HOW DELL COMPUTER BTOS ITS VALUE CHAIN Dell Computer is well-known for its ability to mass produce computers that are customized to a customer's order, a production and operations process known as mass-customization or, in a value-chain context, a build-to-order (BTC) strategy. The ability to build to order depends on how well a company can efficiently meet customer demands at each stage of the value chain. At Dell, this ability depends on computer systems that link customer order information to production, assembly, and delivery operations. At Dell, the BTO process begins with receipt of the customer order from the Internet, fax, or telephone. It takes approximately one day to process the order and for production control to ensure that the necessary parts are in stock. Assembly and shipment take another day, and delivery to the customer's home or office takes a final 1 to 5 days. The value chain in place at most firms assumes a make-to-forecast strategy. That is, standard products are produced from long-term forecasts of customer demand. Thus, the primary activities of the value chain move from inbound logistics to operations to outbound logistics and then marketing and sales, all based on projections of what customers will be buying and in what quantities. A make-to-forecast strategy offers efficiencies in production, but if the forecasts are inaccurate, as they frequently are, the results are lost sales inadequate supply) or heavy discounting to move excess product (oversupply). Then the bottom line is, literally, less profit. Another major disadvantage of the make-to- forecast strategy is the inability of the firm to track ongoing changes in customer demand. Dell's value chain moves the marketing and sales activity forward to the front of the value chain. In its build-to-order strategy, Dell assembles the product only after the customer has placed the order, so marketing and sales come first. The primary disadvantage of the BTO strategy is system sensitivity to short- term changes in customer demand. For example, if a particular computer component suddenly becomes wildly popular or temporarily unavailable, the standard two-week supply in inventory may diminish fast and customer orders will not be completed on time. A successful build-to-order strategy offers companies like Dell numerous benefits in process, product, and volume flexibility. For example, customer requirements are linked directly to production. As a result, production decisions are based on up-to-the- minute customer demand, not long-range forecasts, which can be wildly inaccurate. This increases management's knowledge about trends in the marketplace and decreases inventory holding costs. BTO also offers partners in Dell's value system increased visibility to the demand and flow of goods. As noted in the text, understanding this entire value system can give additional insight and opportunities for competitive advantage. In addition, the support structures for BTO are naturally more flexible, creating a higher sense of responsiveness within the firm and a more flexible and agile company. One outcome of such flexibility is that adjustable price and sales incentives can be used to manage demand levels, rather than reactively discounting excess stock. Finally, because the customer gets exactly what he or she wants, first-time customers are likely to become repeat customers and recommend Dell to friends and colleagues. Executing a build-to-order strategy isn't easy, as many companies have found out. Not only must interconnected information systems be built, but BTO frequently requires a change in organizational culture, managerial thinking, and supplier interactions and support. Inevitably the process begins by acquiring a better understanding of customer demand; then improvements in information flow will produce the ability to increase responsiveness in all areas of the value chain. Case Study Questions: 1. What are the implications (specifically opportunities and threats) of BTO for the value chains of suppliers of Dell components? 2. Find another company that uses a BTO strategy. How does the BTO strategy benefit that company