Tuesday, February 19, 2013

The future of Dells supply chain network

Lean manufacturing is the basic ingredient in the supply chain network of Dell. It has given Dell a cost advantage over its competitors. From certain to uncertain times, it has proved its viability. Dell, in its manufacturing process, has removed the burden of inventory from its shoulders and has placed it on the vendors. But it is partly due to its brand name. For vendors, it is very important to be a supplier of a big and stable company. If you are a supplier of a big company, you are almost certain of your business stability. You are willing to work on credit. Dell is very strict about the efficiency of its suppliers. It consistently asks its supplier to outperform their previous target. But here some questions arise for the Future of this approach.

1.   For how long the suppliers are willing to be dictated by Dell?

2.      After certain time, let say 10 years, the growth will slow down. What will be the strategy of Dell  then?

3.      At the time of recession, how is Dell going to sell its computers at the same rate?

4.      What will happen, if other companies adopt Kiva systems to manage their inventories?
Right now, it is easier for Dell to dictate the rules of the game. But once the supplying companies become bigger and bigger their value will grow. They may take a stand against Dells terms and will try to dictate their own terms. They can enter into agreement with Dells competitors and can supply them goods. Some companies may go on to launch their own computers in the future and opt out of the relationship with Dell. For example, Google first used Microsoft’s internet explorer to run its search engine. Now, it has launched its own explorer and has outperformed internet explorer. This can happen with Dell as well.

Moreover, there is a limit on the market size. We have a limited number of people in this world. At some point of time, we will reach near the saturation point of our computer industry. How is Dell going to tackle that problem? At the time of recession the biggest problem is to satisfy the vendors. The Vendors of Dell are most vulnerable to the recession, since they are the one holding the entire inventory for Dell. Dell may be at the safe side but the suppliers will face the problem. It may affect their future commitment level with Dell. On one hand, they have the simplest supply chain network; while on the other hand, they are directly exposed to the effects of recession.These effects are visible in current recession period. Dell closed its manufacturing plant in Ireland and moved the manufacturing to Poland to keep the cost of manufacturing low.

The supply chain world is changing very rapidly. Automation of the warehouses is in full swing. Companies are installing different automation system to increase the efficiency of their warehouses. Amazon recently acquired Kiva system for the automation of its warehouses. In the future, other companies may ask install these systems in their warehouses to increase the efficiency of their warehouses. In this case, this thing represents  a real problem for Dell.


1)Article: Living in Dell Time (Breen, Fast Company Magazine, December 2007)


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