Operations Management Supply Chain Management at Dell Computer Corporation

Supply chain management systems have historically been designed to bring increasingly higher levels of automation and standardization of processes throughout supplier relationships, fulfillment, quality management and services. Throughout the latter half of the 20th century the concentration on lean supply chain performance sought to drill out every errand and unnecessary step and costs from supply chain collaboration, planning and execution (Foreman, Gallien, Alspaugh, Lopez, Bhatnagar, Teo, Dubois, 2010). This was especially the case in high technology industries including personal computers where the greater the level of standardization, the higher the level profits and lower the costs. Lean supply chain management and manufacturing was the approach Compaq took to establishing an early market share lead, yet was quickly challenged by Dell with its innovative uses of build-to-order supply chain management and rapid mass customization selling techniques (Gunasekaran, Ngai, 2005). The intent of this analysis is to evaluate how Dell was able to completely change the supply chain management practices of an industry by simplifying highly complex build-to-order product strategies in a fraction fo the time of its competitors (Papadakis, 2003).

Build-To-Order Supply Chain Management at Dell

The impetus for the build-to-order supply chain management strategy at Dell concentrated on how to better align each specific product line's production expertise to common customer requests (Gunasekaran, Ngai, 2009). Dell realized early on that the lean supply chain and manufacturing processes of its competitors Compaq, DEC, IBM, HP and many others was forcing each of these companies to miss a very large, profitable segment of the market. Using a more agile, demand-driven-based supply chain process that modeling and simulated a variety of build-to-order scenarios, Dell's supply chain planners reasoned they would be able to expand into untapped markets their myopically-driven competitors could not touch (Gunasekaran, Ngai, 2009).

Dell went the opposite direction of its competitors and...

Further, it divided up customer requirements by the level of product customization required to meet or exceed their objectives. The outcome if this analysis fo customers needs was a segmented and highly effective supply chain strategy that grouped product by assemble-to-order, build-to-order, configure-to-order and engineer-to-order (Papadakis, 2003). Figure 1, Dell's Build-to-Order Supply Chain Management Strategies Compared Shows how Dell aligned these supply chain and manufacturing strategies to their online sales channels (Guided Selling, Quote-to-Order, Product Configuration.
Figure 1: Dell's Build-to-Order Supply Chain Management Strategies Compared

Sources: (Gunasekaran, Ngai, 2005)

(Gunasekaran, Ngai, 2009)

(Papadakis, 2003)

By creating an effective strategy for managing wide diversity in both consumer- and business-based demand, Dell was able to tap into an entirely different and much larger profit pool than competitors, disrupting distribution, manufacturing and services strategies immediately (Kapuscinski, Zhang, Carbonneau, Moore, Reeves, 2004). The outcome of the disruptive innovations was an immediate impact on operations-based metrics, within nine months to a year, financial metrics and Key Performance Indicators (KPIs) began to also reflect the shift in overall performance of the company. Detractors said that build-to-order manufacturing would create a more fragmented and difficult-to-manage supply chain, resulting in Dell losing millions based on wasted materials. In fact the opposite was true as Dell created a Just-In-Time (JIT) supply chain coordination and synchronization strategy that sought to order just the components needed for a given series of systems (Papadakis, 2003). In this respect, Dell involved suppliers as co-owners of the forecast and was able to drastically increase inventory turns to up to 40X a year, far surpassing their competitors who averaged 12 or at best, 18X (Foreman, Gallien, Alspaugh, Lopez, Bhatnagar, Teo, Dubois, 2010). All of these strategies were melded together into a streamlined quote-to-order (Q2) process shown…