- 2004 one of the worlds great computer companies leading share in personal computer and server business.
- 2004 Dell’s revenues grew from 6 to 41billion and over 2% on global market share when computer makers lost money due to slumping global demand for Pcs.
- 1/3 sales US
- Cost structure is lowest in the industry= dells global manufacturing and supply chain management strategy
- Brazil, Ireland, Malaysia, china, US. Low labor cost, high productivity of local workforce, proximity to important regional markets to reduce shipping costs and time.
- Dell costumer support operations: Bangalore, India, low wage rates, and availability of educated English speaking. Difference in culture US/India -> complains, move some operations to US.
- Supply Base: 200 Global suppliers. 50% China.
Business Model: direct selling, no wholesalers or retailers.
- 2004 85% of sales made online: ability to customize and get the system that best suits costumers.
- Low price and customizing: winning in costumers
Power of business model:
Managing global supply chain to minimize inventory, while giving through Internet real-time information about order flow to suppliers.
- Suppliers get online demand trends for the components to produce, and get the volume expectation for next 4-12 weeks, updated every day.
- Produce the right quantity of components, with perfect time of delivery for production.
To use a digital chip from Texas Instruments they adjust to Quantas Taiwan schedule needs, they fix the notebooks computers, and these adjust to the schedule according to data from Dell
Goal: replace inventory by information, drive inventories out of supply chain apart from the ones in transit between suppliers and dell.
- 2004: 3 days of inventory compared to 30-40-90 days that competition had
-Advantage: components cost 75% of revenue and fall 1% per week because of technology innovation: component cost advantage and on the bottom line.
- Synchronize and balance demand and supply like few competitors can. Minimize excess and obsolete inventory (0.05% in Dell, 3% in competitors)
- Ex: if they are running out of 17-inch Sony monitors, they’ll offer a lower price on 19 inch until they get more inventory.
1) What are the advantages to Dell of having manufacturing sites located where they are? And what are the potential disadvantages?
- Advantages low cost (Brazil, China, Malaysia and, relatively, Ireland), they have educated work forces that are highly productive, and they are near large regional markets.
- Potential disadvantages quality control, sensitivity to international shocks.
2) Why does dell purchase most of the components that go into PC from independent suppliers, as opposed to making more itself?
- Outsourcing allows Dell to focus on what it does best. It enables Dell’s business model to be successful.
- Dell’s comparative advantage is in pricing, customization and rapid order fulfillment, gained through supply chain management and logistics.
- By outsourcing, Dell does not carry risks connected to inventory and can be highly flexible in the manufacturing process.
- Dell has lower coordination costs than if it were producing its own parts.
3) What are the consequences for Dell’s cost structure and profitability of replacing inventories with information?
- Dell’s Cost structure is the lowest in