There are a number of reasons why Dell’s supply chain has been so successful, and why the supply chain has begun to face challenges in more recent years. Initially, one of the reasons why Dell’s supply chain was so successful was that, by means of its just-in-time (JIT) strategy and extremely well-coordinated partner network, Dell was able to specify exactly how many parts and components it needed at specific times and at specific warehouse locations (Crandall, Crandall, & Chen, 2013; Holweg & Helo, 2014; Katariya, Çetinkaya, & Tekin, 2014). This level of specificity meant that Dell was holding very little in inventory; parts passed through Dell’s supply chain extremely quickly, going from downstream suppliers to the customer mere days after orders were placed. Reducing its inventory allowed Dell to reduce the substantial costs of storage that its competitors paid (Katariya et al., 2014).
At the same time, Dell’s extremely efficiency supply chain allowed for more inventory turns. Dell’s approach to operations ensured that every computer that was sold had been assembled in response to a demand signal from the consumer. On the other hand, companies that did not build to order invariably had to manufacture computers for which there was no actual demand signal, some percentage of which either sat longer in inventory or failed to be sold at all.
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Dell’s supply chain faltered for several reasons. First, the direct model that Dell pioneered in the 1990s ceased to be the dominant means for customers to order from Dell. The change in the popularity of direct order challenged Dell, given that the company’s entire supply chain was architected on this model. Second, Dell began to move into more and more developing markets, whose unreliable infrastructure made it difficult for Dell to be able to live up to its rapid cycle times. Third, other companies began to execute the direct model and also to adopt aspects of Dell’s supply chain strategy, which closed the distance between Dell and its competitors. Fourth, over time, Dell’s vulnerability to downstream manufacturers and partners increased; Dell had to pay the price for its partners’ volatility.
Dell’s decision to sell its products via retail outlets can be considered from several perspectives. To begin with, had Dell decided to remain in business only through the direct order model, it would have had to assume that any consumer who did not buy a Dell personal computer from a retail location would eventually buy a Dell personal computer through the direct order model. However, for many consumers, personal computer purchasing decisions are made while browsing retail locations. Dell, not being present at retail sites, had to hope that consumers would refuse to buy the other models they could examine at these sites and also follow up on purchasing Dell online or over the telephone. There was therefore a substantial risk involved in Dell staying out of the retail domain.
Additionally, by staying out of retail, Dell was failing to let customers compare its products to those of competitors. Retail venues provide a convenient place for consumers to weigh the respective quality of different brands of personal computers. By withholding its product from retail shelves, Dell was losing a chance to compete on quality against its competitors. Remaining out of retail might have made sense if Dell were a luxury good whose limited availability bolstered its brand, but Dell was in fact a cost-conscious company. Eventually, Dell had to put its products into direct competition with other personal computers in order to do well in the marketplace. The most compelling argument for getting into retail stores, however, was that they were increasing in popularity as demand sources for personal computers.
- Crandall, R. E., Crandall, W. R., & Chen, C. C. (2013). Principles of supply chain management: CRC Press Boca Raton, FL.
- Holweg, M., & Helo, P. (2014). Defining value chain architectures: Linking strategic value creation to operational supply chain design. International Journal of Production Economics, 147, 230-238.
- Katariya, A. P., Çetinkaya, S., & Tekin, E. (2014). Cyclic consumption and replenishment decisions for vendor-managed inventory of multisourced parts in Dell’s supply chain. Interfaces, 44(3), 300-316.
