Dell Computer is an excellent example of a company that has undertaken
many supply chain management initiatives that have provided
exceptional value to customers. One particular supply chain
management initiative involved the harnessing of the Internet to the
company's already innovative direct sales model.
Unlike most companies, and even unusual in the computer business, is
Dell's elimination of retailers from its supply chain. Founded in
1984, the company began selling computer systems directly to customers
via telephone. However, the rising popularity of the Internet
provided an excellent opportunity for the company to reduce costs, and
thereby lower the prices it charged customers, by taking orders
directly over the Internet.
Dell launched www.dell.com in 1994, initially to provide product
information, and began accepting orders via the Internet in 1996.
Dell was the first company to achieve $1 million in online sales,
doing so in 1997. Currently, Dell operates one of the highest volume
e-commerce sites in the world. Cisco Systems is another example of a
company that has used Internet-based commerce to great effect,
achieving a majority of its sales via the Internet.
Dell's direct model was already the most efficient in the computer
business even before the Internet came along. Because technology
products have very short shelf lives because of continuous
improvements and decreases in costs of their components, holding
inventory is extremely costly. By eliminating the retail channel,
Dell does not have to maintain an inventory of products waiting to be
sold in stores. This eliminates markdowns and the problem of
forecasting the mix of components that customers want to buy in their
computers. Instead, Dell builds each computer to order and receives
payment from the customer long before it even has to pay for the
components used in the computer.
However, because it was limited to receiving orders by telephone, Dell
still had to employ a large number of salespeople to work with
customers to configure their orders. The Internet eliminated a
significant portion of this expense by allowing customers to configure
their orders themselves with assistance from Web-based software
instead of a person. Because of this reduction in expense, Dell has
not only been able to reduce its prices overall while still
maintaining profitability, but it is able to have web site-only
specials that allow customers who are capable of servicing themselves
to save even more.
Although customers cannot walk into a store and walk out with a Dell
computer the same day, they can be confident in receiving a machine
tailored exactly to their needs, at almost certainly a lower price, at
their home or business within three to five days of placing an order
with Dell. Customers have found this irresistible, giving Dell top
market share.
Dell's use of the Internet has not been limited to only its customers.
The company also uses the Internet to share data with its suppliers,
such as what quantity of parts should be delivered when.
Collaboration with its suppliers allows the company to be aware of
parts shortages well in advance so it can take appropriate action.
For example, the company may choose to promote a different component
when it knows that a given component is not available. The customer
views the free upgrade as a bonus, and the company retains the order,
instead of the company accepting the order for the out of stock
component and later having to tell the customer that it is not
available at the present time. Instead of being angry that he or she
could not obtain what he or she wanted, the customer is delighted that
he or she is getting something better than what they were willing to
accept.
Dell has successfully used its direct model to hammer its competitors,
driving IBM out of the consumer PC business and compelling Compaq to
merge with Hewlett-Packard. Now, the company has launched its own
line of printers to further challenge Hewlett-Packard in its primary
profit center.
Dell is obsessed with efficiency and minimizing cost. A future
challenge to its market dominance may arise if Legend computer of
China or another company manufacturing in a low-wage country is
successful at acquiring market share in the United States via
dramatically reduced prices. The direct model requires either the
customer to be patient in awaiting the delivery of their computer or
else requires the computer assembly process to occur relatively near
to the customer. The company has already moved most of its
manufacturing from the Austin, Texas area to Tennessee. Aside from
lower wages, the presence of multiple transportation carrier hubs in
Tennessee to speed delivery of Dell products at the lowest possible
price no doubt accounts for the move. However, the time may come
where the company would need to move to an even lower wage location
such as Mexico. Transportation difficulties would have to be
overcome, however.
A second challenge arises as the company expands into more and more
product lines. Generally, the customer would prefer to receive their
entire order at one time. However, with the addition of printers made
by Lexmark and storage devices made by EMC, considerable coordination
is required to ensure that the entire order is merged at some point
prior to delivery to the customer. Historically, the company has
coordinated speakers, monitors, and the computer, but more items and
more suppliers makes things more complex.
I hope this has given you a good overview of the importance of the
initiative to incorporate the Internet into Dell's supply chain, along
with a couple of potential future challenges the company may face with
respect to managing its supply chain. The company has also use the
Internet to provide customer support, such as providing manuals and
drivers for download.
A brief summary of Dell's supply chain evolution can be found on their
corporate web site at
http://www.dell.com/us/en/gen/corporate/access_facts_fact_pak.htm.
Please request clarification if you need any.
Sincerely,
Wonko |
