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Dell Case Study

Dell Computer, with close supplier relationships, encourages suppliers to focus on their individual technological capabilities to sustain their market. Research and development costs are too high and technological changes are too rapid for any one company to sustain leadership in every component. Suppliers are also pressed to drive down lead time, lot sizes and inventories. Dell, in turn keeps its research customer-focused and leverages that research to help itself and suppliers. Dell also construct special web pages for suppliers, allowing them to view orders for materials they supplied as well as current levels of inventory at Dell. With the collaboration, the company not only helps the suppliers to keep supply chain moving smoothly, yet they could also offer the latest options, can built-to-order and can achieve rapid throughput. The payoff is a competitive advantage, growing market share, and low capital investment.

On the distribution side, Dell uses direct sales, primarily through Internet to increase revenues by offering a virtually unlimited variety of desktops, notebooks and enterprise products. Options displayed over the Internet allow the company to attract customers that value choices and latest trends. The customers place order at any time of the day from anywhere in the world. And the price is cheaper since retail stores have additional costs because of their brick and mortar model. The company has also customized web pages that enable large business customers to track past purchases and place orders consistent with their purchase history and current needs. Assembly begins immediately after receipt of customer order. Competing firms have previously assembled products filling the distribution channels before a product reaches the customer. Dell, in contrast introduces a new product to customers over the Internet as soon as the first of that model is ready. In an industry where products have life cycles measured in months, Dell enjoys a huge early-to-market advantage.

This business model also allows them to enjoy cash flow advantage. Direct sales permit the company to eliminate distributor and retailer margins and increase their own margin. The company collects payment in a matter of days after products are sold, but pay the suppliers according to the traditional billing schedules. Given the low inventory levels, the company is able to operate business with negative working capital as the payment from customers is received before they need to pay the suppliers. Postponement, component modularity and tight scheduling allow low inventory and support mass customization. Manufacturers who sell via distributors and retailers find postponement virtually impossible. Therefore, traditional manufacturers are often stuck with product configurations that are not selling while simultaneously being out of the configurations that are selling.

What the company has done is build a collaborative supply chain an innovative ordering and production system. The result is what the company likes to refer as value chain a chain that brings value from supplier to customer while providing competitive advantage.

1. How does the technology helps in enhancing the process performance at Dell?

2. Explain what does postponement and modularity means, and how these two approaches help support Dells mass customization