How has Dell used its direct sales and build- to- order model to develop an exceptional supply chain?

Dell has designed its order processing, products, and assembly lines so that customized products can be assembled in a matter of hours. This allows Dell to postpone assembly until after a customer order has been placed. In addition, any inventory is often in the form of components that are common across a wide variety of finished products. Postponement, component modularity, and tight scheduling allow low inventory and support mass customization. Dell maximizes the benefit of postponement by focusing on new products for which demand is difficult to forecast. Manufacturers who sell via distributors and retailers find postponement virtually impossible. Therefore, traditional manufacturers are often stuck with product configurations that are not selling while simultaneously being out of the configurations that are selling. Dell is better able to match supply and demand. One of the few negatives for Dell’s model is that it results in higher outbound shipping costs than selling through distributors and retailers. Dell sends individual products directly to customers from its factories. But many of these shipments are small ( often one or a few products), while manufacturers selling through distributors and retailers ship with some economy of scale, using large shipments via truck to warehouses and retailers, with the end user providing the final portion of delivery. As a result, Dell’s outbound transportation costs are higher, but the relative cost is low (typically 2% to 3%), and thus the impact on the overall cost is low. What Dell has done is build a collaborative supply chain and an innovative ordering and production system. The result is what Dell likes to refer to as its value chain— a chain that brings value from supplier to the customer and provides Dell with a competitive advantage.
Discussion Questions
1. How has Dell used its direct sales and build- to- order model to develop an exceptional supply chain?
2. How has Dell exploited the direct sales model to improve operations performance?
3. What are the main disadvantages of Dell’s direct sales model?
4. How does Dell compete with a retailer who already has a stock?
5. How does Dell’s supply chain deal with the bullwhip effect?