Saturday, September 13, 2014
Dell: More Information, Less Inventory
Dell: More Information, Less Inventory
Inventory plays a vital role in the process of supply chain management. Sometimes it may even determine the success of a company. A traditional view on managing inventory takes sufficient stock as a safeguard to ensure the performance of operations and to maximize profitability. In this respect, volume of inventory costs a lot but reducing inventory brings about increasing risks due to the uncertainties of future. However, as the advent of big data, it seems easier for us to make the right trade-offs among inventory-related cost, customer service and operational performance.
When it comes to the supply chain management of Dell, the point of “Zero Inventory” would be the talk of people. Yet, at the first glance of the notion-“Zero Inventory”, I felt confused and even suspicious of this model. After exploring on the essence of “Zero Inventory” applied to Dell, I gradually got the answers to previous questions remained on my mind.
Is “Zero Inventory” equals to “No Inventory”?
“Zero Inventory” does not mean no inventory at all. And it is obvious that a company without any stock is hard to survive. But it is true that Dell is dedicating itself to approaching zero inventory. Eleven years ago, Dell carried 20 to 25 days of inventory in a sprawling network of warehouses. Today, it has no warehouses. According to the research nowadays, though it assembles nearly 80,000 computers every 24 hours, it carries no more than two hours of inventory in its factories and a maximum of just 72 hours across its entire operation. Dell holds inventory only for the six to eight hours it travels across the assembly line and for the 18 hours it takes for the completed CPU to be trucked to a merge center in Reno, Nevada, where the unit is bundled with a monitor and shipped to the customer. Total inventory time: two to three days. It might be more evident when compared with Lenovo, which carries its inventory for 18 days more than Dell and resulted in 10% less efficiency than Dell. For Dell, inventory velocity serves more importance than inventory volume, so it has paid more attention to accelerating the movement of goods. Moreover, what contributes most to its “Zero Inventory” is the application of VMI system. By transforming the risk of inventory to vendors and making close connections with them, Dell consequently reduce its previous pressure on managing inventory.
Is “Zero Inventory” harms its operational performance?
As a matter of fact, Dell does not make its operational performance as a victim of “Zero Inventory”. On the exploration of the real meaning of “Zero Inventory”, we should not only see the reduction of inventory but also manage to identify its unremitting endeavors on information exchange and transformation. To better satisfy its customers and maintain that operations run smoothly, Dell requires its vendors for timely and frequently communication, as well as operational coordination. Of course, Dell have to share a bit of its profit and make commitments of long-term partnership in returns. Nevertheless, this model of information sharing and collaboration plays a key role in the supply chain management and coordination process. Trough developing such a strong bond with its vendors, Dell could reduce its cost and workload on management and therefore improves operational efficiency.
Could “Zero Inventory” simply be applied to all other companies?
I do not think so. “Zero Inventory” asks for active and professional participations from multiple areas, especially requiring the key role of suppliers. Dell’s leading position in PCs and advanced supply chain management system equips it with strong impact on vendors. A large amount of total orders ensure the profit of vendors and therefore encourage them to meet the changing demand on orders of Dell. In addition, “Zero Inventory” also means fast and accurate reaction to orders. Dell owns efficient process management and unique direct-sales model by which make it precisely forecast the change of future need. But for most companies, without thorough information sharing system and effective process management, “Zero Inventory” would still stay as a dream.