1.INTRODUCTION 2.SUPPLY CHAIN SYSTEM

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1 1.INTRODUCTION Dell, Inc is a multinational technology corporation that develops, manufactures, sells, and supports personal computers and other computer-related products. Based in Round Rock, Texas, Dell employs more than 82,700 people worldwide. Dell grew during the 1980s and 1990s to become (for a time) the largest seller of PCs and servers. As of 2008 it held the second spot in computer-sales within the industry behind HP. The company currently sells personal computers, servers, data storage devices, network switches, software, and computer peripherals. Dell is a trusted and diversified information-technology supplier and partner, and sells a comprehensive portfolio of products and services directly to customers worldwide. Dell, recognized by Fortune magazine as America's most admired company and No. 3 globally, designs, builds and delivers innovative, tailored systems that provide customers with exceptional value. Dell's remarkable climb to market leadership is the result of a persistent focus on delivering the best possible customer experience. Revenue for the past four quarters totaled $49.2 billion*. The company manufactures its computer systems at six locations: Central Texas and Middle Tennessee in the United States: Eldorado do Sul, Brazil; Limerick, Ireland; Penang, Malaysia; and Xiamen, China. Dell sells its products and services worldwide. Dell was founded in 1984 by Michael Dell, the computer industry's longesttenured chief executive officer and currently, the company's chairman, on a simple concept: a direct model. Dell's Direct Model is built on the principle that by selling computer systems directly to customers, Dell could best understand their needs and efficiently provide the most effective computing solutions to meet those needs. 2.SUPPLY CHAIN SYSTEM The Dell SCM system must handle an enormous number of transactions and pieces of information, and includes multiple core components necessary to keep operations running smoothly: 2.1 Configuration management: The configuration management component manages over 1 million Dell part numbers per year across approximately 200 product families, and over 2 million bills of materials (BOMs) per year. BOMs listing component part numbers are created for manufacturing facilities to build assemblies and subassemblies for Dell products. 2.2 Procurement: The procurement component manages nearly 1.8 million purchase order lines per year from more than 5,000 suppliers worldwide. To streamline the procurement

2 process, Dell uses an automated application that includes workflow approvals and vendor communication and enables services such as defective part replacement. 2.3 Cost: The cost component runs mostly in batch mode to calculate the costs to Dell for all BOMs. These batch jobs run weekly, monthly, and quarterly, with each job aggregating total material costs. 2.4 Inventory: The inventory component manages more than 3 million inventory movements daily from stock rooms to factory floors across all Dell sites, along with the corresponding 3 million messages transmitted to different systems for reporting, analysis, and factory scheduling. 2.5 Accounts payable: The accounts payable component handles approximately 15,000 items per day, including payments to Dell suppliers, invoices, and receipts. Vendor information includes vendor ID number, location, negotiated terms, and contact information. 3. SUPPLY CHAIN MANAGEMENT Dell sells its computer systems directly to end customers, bypassing distributors and retailers (resellers). Dell's supply chain consists of only three stages the suppliers, the manufacturer (Dell), and end users. Dell s direct contact with customers allows it to: properly identify market segments, analyze the requirements and profitability of each segment, and Develop more accurate demand forecasts. Dell matches supply and demand because its customers order computer configurations over the phone or online (Internet). These computer configurations are built up from components that are available. Dell s strategy is to provide customized, low cost, and quality computers that are delivered on time. Dell successfully implemented this strategy through its efficient manufacturing operations, better supply chain management and direct sales model. Dell takes orders directly from its customers; either on phone or online. Thus, Dell reduces the cost of intermediaries that would otherwise add up to the total cost of PC for the customer. Dell also saves time on processing orders that other companies normally incur in their sales and distribution system. Moreover, by directly dealing with the customer Dell gets a clearer indication of market trends. This helps Dell to plan for future besides better managing its supply chain.

3 Another advantage Dell gets by directly dealing with the customer is that it is able to get the customers requirements regarding software to be loaded. Dell loads the ordered software in its plant itself before dispatching it. By eliminating the need of a PC support engineer to load software, the customers gain both in time and cost. They can use the PC s the moment they arrive. 3.1 The Direct Model Dell's direct selling model traces its origins to Michael's ( founder) idea of selling computers directly to the consumer eliminating the need for middlemen and distributors. Michael believed that by selling PCs directly to the consumers, the company would be able to better understand the needs of its customers. The first computer that the company introduced in Turbo PC, was advertised in computer magazines and sold directly to customers. Dell also began employing computer literate sales personnel, who guided consumers in their choice of systems. Each system was assembled according to the preferences of the customers. This option helped customers to get computers at a price lower than other brands. 3.2 Role of Dell Suppliers In order to manage its operations with low inventory levels, Dell collaborated closely with its suppliers. The company's procurement decisions were based on four criteria - quality, cost, delivery and technology. Suppliers were selected on the basis of cost (given a weightage of 30%) and quality, service and flexibility (with a weightage of 70%).

4 3.3 Balancing Demand and Supply Dell maintained a database to track the purchasing patterns of corporate customers and their budget cycles, in order to forecast demand. It also maintained a similar database for individual customers in order to cater to their future requirements for PCs. Through its forecasting techniques, Dell was able to forecast demand with 75% accuracy. Thrice a day, the changing demand patterns were communicated to the major suppliers. In all the countries in which Dell operated it had a direct sales force, which was directed by the marketing department located at the headquarters. 3.4 Production Process Dell received orders via the telephone, Internet, , etc. Orders were received by business units, which downloaded the orders every 15 minutes. With advancement in technologies, the choices available for the consumers also widened. Customers could use Dell's website to configure their customized computer and place an order for it. Customers could choose from a variety of products ranging from desktops, notebooks, servers, printers, etc. The website catered to different segments of customers like individuals, home office customers, small businesses, medium businesses, large businesses and public sector customers like Government departments, educational institutions and healthcare institutions. 3.5 The Benefits Dell maintained nearly zero inventories for some of its components. With the value of inventory declining rapidly at an average of 0.5% a week, holding a significant amount of inventory did not prove to be an advantage. As Dell did not hold large inventory of finished products, it did not have to sell technologically obsolete products at a discount. Dell was able to bring in new products according to the needs of the customers into the market faster than its competitors. In 2004, the inventory turnover rate in Dell was at 107 times a year, compared to 8.5 times at HP and 17.5 times in IBM. 3.5 The Problems In the years 2005 and 2006, Dell faced several problems, and lost its coveted position as the largest selling PC manufacturer to HP. HP was able to surge ahead of Dell by procuring components at a cheaper price and improving its supply chain management practices. Dell's problems included growing complexities in its product line and pricing system. At the same time, demand from the corporate buyers, who accounted for a major share of Dell's sales fell. According to a survey by CIO

5 Insight, technology spending among companies with revenues of US$ 500 million decreased by 1.3% in DELL S COMPETITIVE ADVANTAGE Dell is having one of the best SCM in the world. 90% supplies ordered online using integrated websites of supplier and Dell (B2B). 95% of suppliers situated very close to assembly plant hence coordination is easier. Dell s factories have only 7 hrs worth of inventory for most items whereas industry wise it is around 10 days. 15 suppliers provide almost 85% of all supplies. Dell gets paid by customers and then pays to its suppliers. 5. INVENTORY MANAGEMENT Dell has a special vendor-managed-inventory (VMI) arrangement with its suppliers: Suppliers decide how much inventory to order and when to order while Dell sets target inventory levels and records suppliers' deviations from the targets. Dell heuristically chose an inventory target of 10 days supply, and it uses a quarterly supplier scorecard to evaluate how well each supplier does in maintaining this target inventory in the revolver. Dell withdraws inventory from the revolvers as needed, on average every two hours. If the commodity is multisourced (that is, parts from different suppliers are completely interchangeable), Dell can withdraw (pull) those components from any subset of the suppliers. Dell often withdraws components from one supplier for a few days before switching to another. Suppliers decide when to send their goods to their revolvers. In practice, most suppliers deliver to their revolvers on average three times a week. Dell had been setting inventory targets based on empirical data and judgment with no clear reference to any desired service levels. Dell hypothesized that it could reduce revolver inventory markedly by using a more rigorous approach and gaining better visibility of the inventory throughout the supply chain. Once it determined an optimized inventory level, Dell could collaborate with its suppliers to eliminate excess inventory.

6 References: Boone, James (2000, May 12). Dell's Competitive Advantage. Retrieved April 3, 2004 from University of Central Florida, SWOT Analysis DELL, Marketing Teacher Est.2000 Implementation study: DELL IT Scales supply chain Management with Oracle RAC 10g By Dave Jaffe, Ph.D., Todd Muirhead, Tiong Tey, Raveendra Avutu o Dell Power Solutions, May Go Green with DELL Commitment to the Environment, Energy Saving Hardware Design, Global Responsibility Keeping Technology Out of the Trash, April Dell Manages Profitability, Not Inventory dated 6/2/2003 o Harvard Business School, review by by Jonathan Byrnes Performance measurement & Risk management at Dell by Thomas Meredith, September 01, 1998