Why Dell’s supply chain strategy is successful
Back in the 1990s, Dell became one of the leading companies to use its supply chain management efficiently. This was based on its direct model, which translated the make-to-stock idea to make-to-order strategy (Blanchard, 2012). This strategy assisted the company in reducing its cycle times to the level that had not been achieved by any other tech company in the industry. The model allowed Dell Inc. to carry inventory for a few days rather than the 3-4 weeks it had been accustomed. Other companies in various industries, especially the consumer-packed products industry, quickly noticed this strategy and began changing their supply chain to suit the direct model Dell had adopted. Dell’s supply chain costs $2 billion annually serving approximately 13 million customers, especially in the emerging markets (Phillips, 2015). The company focuses on a continuous optimization of its supply chain network as a focus to expand globally. This is based on the assessment of the industry, designing a supply chain network that matches the customer’s needs, stabilizing the process, and enabling the company’s capability.
Therefore, in order to make this approach successful, the company deployed the i2 software collaboration planner, i2 supply chain planner, and the i2 factory planner (Phillips, 2015). The company has been using this technology to coordinate the build-to-order strategy. As such, Dell is now able to incorporate the supply and demand side of the business, thus becoming a way of eliminating the company’s inventory surpluses. In this case, Dell is able to get the materials needed straight from the production factories every 2 hours, depending on the demand from the customers. For instance, the company uses online sales where a customer can order a custom made PC depending on their specifications, different from what was done previously (Phillips, 2015). Primarily, the just-in-time inventory strategy and the real-time scheduling ensure there is efficiency in deliveries and turnovers.
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Supply chain challenges that Dell is now facing
Dell’s biggest challenge has not come from the operation of its supply chain itself but from missing a shift in consumer preference. Mobile platform manufacturers such as Apple and Samsung are eating the traditional PC’s manufactures lunch and has been for several years (Gray, 2007). Combine that with built-to-order computing being less of a market differentiator than it was ten years ago and you have a recipe for declining sales in the company. Dell was founded purposely to provide the market with a specific product but has not done a great job at predicting trends or being agile enough to accommodate them.
The company’s build-to-order strategy and the cost-efficient supply chain does not provide the strategic advantage any more like the company once enjoyed. The only thing the company is doing is implementing strategies that its competitors are not doing (Blanchard, 2012). For example, the company has been strategizing on entering the consumer market where they can establish models in its retail shops, which helps the company in eating away some of the traditional costs. In addition, the company has also been producing some products with colors and new patterns, and this further assists in eroding its traditional supply chain improvement.
However, this remains a challenge since it becomes a constant reminder that the products they out into the market are not nearly as innovative as those of the competitors like Apple are. Therefore, the company has to stay relevant in the market; it has to emphasis more on creatively some of the more significant strategic challenges. For instance, the company would venture into the mobile platform market where they can be creative enough to build an operating system for Phones also an OS for the PCs (Phillips, 2015). As the IoT continues to become more prevalent, breaking into different markets would ensure the company becomes more relevant and a hike in sales.
How Dell has changed its supply chain to satisfy its customers
Over the past years, Dell Inc. decided to include retail as an additional sales channel was a good strategy as a way of satisfying its customers. Especially as most modern PC’s are more than powerful enough for the average consumer, a built-to-order machine is less of competitive advantage (Gray, 2007). The low transportation cost and instant consumer access to units sold in retail stores is a fair tradeoff for the reduced options in the configuration in the industry. That being said, I believe direct sales are still precious to the company. This is because the ability to control the customer experience is more important now than ever. With the increased use of mobile devices and social media, this strategy cannot be left to chance in the exclusive hands of a retailer. As such, the data needed to respond to quickly changing consumer preference is also vital in staying relevant in any given market. To lose the direct link with your customer’s experience and their data at the cost of its margins does not make a lot of sense, especially in the time when people are less reliant on brick and mortar retailers.