DELL COMPUTER CORPORATION


Introduction


Supply chain management (SCM) is the combination of art and science that goes into improving the way a company finds the raw components it needs to make a product or service and deliver it to customers (Harland,1996). A way for understanding supply chain management is grouping all management activities into three categories: strategic, tactical, and operational. Strategic activities include building relationships with suppliers and customers, and integrating information technology (IT) within the supply chain. Studying competitors and making decisions regarding production and delivery would fall under the tactical category. The operational category includes the daily management of the supply chain, including the making of production schedules.


Furthermore, SCM encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management activities. More importantly, it includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, SCM integrates supply and demand management within and across companies. SCM can also refer to supply chain management software which the tools or modules used in executing supply chain transactions, managing supplier relationships and controlling associated business processes is met. The basic idea behind SCM is that companies and corporations involve themselves in supply chain activities by exchanging information regarding market fluctuations and production capabilities.


Dell’s Secret Weapon


Dell Computer Corporation is a leading direct computer systems company founded in 1984. Dell sells its computer systems directly to end customers, bypassing distributors and retailers (resellers). Dell’s supply chain consists of only three stages— the suppliers, the manufacturer (Dell), and end users. The company’s direct contact with customers allows them  to properly identify target markets, analyze the requirements and profitability of each assignment and develop more accurate demand forecasts.


Dell matches supply and demand because its customers order computer configurations over the phone or online. These computer configurations are built from components that are available. Dell’s strategy is to provide customized, low cost, and quality computers that are delivered on time. Dell implemented this strategy through its efficient manufacturing operations, better supply chain management and direct sales model. Dell reduces the cost of intermediaries that would otherwise add up to the total cost of PC for the customer by taking orders directly from the customers. This saves time on processing orders that other companies normally incur in their sales and distribution system. Moreover, by directly dealing with the customer Dell gets a clearer indication of market trends. This helps Dell to plan for the future besides better managing its supply chain. Another advantage Dell gets by directly dealing with the customer is that it is able to get the customers requirements regarding the software to be loaded. By eliminating the need of a PC support engineer to load software, the customers gain both in time and cost (2008).


Benefits of Supply Chain Management


            Supply chain management is an important subject for global businesses and small businesses alike. It is vital for companies to achieve benefits of adopting a successful strategy for an efficient supply chain in any economic climate. Despite the emphasis in all of the supply chain literature about how critical maximizing customer satisfaction is, most decisions inwardly consider the impact on the supplier’s stand. Will it create or destroy shareholder wealth? Investors have been expressing concerns that traditional methods to evaluate companies and to compensate managers are not adequately linked to changes in the economic value and wealth creation of the company. A better alignment of company performance and valuation measures has been recently addressed by increasing attention on value based management (VBM).


VBM demonstrates that beyond after-tax profit is the bedrock called economic profit – the most meaningful measure to investors. Companies practicing VBM began linking their economic profit metrics to their ABC/M and balanced scorecard tools to link the data at the boardroom level to the daily work of the frontline employees. ABC/M traces the paths for how all resources are consumed through work caused by outputs, products, services, channels, customers, and senior management. The true cost of outputs and segmented profit contribution margins is made widely visible. ABC/M places a reflecting mirror for an organization to see how and where it is burning through its resources. Moreover, companies expect the basic benefits of using supply chain management to acquire increase demand accuracy and order fulfillment satisfaction levels, reduce inventory levels and increase inventory turns across the network, increase the profitability and productivity and integrate sales and operations and planning process (Larson & Halldorsson, 2004).


The Importance of Environmental Involvement


A growing number of companies realized that to achieve their environmental goals and satisfy stakeholders’ expectations, they need to look beyond their own facilities and to involve their suppliers in environmental initiatives. Examples of this in supply chain management include screening suppliers for environmental performance, working collaboratively with them on green design initiatives and providing training and information to build suppliers’ environmental management capacity. Working with suppliers on environmental issues not only generates significant environmental benefits, but also opportunities for cost containment, improved risk management and enhanced quality and brand image. Leading companies understand that customers do not always differentiate between a company and its suppliers and hold companies accountable for suppliers’ environmental and labor practices (Harland, 2000). In addition, many companies are working to streamline their supply base and develop more co-operative, long-term relationships with key suppliers, a practice that has fostered greater opportunities to work together on environmental issues.


ABC Analysis


            ABC analysis is a business term defined as an inventory categorization technique often used in materials management. It provides a mechanism for identifying items which will have a significant impact on overall inventory cost whilst also providing a mechanism for identifying different categories of stock that will require different management and controls. When carrying out an ABC analysis, inventory items are valued (item cost multiplied by quantity issued/consumed in period) with the results then ranked. The results are then grouped typically into three bands. These bands are called ABC codes (2008). The “A class” inventory typically contain items that account for 80% of the total value, or 20% of the total items. “B class” have around the 15% of the total value, or 30%  of total items. In the “C class”, inventory will account for the remaining 5%, or 50% of the total items. 


For example, if a company wanted to make sure that the quantity on hand is accurate, and be able to identify and research problems quickly but don’t have the time and resources needed to do a physical count every month, the best solution is to use the ABC analysis report to identify the items that generate the most sales.  The average company generates the most sales with only 20% of their Inventory Items (A Items).  Find the company’s “A Items” and dedicate the resources you have to managing these important items. Another example of a problem is if there is an item that makes up 30% of the inventory sales and issues, the solution would be using the default definition of  “A Items” : top 20% usage, “B Items” – 21% to 50%, and “C Items” – 51% to 80%.  However, these defaults can be set to the percentages that make the most sense to the company.


References


Larson, P.D. & Halldorsson, A. (2004). Logistics versus supply chain management: an international survey. International Journal of Logistics: Research & Application, 7 (1), 17-31.


Harland, F et al (2000). Bridging organization theory and supply chain management: The case of best value supply chains. Journal of Operations Management, 25(2) 573-580.


Simchi-Levi, D. K. (2007), Designing and Managing the Supply Chain.  New York: Putnam.


Internet. (2008). Dell Online. Retrieved January 13, 2009 from http://www.dell.com.


Internet. (2008).  ABC Analysis. Retrieved January 13, 2009 from http://en.wikipedia.org/wiki/ABC_analysis.


 


 


 


 


 


 


 


 


 



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