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I choose to do the case study of Dell Computers, a case that allows the firm to develop a relationship with clients through a win-win situation.
Dell’s direct sales and build-to-order model
Dell has successfully used its direct sales and build-to-order systems to develop an exceptional supply chain by incorporating everything from the start to the end of the process. Dell’s strategy starts by conducting a research on customer needs. Once Dell develops the first product, it aggressively markets it in the website. Dell produces its products only after customers’ place orders on what they want and after paying for the product.
The procurement process starts after customer requisition. Dell’s supply chain is exceptional because of the involvement of suppliers in the chain. Dell developed a web page that notifies suppliers of awaiting orders which allows them to make prior arrangements for actual demand.
“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 Dell’s direct shipment to the customer can be done in a matter of hours compared to months” (Birgit, Jespersen and Tage 2005, p. 98).
Dell’s use of model to improve operations performance
Dell has used the internet to exploit the sales model successfully. Dell attracts clients who value quality around the world through their cheap prices and by enabling clients to customize their needs. Once a new product is developed, Dell introduces it through the internet for its customers.
This gives it an advantage of early entry in the market. The supply chain is reducing by joining the orders with suppliers who knows what components to supply. The reduced supply chain is advantageous to Dell as it cuts on costs. Dell’s stock turnover is at sixty times in a year, and with the increased depreciation costs and stock write-offs, Dell has stood this tests that affect the computer industry.
The direct sales model enables Dell to operate on negative cash conversion cycle. It receives its money prior to having to pay its suppliers for the components (Birgit, Jespersen and Tage 2005, p.112). The model improved the operations process as it allows clients to make orders of what they want.
Disadvantages of Dell’s model
The disadvantage of the model is that once the customer has made an order, Dell produces and delivers it to the client thus incurring shipping costs. Most computer companies produce and sell their products in bulk but Dell sends small quantities to many clients putting it at a disadvantage.
The other disadvantage is that Dell has to bear all support costs, that is, handling customer requests, and information, tracking orders to offering support service after the sale. According to Leeman, “The direct sales model provides a cost advantage on the production side, but brings a cost disadvantage on the support side” (2010, p. 301).
Dell’s competition strategy
There exists competition between the internet based sales and the traditional sales. Consumers want to see and feel a product before they make a decision to buy, thus Dell had to come up with a strategy to compete. Dell introduced low prices for its product. The other strategy to compete with a retailer is to have clients customize their products to exactly what they want. Dell also enables customers to have a wide range of selection.
Dell’s supply chain and bullwhip effect
If all the orders were to meet the demand, then, theoretically, the bullwhip effect would not occur. Dell deals with it by developing website for its suppliers. The website allows the suppliers a view of what is in stock and what needs immediate supply. This provides suppliers a platform for making supplies in real time (Leeman 2010).
In summary, if you can build in real time based on actual demand you will not have to worry about inventory build-up of unnecessary components and products. Dell’s customized web page for suppliers allows them to reduce the bullwhip effect.
Birgit, Jespersen, and S. Tage. Supply Chain Management: In Theory and Practice. New York: Copenhagen Business School Press DK, 2005. Print.
Leeman, Joris. Supply Chain Management: Fast, Flexible Supply Chains in Manufacturing and Retailing. New York: BoD – Books on Demand, 2010. Print.