Dell’s Value Chain

Supply Chain Management

Mert CanlıEngin BaliCan Aytekin

History Founded by Michael Dell in 1984 The single concept: Selling computer

systems directly to customers Designed and built the first computer

system of its own design in 1985 Was one of the first computer

companies to send a technician to homes to service personal computers in 1985

Dell’s Value Chain

History Introduced the 316LT, the company’s first

notebook computer in 1989 Joined the top-five computer system makers

worldwide in 1993 Earning appr. $1 million per day 7 months

after the launch of dell.com in 1996 Introduced E-Support, an online tool to

provide technical support to customers in 1999

Dell’s Value Chain

History For the first time, Dell achieves No. 1

ranking in global market share in 2001

Dell’s Value Chain

Dell’s Value Chain

How has Dell used its direct sales and build-to-order model to develop an exceptional supply chain?

Dell’s Value Chain

Close relationship with customers and suppliers

First-hand and pure customer feedback

High volumes of customer information

Huge amount of customer information

Exceptional and Excellent Supply Chain

ANALYSE

“These relationships with customers and suppliers allow us to know what we must be able to supply in real time and then very quickly and precisely meet that demand while maintaining low inventory.” says Dave Schneider, continuous improvement engineering manager of Dell.

Dell’s Value Chain

How has Dell exploited the advantage of the Internet to improve performance? Dell established a unique e-commerce model by

embracing the Internet in its supply chain.

Dell brings products to market faster than its competitors

Customization and quick response

Attract large business customers

Reduce Bullwhip Effect

Collecting the payments

Dell’s Value Chain

Dell brings products to market faster than its competitors

Dell uses direct sales via Internet, whereas Traditional PC manufacturers previously assemble PCs ready for purchase at retail stores.

PCs have life cycles of only a few months

Thus, Dell enjoys early-to-market advantage.

Dell’s Value Chain

Dell’s Value Chain

Customization and quick response Dell

uses the Internet to sell its products offers a virtually unlimited variety of PC

configurations.

Buyers can click through Dell and assemble a computer system piece by piece, based on their budgets and needs

Dell’s Value Chain

Attract large business customers

To facilitate B2B sales, the Dell site offers each corporate customer an individualized interface called “Premier page” purchasing managers log on and order using an interface

customized for their company's needs While Dell’s consumer sales are highly visible, its business

sales are a much bigger revenue source “About 15 percent of our total revenue is consumer business

and the rest is B2B” says Bob Kaufman, Media Relations manager of Dell.

Reduce Bullwhip Effect

Dell constracts special Web pages for suppliers, allowing them to view orders for components they produce.

This allows suppliers to plan based on customer demand

Dell’s Value Chain

Collecting the payments

Because of direct sales, Dell can collect payments in averagely 5 days after they are sold.

However, Dell continues to pay their suppliers according to the traditional billing schedules.

Low level of inventory and negative working capital helps Dell increase its performance.

Dell’s Value Chain

What is the main disadvantage of Dell selling PCs over the Internet?

High Shipping Costs

Economies of Scale

Dell’s Value Chain

Dell company can’t enjoy EoS (Economies of Scale) in shipping because it sends individual PCs to customers from its factories.

Competitors sell through distributors and middlemen ship their products with EoS using large truck shipments to

warehouses and retailers

The transportation cost of a PC relative to its price is generally between 2-3%.

Dell’s Value Chain

How does Dell compete with a retailer who already has a stock? (Continued) Advantages of Direct Sales system over Brick

and Mortar system

Price Advantage

Differentiation advantage

Dell’s Value Chain

How does Dell compete with a retailer who already has a stock? (Continued) Price Advantage of Dell

Increase in Dell’s profit margin Elimination of retailer and distributer margins

Decrease in Inventory Costs 5 days inventory vs. 30-45-90 days inventory Decrease in costs of materials

Negative Working Capital Suppliers financing Dell’s growth

Better Forecasts due to better sales information/feedback

Cheaper Prices

Dell’s Value Chain

How does Dell compete with a retailer who already has a stock? (Continued)

Differentiation Advantage of Dell

Feedbacks and Evaluation

Dell’s Value Chain

How does Dell’s supply chain deal with the bullwhip effect? (Continued)

Bullwhip Effect

The phenomenon in which order variability is amplified as it moves up the supply chain from end-consumers through distribution and manufacturing to raw material suppliers.

Supply Chain Management

Dell’s Value Chain

How does Dell’s supply chain deal with the bullwhip effect? (Continued)

Materials costs account for about 74% of Dell’s revenues

Around $21 Billion is spent on material every year

0.1% Decrease in Material Costs

Making Supply Chain Management very critical for Dell

Dell’s Value Chain

How does Dell’s supply chain deal with the bullwhip effect? (Continued)

Sharing Data with suppliers Flexibility

Investment

Privileged Suppliers

Long time relationship with suppliers Helping suppliers become more like Dell

Dell’s Value Chain

Conclusion

Mission High Customization (Mostly based mission on High Customization) Fast Response Lowest Cost (Highest Value)

Fast response and cost considerations are not as high as customization considerations.

Benefits Early to Market Payment Advantage Customization Option

Expert Supply Chain Management

Dell’s Value Chain

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Dell’s Value Chain

Supply chain management is a set of approaches used to efficiently integrate suppliers, manufacturers, warehouses, and customers so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time in order to minimize system wide costs while satisfying service-level requirements.

What is Supply Chain Mgt.?

What Is Supply Chain Management?What Is Supply Chain Management?