Build-To-Order
Model For Success (Part-I)
A
study on Dell’s build-to-order model
Dell
Computer Corp. Texas, USA, is a leading computer systems
company, and a provider of products and services required
for customers to build their information-technology and
Internet infrastructures. The company also supplies servers
and computer products to business customers, government
agencies, educational institutions and consumers. Dell operates
across the globe and has manufacturing facilities in major
regions of the world.
Dell
has become a $25 billion dollar company in less than 20
years since it was founded. Currently, when most of the
top technological companies are posting losses due to the
slowdown in the US economy, Dell has managed to remain profitable.
Dell’s success is largely due to its famous build-to-order
model.
Low
material cost
The
driving force in Dell’s supply chain is to cut down
material costs from the suppliers. Material costs contribute
to about 74% of Dell’s revenues. Its expenditure on
materials was around $21 Billion in 2000. Hence cutting
material costs will have a greater impact than cutting costs
in other areas.
Lean
inventory
A key
component of Dells supply chain strategy involves stocking
materials close to the manufacturing facilities. The main
suppliers have Supply Logistics Centres (SLC’s) or
inventory hubs located near the manufacturing plants. This
supply chain solution helps Dell to communicate with the
hubs in real time to deliver the required materials just-in-time.
Dell
carries only about 5 days worth of inventory whereas its
competitors are laden with 30, 45 and even 90 days of inventory.
Dell has a significant cost advantage as it operates in
a market where material costs decrease by 1% per week. A
competitor may carry four weeks of inventory while Dell
carries only one week worth of inventory. This translates
into a 3% cost advantage on materials due to declining prices
of materials in the market. Ultimately this cost advantage
is reflected in the bottom line.
i2
solutions
Dell
has ambitious plans of growing into a $75 billion company.
To achieve this it has enhanced its supply chain processes
by implementing i2 technologies software. i2 Technologies,
Inc., USA, is a leading provider of dynamic value chain
and marketplace solutions. Each of Dell’s manufacturing
plant operates on the same i2 resource-planning and execution
software system. With the implementation of i2’s software
Dell can now schedule all production lines in every factory
every 2 hours. It pulls in materials from the suppliers
every 2 hours based on customer demand. Any factory typically
has only five to six hours worth of inventory on hand including
work in progress. This has significantly increased the cycle
time at the factories and decreased the warehouse space.
Saving in warehouse space has resulted in space for more
manufacturing lines.
The
next article discusses Dell’s supplier base and how
it balances its demand and supply.
Related
Reading:
- Dell.com
- i2.com
- Business Week
