INTRODUCTION
Dell is the largest computer-systems company based on estimates of global market share. It is also the fastest growing of the major computer-systems companies competing in the business, education, government, and consumer markets. Dell’s product line includes desktop computers, notebook computers, network servers, workstations, and storage products. Michael Dell founded the company based on the concept of bypassing retailers and selling personal computer systems directly to customers, thereby avoiding the delays and costs of an additional stage in the supply chain. Much of Dell’s superior financial performance can be attributed to its successful implementation of this direct-sales model.The core elements of Dell’s business model are its direct sales model, usually referred as “direct model”, and the build-to-order strategy.
Dell Direct Distribution Channel:-
The direct model refers to the fact that Dell does not use the retails channel, but sells its PCs directly to customers through its website, this way the intermediary steps that may add time and cost are eliminated, and Dell is directly linked to its customers. The direct approach allows Dell to build a relationship, which makes it quick and easy for customers to do business with Dell.
The build-to-order model enables Dell to keep inventory down very low compared to competitors like Compaq and IBM. Dell has a low inventory of five to ten days, while Compaq and IBM have inventory of four weeks or more. Dell purchases a significant number of components from single sources. In some cases, alternative sources of supply are not available. In other cases Dell may establish a working relationship with a single source, even when multiple suppliers are available, if the company believes it is advantageous to do so when considering performance, quality, support, delivery, capacity and price (Annual Report, 1996).
If the supply of a critical single-sourced material or component were delayed or curtailed, Dell’s ability to ship the related product in desired quantities and in a timely manner could be adversely affected. Even where alternative sources of supply are available, qualification of the alternative suppliers and establishment of reliable supplies could result in delays and a possible loss of sales, which could affect operating results adversely (Annual Report, 1996).
An Event:-
On 21 September 1999, an earthquake of magnitude 7.6 struck Chichi, Taiwan. It had devastating consequences. Baum (1999) reports that after the disaster more than 2,200 people lost their lives, more than 50,000 buildings were destroyed and total industrial production losses were estimated as $1.2 billion. This area features high production concentration of many other computer components, e.g. motherboards (more than two-thirds of world consumption in 1999) and notebook displays. Local producers of computer memory, TSMC and UMC being the leading Taiwanese suppliers, lost significant quantities of work in progress at the time of the earthquake. Sherin and Bartoletti (1999) report that production lines could not restart at the first couple of days after the event as sensitive critical-path equipment had been damaged.
The world markets of memory chips reacted very fast to this news, as supply was constrained at the last part of 1999. The spot price of memory chips went up fivefold. computer memory increases were not passed on to consumers as higher product prices, but they were absorbed by the company and were passed on to investors in the form of less stock repurchases. Dell Computer Co. (2000a) announced that during the fourth quarter of 1999 it lost $300 million in revenue due to the Earthquake.
Theoretical Model :-
Supply Chain Disruption, both potential and actual are the enemies of all firm. Supply Chain disruption can be defined as ” Unplanned and Unanticipated event that has disrupted the normal flow of goods and material within a supply chain. Risk Prevails in three categories i.e Internal risk , External Risk and Network related risk( Juttner et al. 2002). Risk can be catogorised in variables. Variables suggested by Ritchie and Marshall ( 1993) include environment, industry, organisation , problem specific, decision maker related variables.
Supply Chain Disruption:- Anything that affects the flow and supply of raw material, sub component, finished good from all the way from origin to the final demand point.
On the basis of the severity of impacts and their likelihood or probability of occurrence, the major established attributes of disruption can be classified as follows:
* The most vital attribute of disruption is the inherent cause of disruption. For example, Murphy(2006) categorized disruptions into “natural events”, “external – man made events”, and “internal- man made events.” Blizzards, labour strikes, and product recalls would be examples of each category respectively (Murphy 2006).
* Another vital attribute is on how many spheres or disciplines of the supply chain have been affected by a given disruption at one time.
* The third vital attribute is whether or not the disruption is associated an environmental change. Disruptions that cause an environmental change usually impact some form of the infrastructure for either a long time period or permanently.
* The fourth and the final attribute of disruption is the duration of the disruption itself.
The framework tests the supply chain risks based on the above mentioned attributes and classifies them as deviation disruption or disaster, based on the severity of the disruption over the supply chain and the probability of occurrence as a parameter for risk calculation, assessment, prevention or mitigation.
In order to see the different aspect of risk management in a supply chain, a frame work prepared by Manuj and Mentzer( 2008) has been reviewed.The schematic diagram of the framework is shown below.
The framework is created in view with firms having a global outreach who source from different countries. This framework provided is a comprehensive one with both risk management and mitigation factors incorporated in to it. This framework proved to be ideal for risk management and mitigation in Dell, a truly global firm.
The framework adopts 5 step approach for Risk management and Mitigation.
1. Risk Identification: – Risk identification is an important stage in the risk management process. Consequently, by identifying a risk, decision-makers become aware of events that may cause disturbances. To assess supply chain risk exposures, the company must identify not only direct risks to its operations, but also the potential causes or sources of those risks at every significant link along the supply chain (Christopheret al., 2002). Hence, the main focus of supply chain risk analysis is to recognize future uncertainties to enable proactive management of risk-related issues.
2. Risk Assessment and Evaluation: – After the risk analysis, it is important to assess and prioritize risks to be able to choose management actions appropriate to the situation. One common method is to compare events by assessing their probabilities and consequences and put them in a risk map/matrix
3. Risk Management Strategy: – Different strategies are adopted for various risks according to their importance and nature. Various strategies are suggested in the framework, such as Avoidance, Postponement, Speculation, Hedging, Control, Risk Sharing/Transfer, Security etc.
4. Implementation of Supply Chain Risk Management Strategy:– Once the various strategies have been decided, plans have to be made for implementing the strategies based on their priority.
5. Mitigation of Supply Chain Risk: – Mitigation is the most commonly considered risk management strategy. Mitigation involves fixing the flaw or providing some type of compensatory control to reduce the likelihood or impact associated with the flaw
Literature Review
The global presence of DELL with sales offices in 43 countries, sales presence in 170 countries, 6 global manufacturing sites in Brazil, Tennessee, Texas, China, Ireland and Malaysia clearly defines its leading position in the computer systems market. The annual revenue for Dell Inc was $ 61.8 Billion (FY 2008- 2009). By cutting .the middle man and building PCs, enterprise products like servers, storages, solutions to order, Dell has revolutionized an industry once inundated with unsold inventory and products that quickly became obsolescent. Dell’s integrated supply chain has allowed it to gain market share while remaining profitable.
Dell’s business strategy includes direct route to market, Supplier relationship and E- Commerce.
* Dell Direct Model
* Supplier Relationship (Just In Time Strategy)
* E- Commerce
Direct Model: Dell’s business model is the envy of many competitors. Most other competitors are in the process of developing a direct market strategy but the transition from existing sales channel is not simple. Dell continues to gain market share by using its knowledge about its customers. First of all, the model eliminates the need to support a widespread network of wholesale and retail dealers, which allows them to avoid dealer mark-ups; avoids the higher inventory costs associated with the wholesale/retail channel and the competition for retail shelf space; and diminishes the high risk of obsolescence associated with products in a rapidly changing technological market.
Supplier Relationships: Dell.s integrated supply chain allows it to keep only four days of inventory. Component price in computer industry falls almost 6% a week. The company can provide the component price decline to its customers quickly. In addition, Dell shares demand information with suppliers, so ensuring that inventory is kept to minimum. Dell also enhances cash flow by effectively paying suppliers after customers have settled invoices. Dell’s relationship with their suppliers has played a key role in their success story. They have found a way to get most suppliers to keep components warehoused within minutes from Dell’s factories in Austin, Penang, Malaysia, and Limerick, Ireland. This has led them to reduce their number of suppliers from 204 in 1992, to only 47 today, all of whom have been willing to cooperate with their warehousing plan. These suppliers manage their own inventories, while they run parts to Dell as needed. The biggest advantage for Dell is that they don’t get billed for the components until they leave the supplier’s warehouse. Dell doesn’t take these components until an order is placed, which saves them a lot of money because the prices of PC parts can fall rapidly in just a few months.
E-Commerce: Dell has developed a process whereby they can assess the lowest possible price within an hour. Dell’s e-commerce infrastructure allows dynamic pricing strategy, whereby the same product and service can be sold at different prices, depending on the buyer. As a result of their innovative transformation, Dell sells more than $30 million per day on the Internet, accounting for 30% of their overall revenue. Dell views the Internet as the most genuine and efficient form of their direct model, providing greater convenience and efficiency to customers as well as to Dell.
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