Demand chain management Essay

1.IntroductionPurpose of this assignment is to give way the upshot accept of the dingle Inc, relating to the seven questions asked on the case study. objective of the case study analysis is to get a deeper understanding of the ball-shaped additionion, outsourcing and logistics. 2.Company overview dingle is a global information technology confederacy that offers its customers a broad range of solutions and services delivered directly by dingle and finished early(a) distribution poopalizes. Their focused is to provide technology solutions that atomic number 18 much efficient, more accessible, and easier to manage. dingle Inc. is a dimension go with that conducts its traffic pla realizeworkary through its subsidiaries. Their global corporate headquarters is located in act Rock, Texas. In landmarks of the PC manufacturing merchandise, DELL is at number 3 location (Behind HP & adenylic acid Lenovo) with annual revenue of USD 62,071 Million. They made a net profit of USD 3,492 Million for the year 2012, which would translate to a net profit gross profit of 5.6%.dell focuses on 4 master(prenominal) market target segments.SegmentRevenue percentageLarge Enterprises30%Public 27%Small & ampere medium barter 24%Consumers 19%Table 2.1 dell Incs marketing segmentsThe product portfolio of dingle consists of selling Servers, Networking, Storage, Outsourced services, Project Management, Support & deployment services, Infrastructure, Cloud, Security services, Applications, Business Process services, Client devices nonebooks, workstations, tablets, smartphones, and desktop PCs For the purpose of the case study, the focus leave alone be on the products & distribution of ad hominem computers.3.Case study questions3.1.1.What argon the returns to DELL of having manufacturing sites located where they are? A company once decided to place their drudgerys overseas, mustiness make a last to whether to centralize their production or to de-centra lize it over different countries. A company will look at 3 areas in making this close. orbit factorsoPoliticalo scotchaloCulturaloFactor CostsoLocation Externalities Skilled repel technologyoTrade barriersoTransport equaloFDI rules & regulationsoExpected permutation rate stabilityTechnological factorsoFixed monetary valueoMinimum Efficient ScaleoFlexible manufacturing/ bundle customizationProduct FactorsoValue-to-Weight RatiooServes Universal privations(Hill, 2011)dell Inc which befuddle a product with confuseder fixed price of manufacturing, lower minimum efficient home plate and with low requirement for mass customization or flexible manufacturing will favour in for decentralization. in equivalent manner considering the product factors, Dell has a product which has a lower Value-to-weight ratio and a product which needs to be customized to from each one market, which indicates the requirement for the De-centralized strategy. Decentralize/Centralize decision will be influenced by the companys own objectives. Dell specify their objectives as Generating damage efficiencies,Delivering products faster,Better serving their customersBuilding a world-class provision range of a function.(Annual Report, 2012) In assure tocater to these objectives and support product factors and technology factors, Dellhas taken the decision to De-centralize. Once the decision to decentralize has been taken, they will go ahead with selecting the countries where they will try to exploit the country factors listed above to their advantage. Current spots where Dell has their production facilities are as follows Austin, TexasPenang, MalaysiaXiamen, ChinaHortolndia, BrazilChennai, IndiaLodz, Poland.Advantages exploited from each of these locations back end be listed as below 3.1.1.1.Market Access Generating bell efficiencies, Delivering products faster, Dell main objective is to deliver products faster art object generating hail efficiencies. The growth countries and regions that they collect highlighted are BRIC countries (Brazil, Russia, India, and China). The strategy they have used is to keep best viable market access these strategic regions. Analysing the location they have selected succeeding(a) advantages gutter be seen. Texas is central to all of the U.SMalaysia is central to the huge Asia-Pacific region.Lodz Poland close to the full-size markets of the UK, Ger many another(prenominal), and France. Brazil, India and China plants are set up to reach the respective markets speedily3.1.1.2.Labor addresss and qualityChina is a low cost manufacturing locationTexas is cheaper than Silicon ValleyMalaysia is cheaper than SingaporeThe quality of labor is high in each of these locations as well. Besides having well-educated workers, engineers and technicians, each location has poor or no labor union activity. They have also cut industry clusters such as Sao Paulo (Brazil) and Shenzhen (China) to ensure that labour markets are not tigh t and expensive.3.1.1.3.Transportation and telecommunications infrastructure The Texas locations, for instance, are in close proximity to major(ip) highways and to a major Federal Express distribution center. Telecommunications bandwidth, cost, and quality are also factors, especially for call centers and data centers.3.1.1.4. regimen incentivesMajor incentives were offered by Texas financial incentives were offered in Brazil by the state presidency Tax holidays in Malaysia3.1.2.What are the potential drop disadvantages of the locations? Political turmoilPolitical stability is a requirement for a production location. Countries such as Brazil whitethorn be affected by unstable political attitudes. If shutdown, a intact region will be effected Economical Instability trading operations may be effected from economical stability of its countries, especially European region with the flow EURO debt crisis. E.g DELL had to close down it Ireland manufacturing arm in 2011, afterward lay ing off 2000 employees. Expiration of Government concessionsOne of the rudimentary reasons to locate the production facilities where they are is referable to concessions offered by government. Most government concessions will be expired after a particular period, after which operations might be unfavourable. (e.g Texas, china, Malaysian operations). In such situation net outgo may drastically rise, making financially unfeasible. why does Dell purchase most of the components that go into its PC market from sovereign suppliers as opposed to making more itself (Dell does little more than last-place assembly of components into PC)?Dell purchases many of their products and all of their components from third party vendors. important reasons for Dell purchasing them from independent suppliers are1.Reduce the guess of having large inventories, which back generate obsolete quite quickly In the IT industry loosely recent products are introduced to the market very speedyly. Therefor e exsising products can be hap obsolete quite rapidly, with the introduction of new products into the market by competitors.2.Reduce the stock list holding cost- Inventory holding cost includes cost such as warehousing and logistic cost, insurance cost, spoilage and breakage cost etcetera However since Dell carries extremely lower level of inventories their record holding cost have been pull downd to a grater extent.Majority (95%) of Dells suppliers located at closer to the Dells factory and most of these suppliers have to show the products to Dell within 90 minutes after placing the order. This has also helped Dell to reduce their inventory to a greater extent and has enable Dell to practice Just In Time (JIT) manufacturing.3.Reduce the cost of co-ordination compared to vertical integration As Dell does not have its own factories, they are not incurring any expenditure by way of establishment expenses, administrative expenditure etc, which generally carries comparatively lar ge unions. Also Dell has been able to reduce the cost of unequivocal and cost of coordination to a greater extent which otherwise would have to be incurred, if they have been vertically integrated.4.Obtain flexibility in terms of cost, quality, quantity, delivery, capacity, support etc, as they are purchasing items from several different suppliers depending on the requirement and circumstances. Dell openly shares its daily production schedules, barters forecasts, and new-model introduction plans with vendors using electronic Data Interchange (EDI)s. Dells forecast of cater is unremarkably 75% accurate and if in case it is wrong, Demand Shaping is do to overcome the situation.5.Reduce the cost Dell purchases 75% of their purchases from 30 main suppliers (15% of their suppliers), and generally maintains several single-source or ensnareed-source supplier relationships, either because quadruplex sources are not readily available or because the relationships are advantageous to us due to performance, quality, support, delivery, capacity, price etc.Majority of these suppliers are from Asian countries that have relatively lower labor cost and this has been helped to reduce Dells cost to greater extent. Also due to the large volumes that are purchased, their is high bargain power over their suppliers which has moderateed in Dell obtaining vendor rebates and discounts which too have resulted in Dell reducing the cost to a greater extent.6.Reduce conviction to market compared to competitors Time taken to release a new product to market is a critical success factor in IT industry. Since Dell is purchasing most of their components independent suppliers, Dell is able to introduce new products to the market as and when new components are introduced by suppliers.As a result of Dells effective supply chemical chain management, they bustt have any warehouse and also their factories have and 72 hours worth of inventory. Also cash conversion musical rhythm (ti me amid an outlay of cash for parts and collection of payments) of Dell is negative 36, where as in industry it is 30 days. Also their inventory turnover has remained rough 107 times where as in companies such as IBM it is 17.5 times. What are the consequences for Dells cost structure and profitability of replacing inventories with information?In year 2004, Dell has been able to achieve the lowest inventory levels in the industry that was plainly three days of inventory on hand, compared to 30, 45, or even 90 days worth at competitors. This was a critical advantage in the computer inventory, where component costs account for 75 percent of revenues and typically fall by 1 percent per week due to rapid obsolescence.Replacing inventory with information has contributed greatly to Dells tune model it is the cornerstone of their cost structure. Reducing inventory also reduces the need for working capital thus replacing inventory with information boosts profitability. some other aspec t of dingles customer focus was build to order philosophy. Every dell pc has been built this way unlike many other companies who build for sales forecasts. To offer build to order system, companies must have cell manufacturing team of workers who build each PC from spring to finish rather than a typical assembly line production. cellular phone manufacturing in which one group of people is responsible for building a pc.Among other things cell manufacturing allows you to build to order in an efficient way. Dells received inspiration was to go direct but that only got it off the ground. Dell has made crucial establishments in its business enterprise model as it has bountiful these successive innovations have made it prosper not its adherence to a single rigid idea standards based technology as a point of market entry is one of those crucial points. Then dell began to implement a new model. Its operations had always featured a build to order process with direct sales to custome rs but dell took a series of ingenious steps to eliminate its inventories.Three florid rules of dell are disdain inventory, listen to the customer, never sell indirect. note that disdaining inventory was number one. Because of computers and the way they handle information nada or near zero inventory control is going to be a major business factor in the coming years and dell lead the way. Inventory is a drag on any business and particularly pure internet based businesses need no inventory on hand. Inventory mode capital investments and that investment is a impressive challenge to any start up. Further holding considerable meter of inventory in a business increase the overall debt position of firms and force them to incur massive amount of interest cost.The strategy to minify inventory is the only way to maintain start up cost and interest cost at an acceptable level. In the short prevail it will permit more start-ups because smart companies with tiny inventories come online w ith tokenish capital investment and Dells strategy of direct sale through online was a good example for the above. Dell actually bullion its operations in large part by maintaining zero inventory.It bills customers instanter but pays suppliers 36 to 45 days later. So it can plane an enormous amount of cash on which it earns a significant amount of additional interest. Besides reducing and reversing capital investment, zero inventory means that stock depreciation and obsolete a central concern in high tech is almost on problem. Maintaining zero inventory by nature keeps a company more agile. In fact true zero inventory keeps a company on the knifes process of responsiveness which is where dell likes to be. Dells model demand comes first supply second.Cost Structure1.Inventory acquisition and holding cost2. stakes cost3.Re-work cost4.Obsolete inventory written offProfitability1.Gross profit and net profit margin2.Higher return on investment3.Interest cover4.Higher EBIT marginQu estion 6What is the source of Dells competitive advantage?A competitive advantage is an advantage over competitors gained by fling consumers greater value, either by means of lower prices or by providing greater benefits and services that justifies higher prices. Michael Porter suggests that accompany can film one of the three strategies Differentiation, cost leadership, or focus in conclusion its competitive edge. Dell mass produce its components to keep the cost minimum, while postponing the assembly of the computers till the customer final orders are received. The model enabled Dell to gain competitive advantage ahead of competition with Low cost structure and customer experience. Dells global business model which is admired by world-over has positions its production plants close their key fruit markets in order to reduce shipping and transport costs and access to labour markets on low wages and with high productivity.The JIT inventory enabled Dell to reduce heavy investments on large inventories and warehousing. Short channel length and optimized supply chain process reduces cost of doing business further internet sales which generates major revenue inflow is an low cost sales channel helped Dell immensely in gaining cost leadership in the industry. Dell offer customers unique experience with its responsiveness through assembled-to-order, speed and at ease purchasing cycle online. How secure is this advantage ?Dells possible and economical model combining mass production and customization is a key strength which is well executed by effective integration of business plans aligned with supply chain resources. Evolvement of lean supply chain can give Dell with its drive for innovation to capitalize heavily and come up with better business model enhancing value proposition to the customer. likewise fast-paced expert developments too will be opportunities for Dell to rear their competitive advantage. Internet sales channel can further spread out with B razil and China consisting of one of the largest internet populations of the world. Product life cycle of PC market is at maturity stage and global shorten is consumers are demanding for more convenient devices. Treats from low cost new entrants and tilt among competitors make Dell, more reputed and admired giving medication to stand tall.Pressure from the States on China on exchange rate, China and Brazil growth as a middle income nation can impact the low cost labour and competitiveness of the product. Lack of culture driving innovation in countries they operate limits options for Dell to move value added services to muzzy cost labour countries like how HP has moved its design and R/D centre to Singapore. Anti-globalization ideology of China could impact Dells business future. For reputed organization like Dell, Green SC, ethics and CSR will require additional investments will increase their cost structures. In conclusion, we are of the view that considering above situation, D ells competitive advantage is not secure and could impact their current advantages.07. What are the potential risks associated with Dells global supply chain strategy? How can these risks be mitigated? Supply chain risk can be defined as followsUnforeseen events that might fall in the smooth flow of materials. (Waters, 2008) Unlike local or company-specific risks, system-wide risks are those which significantly disrupt supply chains crossways multiple operations and a wide geographic area. Systemic risks are created or magnified by the way supply chain systems are configured.So they are not easily resolved by individual acts. In todays globalized and interconnected world, any major disruption from a disease to a fire, has the potential to cascade through supply chains and permeate other systems. According to the research of consulting firm Accenture in 2006, over 50% of executives surveyed entangle that the risk of supply chains had increased as a result of their globalization o f business operations & also significant supply chain disruptions have been found to cut the share price of wedged companies by 7% on average. Further Accenture research done in 2012 indicates that more than 80% of companies are now concerned about supply chain resilience.The World Economic Forum in 2012 conducted a expand survey on Supply mountain range Risk across Europe, wedlock America and Asia via the World Economic Forums Supply Chain Risk Radar. The aim was to understand how the risk landscape varied across the three regions and compared with the top five global risks from 2011. Survey respondents considered global risks and their potential to cause system-wide disruptions in global supply chains. According to the survey the following top five disruption figures in 2012 were identifiedWhat risks is Dell exposed to through its supply chainGovernment Regulations / Legal decisions Currency / Interest rate volatility Country Financial Risks Political & kind Disruption s Corporate Governance issues Disruption of key supplier / partner thieving of intellectual property Natural disastersRisk Why Dell is exposedMitigatesGovernment Regulations / Legal decisions50% of the major suppliers are in Asia (Developing countries)Close study on the changes in regulations & the political situation of the countries invested in and limit expansion if the conditions are adverse Currency / Interest rate volatility200 suppliers of which 50% located outside USASupply on determined fixed prices for a specific period of time frontwards exchange rate contractsTheft of intellectual property85% of the sales are done through the internetDepend on a resilient core network, appropriate communication tools, and an element of redundancy. 34 This requires IT systems that are scalable, secure and re-routable Natural DisastersMany suppliers & factoriesAdequate insurance protectionsWorld Economic Forum, Building Resilience in Supply Chains January 2012ConclusionDells effect ive supply chain management has enabled them to reduce their cost to a greater extent, which has in turn helped them to improve its international competitiveness. Also effective supply chain management has enabled them to increase the value instauration to the customer by providing a faster and better service to the customer. When find the production locations, consideration must be given to country factors, technological factors and product factors prior to finalizing the decision.Strategiclocations of Dells production facilities have helped them to lessen cost, improve product quality and enabling better delivery channels. furthermore Dells strategy to purchase components from independent suppliers has facilitates strategic flexibility and helps the company to avoid the problems and costs associated with vertical integration. However unlike locally operated companies, global operatorslike Dell, has system-wide risks which could significantly disrupt supply chains across multi ple operations and a wide geographic area other than the inwrought company specific risks. In conclusion it is important that global companies like Dell should continue to mitigate these risks and achieving a better supply chain management through close alliances with suppliers and customers in striving for long term business competitiveness.