Monday, September 9, 2013

Dell's inventory management

Zhou (Joe) Ye

Inventory is marked as asset in accounting statement, but it has many disadvantages. Maintenance cost is needed to store the inventory, and financial loss (called write down in accounting term) could possibly occur due to poor inventory management if some goods in stock expire or damaged. So control the volume of inventory is very crucial and would cause severe loss if it is poorly managed.

There are several interesting cases of inventory management. Dell’s case is an extreme one. Relying on its strong and aggressive position in its relationship with suppliers, Dell’s inventory strategy was 0 inventories. Dell required all its suppliers ready for any raw materials orders at any time. That means Dell didn’t store any raw materials for manufacture. Instead it made supplier’s trucks waiting outside its factory.

On the other side, Dell built a strong and effective sales channel for its products. It used media and Internet to directly sell computers to consumers. This strategy, which eliminated the intermediate distributers, lowers the product price and made Dell more competitive. And more important, it simplified the supply chain and made it easier to control. The inventory of assemble computers of Dell was always significant lower than its competitors[i]. The benefits of low inventory, as mentioned above, includes low maintenance cost, low risk of inventory impairment, therefore contributes significantly in the firm’s financial performance.

Although Dell didn’t spend too much on research and development comparing to other IT companies, it can stay competitive because of its smart and effective inventory management strategy.

However, in recent years, Dell's performance is not that outstanding as before. Since we have moved into the mobile age, holding the best supply chain strategy won't help too much if the core technology is falling behind. Can we consider supply chain as a strong and solid base, while technology innovation is the real source of power to move on?


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