SUPPLY CHAIN MANAGEMENT

Submitted by,
SUSHANT DASS
09BA239
II MBA OPERATIONS

ASSIGNMENT
On

Dell & Supply Chain Management

KARUNYA SCHOOL OF MANAGEMENT

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 Analysis of Dell’s Competitive Advantage:

Dell is officially the No. 1 computer systems company in the world. Dell is able to sustain a

competitive advantage over competitors in the computer industry because of an extremely efficient supply

chain/distribution system. Dell is able to achieve superior profits in the industry because they are a

knowledgeable user of information, communication, e-commerce, e-business, internet, and web technologies.

Michael Dell states that Dell is so successful because of “Knowledge Management”. Mr. Dell defines

that term by saying “physical assets are being replaced by intellectual assets.” This relates to Dell’s

inventory system. Dell implements a Just-In-Time inventory system which operates on only 6 days of

inventory. Dell is able to achieve greater profit margins and increased profits because of their inventory

system. Inventory and labor are the highest liabilities of a firm. Since Dell only operates with 6 days worth

of inventory, they are able to cut costs on warehousing, hiring people to track and maintain inventory, and

avoid holding on to obsolete technology. This allows Dell to free up cash flow to invest in other value

adding activities.

Dell uses a JIT inventory system because Dell’s customers can only order computers directly through

Dell itself. Dell uses their website www.Dell.com to take customer’s orders. Dell focuses on direct sales,

cutting out other distribution channels entirely. This allows for a deeper relationship with the customers

whereby Dell can offer their customer’s better service, savings, convenience, and efficiency. A customer can

order their own custom computer, have it built by Dell in three days and have it delivered to the customer’s

doorstep within one week.

Dell’s use of the internet has revolutionized the company. Dell makes their website extremely

consumer friendly to offer an easy order process to the customers. Dell has also created their “Premier

Page”. This page was made for Dell’s larger accounts including corporations, the Government, and

educational institutions (ie Syracuse University). This webpage includes dynamic price upgrades, easier

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navigability, and a greater range of available upgrades/options. Customer relationship management

software keeps close tabs on the types of computers that customers are buying (Pizinger).

Not only does Dell use the internet to make the customer ordering process easier. They also use the

internet to build better relationships with their suppliers. In order for Dell to work off of 6 days of

inventory, their suppliers have to be very involved in the company to make sure superior service is met. Dell

uses state of the art production planning programs that forecast the quantities of components needed to build

the computers. After those forecasts are made, supply chain systems pass those forecasts to suppliers, who

respond with cost estimates and plan their production as a result (Solis).

To achieve their supply chain superiority, Dell uses solutions from i2 Supply Chain Management.

“i2 streamlines the supply chain by providing component suppliers and Dell planners with global views of product

demand and material requirements. It also provides real-time factory scheduling and inventory management, so

employees can generate key reports based on accurate and timely data, pinpoint inventory on the factory floor, and

receive supplier deliveries on a true just-in-time basis (i2 supply chain management systems).”

This allows Dell to change their manufacturing schedule every two hours to keep up with customer

orders. Dell’s suppliers have access to this accurate, timely information. Since the suppliers work with facts

instead of forecasts, this allows them to reduce waste and improve efficiency. Once suppliers receive this

information, they are directed to deliver needed materials to a specific dock door for assembly for specific

product manufacturing. Dell uses the Windows NT operating system and Intel-based servers for all of the i2

applications (Soral).

Dell’s e-commerce is a huge part of their competitive advantage. Their e-commerce internet

infrastructure is so advanced and knowledgeable that by using it to determine trends and demands of their

products, they have gained superiority over their competitors.

Dell has set up strategic alliances with other companies to have their products sold on Dell’s direct

selling distribution channel. Back in 2000, Palm, Inc. made an agreement with Dell to offer an expanded line

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of handheld Palm products and accessories. This agreement allowed Dell to drive momentum for the Palm

operating system market (Dell: 2000, April 17). Along with Palm, Xerox also partnered with Dell to take

advantage of Dell’s e-commerce. Advantages to Xerox were increased profits by offering the printers with

the Dell computers. Advantages to Dell include selling high quality printers along with their computers, but

more importantly, it allowed Dell to be involved in the customer buying process for printers. Being involved

in the decision making process is key to Dell’s success because they see directly what the customers want

and determine their production schedule from that information (Dell: 2000, May 22).

Dell achieves its competitive advantage over other firms in the industry by having superior

supply chain management. Dell utilizes technology to interpret information. By being involved in the

customer buying process they are able to determine their customers’ needs. This allows Dell to streamline

production and have close relationships with their suppliers which results in getting timely deliveries in order

to mass customize customer’s computers.

Analysis of Dell’s IT Tools:

Dell’s supply chain management success can be summed up in one idea. “Supply chain

management shortens the cycle between the component, the manufacturer and the end customer. We are

allowing them to almost touch each other, (E-commerce)” according to Michael Chong, e-business

Technology Manager of Dell Computer Corporation. Supply chain management is the effective and efficient

movement of materials from suppliers, through a company and into products, which eventually is received by

consumers.

An important goal for Dell is to enable customers to process their own transactions. Dell is

known for their efficient and effective build-to-order business model. This model allows customers around

the globe to order customized systems from the dell.com website. Dell’s online supply management allows

Dell, suppliers and customers to work together. As Michael Chong states, “Because we work directly with

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customers, we have the ability to connect and understand what products will be required and when (E-

Commerce).” This helps Dell to inform their suppliers what supplies are needed based solely on customer

demand. As a result, there is not an excess of supplies in warehouses that will decrease Dell’s efficiency. As

Dell is known for their exceptional service, ease in ordering and responsiveness to customers needs, their

competitive advantage is easily distinguished.

Dell’s internet presence through Dell.com, is an important factor in Dell’s success. By

involving the customer from the beginning of the ordering process, Dell.com makes it easier to do business

for both parties and initiates customer relationships while providing a means for ongoing customer service.

With a number of links focused primarily on certain groups and customers, purchases can be made easily and

efficiently. No matter what you are purchasing, Dell.com can assist the customer in customizing and

evaluating Dell’s offerings. Dell.com can help an individual consumer purchase a single notebook or can

help larger companies purchase or lease products that will help them lower their costs. A new service,

launched in the year 2000, made it possible for customers to purchase refurbished Dell PCs, notebook

computers, digital cameras, scanners, printers and speakers online. “The returned equipment comes from

companies upgrading systems but wishing to continue using Dell gear, or from cancelled order (Kelsey,

2000).”

Specifically, Dell has enhanced its supply chain by using i2 Supply Chain Management to

plan orders and communicate with suppliers every two hours. This results in Dell’s efficiency in

manufacturing and delivering exactly what its customers want. Time to deployment and overall cost of

ownership can be achieved if i2 Pronto and/or i2 Solutions for Value Chain Management are utilized, along

with Dell servers and storage. i2 Pronto is a rapidly deployed solution for factory planning and

collaboration. Dell possesses a competitive advantage in that they are currently the only hardware platform

certified for rapid deployment of i2 Pronto solutions. i2 Solutions enables Dell to reduce costs, lower total

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cost of ownership and establish a reliable, stable operating environment. Dell’s own implementation of i2

SCM solutions is known as the “DSi2 system”. DSi2 runs on 120 Dell servers and manages more than 250

suppliers delivering more than 3500 parts. As a result, Dell can deliver customized, replicable

configurations, reducing time to deploy and cost of ownership. i2 solutions also enables customers to put

Dell’s value chain to work in meeting company goals and attaining value (Jacobs, 2003). “i2 SCM

streamlines the supply chain by providing component suppliers and Dell planners with global views of

product demand and material requirements. It also provides real-time factory scheduling and inventory

management so employees can generate key reports based on accurate and timely data, pinpoint-inventory on

the factory floor and receive supplier deliveries on a true just-in-time basis (Harrington, 2002).” This system

allows Dell to achieve a new manufacturing schedule every two hours which shows the latest customer

orders, backlog numbers, stock status and supplier commitments. Today, the supply chain of Dell not only

runs on 120 Intel-based Dell servers running Microsoft Windows NT, but it also has four primary i2 software

modules: i2 Collaboration Planner Demand Fulfillment, Global Supply Planning, Factory Planner and

Supply Chain Planner (Harrington, 2002). This success proves that Dell has the best of both worlds. They

achieve state-of-the-art performance at an economically attractive price.

A competitive advantage is seen when a company, such as Dell, links supply chain

management with customer relationship management and supplier relationship management. This link is

known as DVCM (Dynamic Value Chain Management). “DVCM requires synchronized, multi-enterprise

collaboration based on streamlined decision-making workflows across companies. It requires companies to

push planning and execution toward real-time or near-real time. DVCM's net result is a fundamental change

in the relationship between companies and their trading partners--a change that creates tremendous value for

companies, their trading partners and their customers (Harrington, 2002).” When Dell utilizes its i2 SCM

strategy, Dell “can model and monitor their business in real-time, and analyze issues such as sourcing,

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distribution, resource and capacity constraints (Harrington, 2002).” Some of the capabilities of DVCM are

collaborative demand planning with customers and suppliers, auto-replenishment of inventories, design

information sharing with strategic partners, content management and distribution with management. After

these are implemented, organizations are able to make decisions in a timely manner and implement those

decisions for completion of the products.

Supply Chain Management & Customer Satisfaction

Dell prides itself on their supply chain management system that enables them to increase their

efficiency and effectiveness and keep their competitive edge in their industry. With an extensive website,

Dell uses advanced information technology to connect themselves to their customers and increase customer

communication. Dell has created a competitive advantage by using proficient technological resources that

enable Dell to communicate with their customers who can customize their own pc systems. As one measure

of Dell’s success, they were awarded with the Shoppers' Choice for the Best of 2003 Service and Support

Site in Computer Shopper Magazine in February 2004 (Dell Support).

Dell’s SCM System allows customers to place their own orders. This gets the customer involved and

cuts costs for Dell salesmen salaries at the same time. Dell’s SCM system also allows customers to

configure their own pc systems with whatever options they want. This again involves the customer and

forces them to look through all the available options where they might add components that they might not

have thought of adding originally. When customers can review all of the potential options at heir own pace,

without direct sales pressure from a salesperson, Dell’s can benefit from additional component sales.

Dell also works to establish good customer service, communication and retention. One method Dell

uses is to provide easy access to support via their web site. Their website allows customers to find answers to

common problems without Dell’s “people” assistance and therefore helps to decrease Dells payroll costs.

There are also chat, email and phone opportunities to make it easy for customers to contact Dell to answer

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questions they couldn’t answer by the above means. Keeping customers involved with Dell through chat

groups and users groups, can result in customer retention for future systems or components sales from

satisfied customers.

Dell has created a web site that provides extensive information choices for its customers. To make it

as easy as possible for its customers, Dell has divided their home page into a number of major customer

groups; 1) Home & Home Office, 2) Small Business, 3) Medium and Large Business and 4) Government,

Education & Healthcare. (Dell’s Website Flowchart I made illustrates this perfectly.) Within each group, a

customer can find specific products and services that would apply to their business type. By organizing their

site this way, Dell shows that it understands each customer group’s specialized needs and saves the customer

time by looking only at the products and services that would interest them. Dell also shows their high

priority to customer satisfaction by devoting a specific section of their home page to “Customer Service &

Support”. Even though there is a separate “Service & Support” group, you will notice from the flowchart

exhibit, that “Service & Support” is repeated in each of the customer group sites. “Service & Support” can

also be found under each of the specific industry groups in the “Government, Education & Healthcare”

group. By personalizing the customer’s search, Dell makes it possible for the customer to do a significant

amount of research on their own. The website contains a great deal of information that will address their

personal needs and answer most of their questions. In comparison to other companies, Dell’s customer

support and service area is much more extensive than its competition (Dell.com).

Although Dell continues to win market share and turn out record quarterly profits, two recent surveys

have shown that they have not been as successful in the area they pride themselves in the most; customer

service. In a report that rated the satisfaction of PC buyers, Dell's scores have declined in recent months.

Statistically, the results are not catastrophic, but it is still an issue that Dell needs to address and improve in.

The March 2004 issue of Consumer Reports, included a survey of 4,100 consumers, who gave Dell 62 points

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out of a possible 100 for its support on desktop PCs. Although it still managed to top competing brands

Hewlett-Packard and Compaq, HP scoring 54 and Compaq 51, Dell's rating represented a decline from a

score of 64 which was given in the magazine's last desktop support survey, published in June 2003. A score

of 80 would mean that respondents were very satisfied, while 60 is described as fairly well satisfied.

According to the report, differences of more than four points in the survey were meaningful. Dell's overall

tech support scores for desktop PCs have dropped substantially since 2001, from scoring a 74 in December

2001 and a 65 in September 2002 (Spooner, 2004).

Industry advisory firm, Technology Business Research (TBR), issued a report on support satisfaction

among corporate buyers and has indicated that Dell's satisfaction ratings have slipped to 80.98, down from

83.4 in the third quarter of 2003. TBR questions buyers on eight aspects of support, including their overall

satisfaction with a company's support service, and assigns each one a weighted score for a total of 100

possible points. Although Dell still topped rivals HP and IBM in the TBR survey, its score was the lowest

seen since the research firm began tracking Dell's satisfaction levels in the first quarter of 2001. According

to the TBR report, IBM outscored Dell in the fourth quarter of 2003 based on product design/features and

long-term durability. From polling customers that have switched from Dell to IBM, customers stated that

their reasons for changing companies were product performance, pricing and support. Although Dell has

maintained its strong leadership position in the fourth quarter of 2003, Dell needs to address their customer

loyalty and keep customers from changing companies. As a result of these polls, Dell is working toward

reversing the declining customer satisfaction trend and to return to the industry leader in the area of customer

service. Dell is aware that the PC business is becoming increasingly commoditized, marked by similarly

equipped machines and price erosion. By cutting out the middleman, Dell believes it has established a closer

relationship with its customers. One way to stand out from the crowd is to appeal to existing and new

customers by offering better service and support than competitors .

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 Dell has also done exceptionally well in Germany as indicated by TBR on June 17, 2003. The

Germany Customer Satisfaction Study determined that Dell is the No. 1 ranked vendor in Germany across all

three segments of Intel-based servers, desktops and notebook PCs. Customer service and overall value were

the leading factors that made the Dell the top vendor according to German IT directors. In the desktop

segment, Dell was praised for their areas in pricing and value, delivery time, ease of set-up, spare parts

availability and hardware reliability and performance. In the notebook PC segment, Dell’s competitive

strengths included delivery time and model availability, pricing and value, ease of doing business and repair

times. This study also illustrated Dell’s ability to anticipate and meet customer expectations. According to

the TBR president, Dave Mack, “In Germany, where IT customers tend to purchase from multiple vendors,

TBR finds it all the more impressive that these customers, in drawing comparisons across several brands,

tend to rate Dell on a higher plane than their other brands (Customer Satisfaction in Germany).”

References

Spooner, John G. (2004) Retrieved March 11, 2004, Growing pains hit Dell’s customer service. Web
site: http://news.com.com/2102-1042_3-5162141.html?tag=st.util.print

Retrieved Mar 12, 2004. Web site: http://www.dell.com

Retrieved Mar 12, 2004, Dell Support. Web site: http://support.dell.com/home.aspx

(2004) Retrieved Mar 13, 2004, 4Q03 Corporate IT Buying Behavior & Customer Satisfaction
Study: Notebooks. Web site: http://www.tbri.com/News/pgViewPR.asp?ID=90

(2004) Retrieved Mar 12, 2004, Direct Model. Web site:

(2003) Retrieved Mar 13, 2004, Technology Business Research Ranks Dell No. 1 Customer
Satisfaction in France. Web site: http://www.tbri.com/News/pgViewPR.asp?ID=75

(2003) Retrieved Mar 13, 2004, Technology Business Research Ranks Dell No. 1 Customer
Satisfaction in Germany. Web site: http://www.tbri.com/News/pgViewPR.asp?ID=67

(2003) Retrieved Mar 13, 2004, J.D. Power Asia Pacific Reports: Dell Computer Ranks Highest in
Server Satisfaction in Japan. Web site: http://www.jdpower.com/pdf/2003005.pdf

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