SUPPLY CHAIN STRATEGY

History
 Started in Michael Dell’s dorm room at
the University of Texas in 1984

 Grossed $75 million in sales in 1985

 Made the Fortune 500 in 1992

 Ranks 2nd in computer sales

Supply Chain
Dell at a Glance
 Globally 2nd in computer hardware design, manufacturing and
distribution with a market share of around 16%.(HP is 1st with 19%)

 Founded by Michael Dell in 1984.

 1987 --first computer systems company to offer next-day, on-site

product service .

 Greater than $50 Million sales per day through the internet with yearly
revenue of $55.908 Billion with employee base of 78,000.

 Ventured in areas of storage products, workstation systems, online

technical support, appliance servers, network switches, standards-
based point-of-sale offering for retail customers, recycling .

 Shipped more than 10 million systems in a single quarter (Q4, FY06)

Supply Chain
Michael Dell
 College dropout

 Changed how computers

were sold

 Started his business with

$1000 in capital

 Now worth $17.3 billion

Supply Chain
Dell’s Product
Portfolio
PowerVault
&
PowerConnect Dell|EMC
Switches Storage
PowerEdge
Servers

Software &
Peripherals Precision
Workstations

Latitude
OptiPlex Notebooks
Desktops

Supply Chain
 Dell Facts
Customer Base Revenue by
(Revenues) Product
~80% • Desktops = 51%
Corporate • Enterprise = 21%
& ~20% • Notebooks = 28%
Institutiona Consumer Revenue by Region
l

Global
 Manufacturing
Austin, Texas, USA 19%
70% EMEA 11%
 Nashville, Tennessee,
USA
Americas APAC
 Eldorado do Sul, Brazil
 Limerick, Ireland
 Penang, Malaysia ~41,800 employees worldwide
 Xiamen, China Revenue $38.4B (last 4 qtrs.)
Supply Chain
 Direct Model
Suppliers Customers

• Continuity of Supply • Best Customer • Product Quality

• E-business Experience • Price for
Collaboration • Low Cost Efficiency & Performance
• Technology Leaders Highest Quality • Customization
• Low-cost • Partnering/Virtual • Reliability, Service
Manufacturers Integration and Support
• Latest Technology

Supply Chain
Dell’s Direct Model

 Direct relationship, most efficient path

 Low cost and best value

 Built to order

 Customized systems

 Superior, tailored service and support

 Highest quality and most relevant technology

Supply Chain
Dell’s Value Web Model

Supply Chain
Why SCM is so Important in PC
business
 Material costs account for 74%($21 billion) a year for dell.

 Improving SCM by 0.1% has bigger impact than improving

manufacturing process by 10% .

 Changing technology obsoletes Materials’ value by almost 1%

per week .

 Rely on market forecasting to drive Production.

 Technological breakthroughs cause very short Product life

cycles .

Supply Chain
The Power of Virtual
Integration

Technology Services
BLUECURRENT

EMC² Customer
SOLUTION

Software E-Business

• Dell acts as the single point of accountability while focusing on our core
competency – custom-configured computing solutions.
• Seamless integration with best-in-class partners leverages their core
competencies for the benefit of Dell’s customers.

Supply Chain
ventory Management Experience
100

90
Days Sales Inventory

80

70

60

50

40

30
       
20
15        X
10
5     
0

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Q103

Supply Chain
 Procurement
Responsibilities….
Quality

Cost Delivery
Worldwide Procurement Regional Materials

Shared responsibility

Separating contracting from commerce

Supply Chain
 Continuity of Supply
Intense Focus through:
• Separate internal organizations
• Supported by unique processes and systems
• Looking at a different parts of the inbound supply chain
• Dealing with different people at the supplier
y g n
g n t io
a te n ni c u
tr a e
S Pl Ex

Horizon: Beyond lead-time 3 days to order lead-time 0 to 3 days

people): Worldwide Procurement (6X) Regional Materials (4X) Factory (X)
lier Interface: Executive Operations SLC

Low inventory does not equal Supply Issues

But it does equal operational efficiencies…
Supply Chain
Quickly Make Product after Sale = Cost
Advantage
Mfr Buys
Components
Mfr
Assembles Distributor
Product Gets Product
Cost to
from Mfr
Components

Competitors VAR Gets

Product from
Cost of

Distributor Customer
Mfr Places Order
Inventory

Dell Procures
Components,
Channel Assembles, &
Inventory Ships
Dell Cost

8 Weeks 6 Weeks 4 Weeks 3 Today

Ago Ago Ago Weeks
Ago
Time
Consistent Immediate
Customer Lowest
Supply Response to
Benefits Globally Customer Needs
Cost Consistently

Supply Chain
Velocity = Direct Demand
Feedback
“push” “pull”
Buy-to-Plan Build-to-Order

Material requested to build

Customer
customer orders
Suppliers

Dell
SLC Manufacturi
ng

s
All material is tied to a customer
order – nothing is built without an
order.

1) Dell facilities act as Manufacturing Centers, not Warehouses – only inventory needed for
next 2 hours of orders is on site
2) Provides direct signal of Dell customer demand for suppliers
3) Dell’s performance to customer orders is directly linked to our suppliers’ level of support
4) Absolute synchronization between manufacturing and sales keeps the process balanced.

Supply Chain
 Quarterly Business Review
(QBR)
Cost Technology/
Leadership Time To Volume

 Performance to Targets  Product Leadership

 Structural Cost Analysis  Roadmap Alignment
 Advantaged Pricing  Joint Qualification
 Internet Negotiation  RTS Predictability
Quality
 Warranty Cost
 Senior leadership  VLRR, 90-day FIR
involvement  Process Capability
 5 Sigma Continuity
 Data driven discussion/ Service of Supply
decisions
 Corrective Action  Supply Chain
 Identify actions/  Global Support Optimization
 Failure Analysis  Capacity/Capability
commitments  Quality Metrics  Globalization
 Flexibility
 Mutual agreement of
future performance targets
 Measure and reward
performance
Supply Chain
 Continuous Improvement
Business Process Improvement
• Initial Six Sigma efforts started in 1994.
• Formal “belting” process in manufacturing - 1998.
• Company-wide program started in 2000.
• Master Black Belt focused on supplier BPI beginning 2001.
• Foundation for Dell’s Winning Culture Initiative.
1. Define
• Over $1B saved during life of program … What’s the problem?
Who can fix it?
What’s the process?

6. Report 2. Measure
Tell others. BPI Can I explain a problem
with data?
Certification Levels
• Yellow Belt 5. Control Model 3. Analyze
Did we improve?
• Green Belt Did we save money? What’s the real problem?

• Black Belt
• Master Black Belt 4. Improve
Let’s improve
the process!

Supply Chain
 Low Cost Leader
Dell consistently provides superior value

Operating Expense Over Time (% sales)

28%

26%
Dell’s low operational costs
mean lower prices for 24%
customers: 22%
• State-of-the-art supply chain 20%
management
18%
• Efficient technologies:
• Dell.com 16%
• Support.dell.com 14%
• Globally available Premier
Pages 12%

10%

8%
Q1 CY02 Q2 CY 02 Q3 CY 02 Q4 CY 02

Supply Chain
Dell’s Direct Model = Perpetual
Success
Industry's most
efficient
Efficient procurement,
Pass cost Model with Lowest
savings on to Cost Structure manufacturing
customer and distribution
process
Competitive
Pricing

Help
Drive
Supplier
Business

Drives Lower cost drives

Competitive Market Share Increased
pricing ignites demand
demand

Supply Chain
Dell’s Strategies for
Success
 Organize around Customers – “Be Direct”
 Manage Business Fundamentals – cash\expenses
 Stick to Core Competencies – leverage partners
 Focus on Velocity – compress time
 Continuous Improvement – cultural mandate
 Simplify Complexity – “Easy as Dell”
 Critical Ingredients = People and Processes

Structural advantages – part of Dell’s DNA …

Supply Chain
Competitors’ Disadvantages vis-
à-vis Dell
 Need to hold inventory at each step in value chain .

 Have to pay suppliers first before getting paid from customers .

 Caught with short supplies of hot products- lost sales.

 Stuck with excess inventories of slow selling products .

 With about 2,000 product transitions a year, the ability to

reduce product time to market is critical.

Supply Chain
Dell’s Competitive Advantages

Dell is having one of the best SCM in the world.

 90% supplies ordered online using integrated websites of

supplier and Dell (B2B).

 95% of suppliers situated very close to assembly plant

hence coordination is easier.

 Dell’s factories have only 7 hrs worth of inventory for most

items whereas industry wise it is around 10 days.

 15 suppliers provide almost 85% of all supplies.

 Dell gets paid by customers and then pays to its suppliers.

Supply Chain
Dell Chooses i2 SCM S/W
package
 Dell chose i2 Technologies for its SCM system.

 i2 serves almost 70% of the SCM market.

 Every 20 sec the S/W aggregates orders, analyzes

material requirements ,compares Dell’s on-hand
inventory with its suppliers’ inventory and then creates a
supplier bill of material to meet its order needs .

 Instead of forecasting the daily supply needed, Dell

receives the exact material every two hours to fulfill
actual customer orders.

Supply Chain
THANK YOU

Supply Chain