Logistics At Dell

Russell M. Angelo

In the business world the method that a particular company uses to get its products from the factory to the consumer varies. These methods are very sophisticated and often define the profitability, quality and ultimately the success or failure of a particular business. One particular logistical system that is interesting is the system that Dell uses to deliver its computers from the factory to the customer’s location.

If you have ever purchased a Dell computer you know that you are allowed to completely customize your computer and that Dell guarantees delivery of your computer in a certain time frame. To provide such a tremendous service to their customers it would seem to cost Dell a tremendous amount in unused inventory and storage costs. One would even wonder how Dell can afford to operate like this. The truth is that Dell actually carries no inventory and that they in fact force their suppliers to carry all the inventory and therefore the suppliers also assume all the risks and costs associated with this inventory.

The first step in this incredibly profitable logistical system is when the customer enters his specifications for the computer that he or she will purchase. When Dell receives and processes this information, they send an order out to each individual supplier and they transport each part to a location where the product can be assembled. Then Dell simply assembles the item and ships it out to the customer. Dell is not responsible for any inventory and even more incredibly does not have to pay for any unused parts. Dell’s logistical system works almost flawlessly and it would seem to the casual observer that Dell has really designed an ingenious system that allows them to run their business in this manner. However the reality is that a logistics system like this has been come up with before, but the difference is that no other company has been able to convince its suppliers to go along with an arrangement which will cost them so much. It is very difficult for a company to convince a supplier to guarantee that a certain number of parts will be in stock and ready for use and to not offer a guarantee in return that they will be paid for the parts. From a supplier’s point of view it would not be beneficial to assume all the risk of unused inventory.

How Dell convinces its suppliers to agree to take part in a system in which the supplier will assume all of the responsibility for the over-forecasting of sales and unsold parts is still a mystery. One of the only possibilities is that Dell chooses small suppliers and makes sure that the majority of their business is done at Dell. Dell then leverages this position and coerces them into taking part in a logistical system that is clearly not beneficial to the supplier. In order for the supplier to allow this to happen Dell has to keep sales high so that Dell can give the individual suppliers enough business to stay afloat and be profitable. This is of course easier said than done and this is the reason that Dell is one of the only companies that can offer a customizable product that can be assembled and delivered quickly to the consumer.

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