OPERATIONS MANAGEMENT

Assignment #5 CASE STUDY: Dells Value Chain

Date: 13/5/2012

Group Members: Maha Jameel Toseef Ahmad Umer Qasim Zainab Malik

Presented To: Ms. Faryal Khan

Question 1: How has Dell used its direct sales and build to order model to develop an exceptional supply chain? Answer: Dell encourages suppliers to focus on their individual technological capabilities to sustain leadership in their components. Suppliers are also pressed to drive down lead times, lot sizes, and inventories. Dell constructs special Web pages for suppliers to plan based on actual end customer demand. On the distribution side, Dell uses direct sales, primarily via the Internet, to increase revenues by offering a virtually unlimited variety of desktops, notebooks, and enterprise products. Options displayed over the Internet allow Dell to attract customers that value choice. Customers select recommended product configurations or customize them. Dells customers place orders at any time of the day from anywhere in the world. Dell has track past purchases and place orders consistent with their purchase history and current needs. Dell has used its direct sales and build-to-order model to create this exceptional supply chain by integrating everything from the beginning to the end process. Dell starts by researching customer to find out what they want. As soon as an initial product is designed, Dell starts to market that product on the web-site. Dell does not start to produce any of the products until the customer tells Dell exactly what they want and pays for the product. Only then does the procurement process start. Dell has improved the supply chain to make it exceptional by integrating the suppliers. The suppliers have a Web page which informs them of pending orders. This allows the suppliers to plan based on actual demand. This sales model created an exceptional supply chain because this integration of activities from the procurement of materials to the final product and Dells direct shipment to the customer can be done in a matter of hours compared to months. In addition, this allows for exceptional cash flow compared to traditional methods since the payment is received before Dell pays for the components itself.

Question 2: How has Dell exploited the direct sales model to improve operations performance? Answer: Dell has been able to exploit the direct sales model because of the internet. Dell has been able to attract customers that value choice from all over the world. Dells prices are cheaper because they dont have the brick and mortar to pay for and customers cannot customize their products. Dell can introduce a new product to customers over the internet as soon as the first model is ready. In an industry where products have life cycles measured in months, Dell enjoys a huge early-to-market advantage. Dell has compressed its supply chain by directly linking the orders directly to the suppliers. Suppliers can view existing orders so they know if or how many components to produce and ship. This supply chain compression gives Dell a substantial unit cost advantage over someone else. With an inventory turnover rate of about 60 times per year, Dell has minimized the rapid depreciation and inventory write-off costs that typically hurt the PC industry. Also because of its direct sales model, Dell operates on a negative cash conversion cycle. Dell receives its money prior to having to pay its suppliers for the components. Dells direct sales model has improved operations because the customer can order exactly what they

would like without Dell having to worry about stocking every imaginable product. Dell receives the orders and payment for the item and the customer receives the exact product and accessories they want within day delivery right to their house. Question3: What are the main disadvantages of Dells direct sales model? Answer: Dells 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 mass 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 onto 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. Question 4: How does Dell compete with a retailer who already has a stock? Answer: Dell competes by allowing itself low inventory and high customization by postponing assembly and manufacturing its products according to demand. This is relatively easy for them as their inventory is in the form of components which is easily assembled. Since many consumers like to see and feel a product before purchasing Dell had to create a different way to compete. The most obvious is the price issue. Since Dell doesnt have to pay for the brick and mortar buildings, they can sell at a lower price because of their lower fixed costs. The other big way that Dell competes with a retailer that already has computers in stock is by allowing the consumer to customize their computer to exactly what they want. The stores have limited supplies with limited selection. Due to the supply chain model they have set up, Dell allows customers virtually unlimited option for them to customize their computer. In addition, Dell can produce the computer in a matter of hours and have it shipped to the customer in a matter of days. In summary, Dell competes with a retailer by offering a lower price and allowing the consumer to customize the product to the options that they prefer. Question 5: How does Dells supply chain deal with the bullwhip effect? Answer: Theoretically the Bullwhip effect does not occur if all orders exactly meet the demand of each period. This is consistent with findings of supply chain experts who have recognized that the Bullwhip Effect is a problem in forecast-driven supply chains, and careful management of the effect is an important goal for in supply chain management. Therefore it is necessary to try to figure out demand as far in advance as possible.

Dell has achieved this by constructing Web pages for the suppliers. These pages allow the suppliers to view order for components they produce as well as how much stock is currently in inventory at Dell. This allows the supplies to build for demand in real time. In summary, if you can build in real time based on actual demand you will not have to worry about inventory buildup of unnecessary components and products. Dells customized web-page for suppliers allows them to reduce the bullwhip effect.