Running head: DELL INC.
Dell Inc: Improving the Flexibility of the Desktop PC Supply Chain
Strategic Supply Chain Management
BUSI 740 – B02
January 20, 2019
Case Study 1
Dell Inc. was founded by Michael Dell in 1984 based on the business model of eliminating retailers from the sales channel and selling directly to customers. This business model carried the company into the ranks of the top-five computer system maker worldwide by 1993 and number one in 2001. The company product offering includes personal computers and a variety of consumer electronics such as servers, storage, monitors LCD TVs, and projectors to name a few (Simchi-Levi, Kaminsky, & Simchi-Levi, 2008, p. 179).
The business model of selling directly to customers has been used throughout the history of the company. It is considered as Dell’s key strategy and strength. The model has no retailers and starts and end with the customer orders online or phone a computer system. Its manufacturing cost is lower than competitors due to it ship directly to customers and it only build to order. There is a reduction in time from customer orders to receipt in the system and provides a single point of accountability to provide resources to satisfy its customers (Simchi-Levi et al., 2008 p. 180).
Why does L5 incur higher manufacturing and logistics costs than L6? What are some of the costs that are incurred in L5 but not in L6? Are there any costs that apply to only L6 but not L5?
The degree of assembly is broken down into 10 levels. The higher the level, the more fully integrated it its. A L5 manufacturing and logistic process is the assembly of the desktop PC chassis, floppy disk drive, fan and a power supply depending on the chassis configuration. In addition to having the same components as L5, L6 has a motherboard installed into the chassis. L5 overall manufacturing and logistics cost is higher than L6 due to an increase in the utilization of L5 manufacturing since March 2005 (Simchi-Levi et al., 2008).
The root cause of the rise in L5 manufacturing is due to Dell’s failure to provide contract manufacturers the motherboards in a timely manner. The factors that contribute to these deficiencies are the chipset supplier decommit or supply issues, quality and engineering issues, forecast accuracy, and new product introduction (NPI). Although NPI only makes up 3.8 percent of the root cause, it is considered volatile where the forecast uncertainty can create the need for air-freight extra motherboards not normally required in the L6 manufacturing (Simchi-Levi et al., 2008 pp. 180). Bakker, Zheng, Knight, and Harland (2008) stated, “When operating in a volatile market ‘agility’ is required and information technology is focused on exchange of demand information” (p. 317, para. 2).
The costs that are incurred by L5 that does not occur in L6 are the Motherboard air-freighting and 3rd Party Integration cost. These costs are driven by the complexity...