Supply Chain-Case study of Dell

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Content page
1. Introduction 2
2. Analysis 2
2.1 Product life cycle 2
2.2 Understanding the customer and supply chain uncertainty 3
2.3 Understanding the supply chain capabilities 5
2.3.1 Product strategy – assemble to order approach & back-end intranet 5
2.3.2 Place strategy 6
2.3.3 Pricing and promotion strategy 6
2.4 Achieving strategic fit 6
3. Conclusions 7
Reference 8

Supply Chain-Case study of Dell

1. Introduction

Dell is one of the world’s largest PC (personal computers) makers and the largest computer distributor in term of both units sold and gross income (Bygrave & Zacharakis 2010). In term of the product categories, the company offers majorly laptops, desktops, printers, electronics, software and tablets and so on to both business users and residential customers. And in term of strategic orientation, it is believed and perceived by many customers that Dell is competing with quality products with cost advantage. Below we will analyze the impact of the product life cycle of personal computers on the strategic fit between implied demand uncertainty and the responsiveness of the supply chain.

2. Analysis

2.1 Product life cycle

Figure 1 Product life cycle
Source: Kotler & Keller 2006
Product life cycle refers to the life of the product which is usually made up of four stages: introduction, growth, maturity and decline (Louis 2002, p.177). According to the product life cycle or PLC theory, a general product will go through a cycle with different stages from introduction, growth, maturity to decline with different features in term of industrial profit and overall sale (Havaldar 2006, p.117). The personal computer market in the world especially in the developed countries such as the United States is considered to be in the maturity stage (Argenti 2002, p.66) for the following reasons: firstly, the maturity of the industry is marked by the appearance of the dominant brands while the small players are excluded and the market is controlled by several key large players because of the scale of economies; secondly, personal computer products are basically the same with little differences in functions; thirdly, though the growth of industrial sale is continued but price is more sensitive than before and companies tend to use price competitions to obtain further market share which reduces the profitability. One thing need to be noticed is that though the PC market seems to be entering into the maturity stage of the Product Life Cycle, but it is still in the early stage of the maturity as we can see some significant product modification and change happening in the market such as the appearance of tablets such as Ipad that is changing the market. And the location of the personal computer products in the PLC will have implications on the strategic fit which will be discussed below.

2.2 Understanding the customer and supply chain uncertainty

As we can see from the figure below, computers for a long time are considered as innovative products with high demand uncertainty and low supply uncertainty. On one hand, the development of the personal computer has been very rapid and constantly changing for the past three decades since the personal computer was first released into the market hence the PC products are still considered as highly innovative products; on the other hand, in term of supply uncertainty, because PCs are classified as fast clock-speed products which request high flexibility in supply chain based on a high demand uncertainty. And as proposed by David Simchi-Levi (2010, p.164), that a higher demand uncertainty tends to result in a preference for companies to manage the supply chain adopting a pull strategy.
Figure 2 Customer and supply chain uncertainty
Source: Colorado.edu 2010

But the location of the PCs in the product life cycle which is in the maturity stage has two major implications to the demand uncertainty and the supply uncertainty. On one hand, with the maturity of the PCs, innovation and modification could become less which results in decreased demand uncertainty; on the other hand, with less fluctuations in the demand said, the supply uncertainties will also be reduced to a more stable status. But it is still far away for the PCs to become functional products based on the current market conditions which are still changing rapidly.

2.3 Understanding the supply chain capabilities

Responsiveness of a supply chain could be referred as the ability of the supply chain to get adapted to the changes in demand in the dimensions of both volume and the mix of products (Christopher 2000). The supply chain of Dell is marked as targeting at achieving high flexibility and responsiveness. As claimed by Thomas F. Wallace and Robert A. Stahl (2003, p.24), Dell has created an admirable success but keeping quite low stocks, enough of customer lead time and high flexibility and responsiveness. Below we will check some marketing mix of the Dell PCs to find the supportive evident to the high supply chain responsiveness.

2.3.1 Product strategy – assemble to order approach & back-end intranet

Dell’s assemble to order approach in its production process is well known to the world. When an order is made on line or through the call center, within several days the ordered computers will be assembled according to the order using the parts and the parts will be replenished based on a forecast basis (Bidgoli 2004, p.556). The advantage of this production mode is that much few stocks will be kept and waiting to be ordered, and this helps reduce the cost of keeping stocks and contributes to the responsiveness of the supply chain.

Besides Dell also turns to the instant information sharing to shorten the assembling time, the company has used a so call “back-end intranet” to established connections between the material planners straightly to the supplier inventories to share with them the immediate information about the customers’ order and demand (Waters 2010, p.152). This way of information sharing also helps reduce the cost of keeping the unnecessary stocks and contributes to the responsiveness of the supply chain.

2.3.2 Place strategy

In term of the place strategy, the efficiency of the transportation of goods is vital to the efficiency of any supply chain and also to Dell which relies heavily on the delivery system of provide convenient services and goods to the customers. According to Ehap H. Sabri and Salim N. Shaikh (2010, p.211) Dell has its own transportation management systems which contributes to the reduction of logistics cost and time consumption in reality.

2.3.3 Pricing and promotion strategy

And in the pricing and promotion strategy, the company has been targeting at providing low price PCs to the customers with rebates if they purchase on line. This low price strategy is also reflecting the necessarily of keeping a low cost and efficient supply chain.

2.4 Achieving strategic fit

Figure 3 Achieving the strategic fit
Source: Colorado.edu 2010
Based on the above analysis, we can see that now Dell has adopted a strategic fit of High implied demand uncertainty and Responsive supply chain to manage its supply chain. And according to the above model, the choice is strategic fid is reasonable, but will with the identification of the location of PC products in the PLC, there will be some implications to the strategic fit which will be stated in the conclusions.

3. Conclusions

Firstly, with the product entering into the maturity stage, we have witnessed a change in which PC products become less innovative, the implied demand uncertainty will be gradually reduced; and in term of the responsiveness of the supply chain, with the foreseeable maturity of the PC products, Dell should one hand keep the high responsiveness and on the other hand increase the cost effectiveness of the supply chain to keep the strategic fit along the shadow field.

Reference

Argenti, P. A. 2002, The fast forward MBA pocket reference. New York: John Wiley & Sons, Inc. p.66

Bidgoli, H. 2004, The Internet encyclopedia. New Jersey: John Wiley & Sons, Inc. p.556

Bygrave, W. D. & Zacharakis, A. 2010. Entrepreneurship. Danvers, MA: John Wiley & Sons, Inc.

Christopher, M., 2000, “The Agile Supply Chain Competing in Volatile Markets”, Industrial Marketing Management, 29, 37-44

Colorado.edu 2010. Achieving Strategic Fit. [online] http://Fleeds-faculty.colorado.edu

Havaldar, K. K. 2006, Industrial marketing: text and cases. New Delhi: Tata McGraw-Hill Publishing Company Limited, p.117

Kotler, P. & Keller, K. 2006. Marketing management. 12th ed. Upper Saddle River: Prentice Hall.

Louis, P. J. 2002, Telecom management crash course: managing and selling Telecom services and products. New York: McGraw-Hill Companies, Inc. p.177

Sabri, E. H. & Shaikh, S. N. 2010, Lean and Agile Value Chain Management: A Guide to the Next Level of Improvement. Fort Lauderdale, FL: J. Ross Publishing, Inc. p.211

Simchi-Levi, D. 2010, Operations Rules: Delivering Customer Value Through Flexible Operations. United States: Massachusetts Institute of Technology. p.164

Wallace, T. F. & Stahl, R. A. 2003, Master scheduling in the 21st century: for simplicity, speed, and success – up and down the supply chain. Stanley Avenue Cincinnati, Ohio: T. F. Wallace & Company, p.24

Waters, D. 2010, Global Logistics: New Directions in Supply Chain Management. London: Kogan Page Limited. p.152