Dell’s Value Chain Case Study
MBA 630: Operations Management
Dell’s Value Chain Case Study
The business problem Dell faced was how to compete with numerous competitors in the personal computer market while also being able to respond quickly to changes in technology and customer demand. In this realm, research and development costs are too high and technology changes are too rapid for any one company to sustain leadership in every component (Heizer & Render, 2011). The computer industry has two different approaches on how to go to market. One option is to work with distributors where a company will ship large quantities of product to them. The distributor will in turn have them in stock and sell the items directly to customers. This limits sales to what distributors have on hand and runs the risk of fluctuations in technology or demand. The second method, which Dell uses, is a direct sales method through the internet. This method increases revenue by offering a virtually unlimited variety of products and lets the customer customize their options while at the same time taking out the additional costs of physical stores (Heizer & Render, 2011). In addition, Dell’s method allows them the ability to bring new products to market immediately and not rely on previous assembled product on store shelves to move first. In an industry where product life-cycles are measured in months, Dell has a huge early-to-market advantage (Heizer & Render, 2011). To accommodate the direct sales method using the internet, Dell has developed ways to address the quickly changing technology and demand of the industry. Dell has very close relationships with their suppliers and has developed web pages for their use that gives important information on their business. Suppliers are able to immediately see end customer demand based on orders as well as current inventory Dell has of their components. This allows suppliers to accurately gage operation management while also keeping the supply chain moving rapidly. Through the use of the internet, Dell has given customers the opportunity to customize products to fit their needs while also letting them order wherever and whenever they choose. This model also gives an advantage to cash flow. Direct sales allow Dell to eliminate the distributor and retail margins and increase its own margin. In addition, Dell collects payment in a matter of days after products are sold while keeping suppliers at more traditional billing schedules. This allows Dell to operate its business with negative working capital. Dell has used the model of direct sales and made-to-order to significantly position themselves at an advantage to their competitors. By modeling their business based on actual demand from the market, they are able to quickly adjust to technology changes and customer demand trends. All of this while keeping margins high and eliminating traditional distributor approaches. The only pitfall lies in shipping yet in the grand scheme of things, individual shipments are a small issue to combat. By focusing on supplier relationships and internal work processes, Dell has been able to build a very effective supply chain based on actual market data while accurately giving forecasting ability. Their ability to offer web pages designed to give their suppliers a pulse to the market has only advanced suppliers ability to meet requests and deliverables. As mentioned in the text, the only pitfall Dell faces using this business model is the shipping costs. Since they have frequent, small shipments to every customer, compared to bulk shipments to distributors, they lack the economy of scale that their competitors have. A suggestion would be to look at Amazon’s playbook on this matter. I do not know of a better company to take shipping ideas from. Amazon’s customer base is very similar to Dells in that each order has a separate shipping location and...
References: Heizer J & Render B. (2011). Operations Management. New Jersey, NY: Pearson.
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