the consumer segment it is targeting which includes consumer segment and business
segment. The pricing also varies based on the hardware chosen and the operating system version
selected. The customization feature has helped Dell to increase its market share as users prefer to
configure their laptops as per their requirements. Dell allowed customers to customize their
laptop hardware configuration which differentiated it from its competitors. Also it provided
various bundling offers as it gives accessories, extended warranty for the customers. Dell also
helps its customers to choose the product by providing guides and “Help me feature” that assist
users

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https://www.academia.edu/15958201/Dell_Management_Information_System
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