Dell is rightfully seen as one of the closest approximations of an extended, real-time enterprise. Dell’s business model has always been direct sales to end-users, who are primarily enterprises. Its role is to assemble and rapidly deliver the final product based on customer configuration, with all components outsourced. A large and growing portion of Dell’s sales is made over the Internet, which also is the medium for much of Dell’s customer support and a key element of the integrated information system linking customers to the supply chain.
Except for a brief interlude, Dell has always been a direct sales firm that provided build-to-order machines, which facilitated its adoption of the Internet for sales. Additionally, the initial emphasis on speed of operation and low inventory also contributed to the adoption of the Internet. The direct sales model already contributed valuable information about end demand and market shifts, along with indicators about how service and support could be used to add value to the product. In many ways, Dell’s operations were defined in Internet terms before the emergence of the browser-based Web. Dell was already an information-intensive firm that used this information to accelerate the speed and leanness of its operation.
The Internet built on and accentuated Dell’s business model and corporate culture. This helps account for Dell’s status as the primary example of an Internet-based firm. Dell’s position rests on its ability to create and manage an information system that integrated the production and delivery of components, assembly of machines, and direct sales, distribution, and servicing of those machines. One measure of the ease of transition to the Internet was the rapid jump in Internet sales from $1 million per day in early 1997 to $50 million per day in 2000. At the same time, the transition brought significant increases in efficiency and customer satisfaction.
Much like Cisco, Dell’s Internet capabilities extend from customer to supplier. The ability to custom configure the machine effectively brings the customer inside Dell. Further, the Internet permitted Dell to provide customers with rich information about the product, including the cost for each variation of the machine. Customers became much better informed about the product and the purchase experience and felt like they were on the shop floor making choices and understanding those choices. The Internet provided better tracking information to customers at a lower cost to Dell than the telephone. Also, service was made easier by using the Internet to provide downloads and even to diagnose problems. The development of a customized Web site for customers provided Dell with asset management capabilities.
The Internet-based information system extends to the supply chain base in much the same way as it extends out to customers. The Dell supply chain is composed of a relatively small number of suppliers, each with a very strong relationship with Dell. The supply chain is global, as is the assembly system. Dell receives real-time information from its suppliers about their capacities, inventory, quality measures, and costs, and suppliers receive information from Dell on demand forecasts, sales, quality measures, and customer needs. The assembly plants receive orders every two hours and establish a new production schedule. Suppliers maintain component inventories close to the assembly plants. Typically, Dell is able to assemble an order in one day.
Dell ties this supply chain together with the information that comes from customers. First-tier suppliers are able to see Dell’s demand forecasts (updated through an Internet portal) and are able to gauge their operations accordingly. Providing direct information about sales and demand forecasts in real-time to suppliers mitigates the bullwhip effect. Suppliers, aided by real-time information, are in a position to produce for end demand and make adjustments separated only by lead time. The information system also permits some suppliers to ship parts of the end product directly to the customer, thus avoiding shipment to the Dell plant and reshipment to the customer
For Dell itself, all inventory is a work in progress; there is no finished goods inventory since products are shipped as soon as they are assembled and tested. This Internet-based information integration has significantly contributed to the remarkable decline in inventory, from an average of about 35 days of component inventory on hand in 1995 to less than 4 days in 2001. Dell also provides information about product defects for use at the point of production to improve quality control. Integration of the supply chain is enhanced by suppliers who are in close physical proximity to Dell, holding inventory within a few minutes of the assembly factory. Information is also used to establish a very tight integration between delivery and service. The integrated supply chain permits a very simple yet powerful push-pull system.
Last word
Dell exemplifies a systemic understanding of how supply chain management must operate in an extended real-time firm. The benefits include reduced costs for sales, service, and supply chain operations, plus improved quality, delivery time, and service satisfaction. Dell’s performance is better than that of its less Web-enabled competitors, and its broad capabilities have been essential in increasing its market share. Nonetheless, Dell has also experienced some of the same inventory problems as Cisco as a result of misalignment with suppliers.
