Tuesday, September 10, 2013
Dell – The Zero Inventory Strategy
Dell computer sales follow the Build-to-Order strategy for selling PC’s. This is a unique business model, which has resulted in a lot of success for Dell. In this method the products do not sit in the inventory and lose their value before they are sold and also the inventory does not need to be cleared for the new products.
The reason for Dells success in inventory management is due to the strategy of having low or “Zero Inventory”. Computers depreciate at a very high rate and therefore the product loses value even before it is sold. For every 7days that a computer sits in the Dell warehouse it loses 1% of its value.
An analysis of the past 10 years of data from the company suggest that in 1993 Dell was carrying more than 10 weeks worth of inventory with an inventory turnover rate of 5.16 and after implementing the zero inventory strategy - Dell now carries less than one week worth of inventory with a high inventory turnover rate of 63.50.
Dell has therefore been successful in developing a good supply chain management system with “Zero Inventory”, which has increased its profit margins by leaps and bounds. This new business model has not only increased the inventory turnover rates but also ranks Dell among the top companies in customer satisfaction.
This revolutionary strategy of minimal inventory resulted in high quality products, customer acquisition and excellent supply chain strategy making Dell a top producer in personal computers.