- What is meant by the phrase ‘replacing inventory with information’?
‘Replacing inventory with information’ is a very common term used while discussing the issues of supply chain management. Though it may seem to be a very simple idea where a costly element is being replaced by something that does not cost a dime; but this is not the case in reality. Inventory is an essential part of the supply chain as it helps in decoupling the demand and supply of the product. In the traditional way, a schedule is developed which focuses on optimizing the production while making the best possible use of the transportation, warehouse and all other resources at hand so that the supply can be generated in huge quantities. On the other hand, demand is a variable element which is not easier to predict and is mainly driven by the sales. Moving down the chain, the shipments are made in smaller quantities from the factories to the customers, retailers, or warehouses (P. Borgman and Rachan 2007, pp. 148-157). The buffer between the variable movements of the supply and demand is provided by the inventory.
The actual requirement of the producer is to have a level of inventory that is sufficient enough to bridge the gap between the movements of supply and demand. As demand is an unpredictable factor, and supply can even become uncertain at times, this calculation becomes complex. The problem is that there is always a risk of shortage where the service can go down in case the inventory is reduced. But when inventory is to be replaced by information, the actyual matter is to provide for the level of uncertainty existing while the inventory is reduced and service level is maintained. Obviously, one way to ensure this is through improvement of the forecast; information can definitely help in reducing the level of uncertainty by having point-of-sale data as well as collaborating with the consumers, retailers as well as the distributors of the business (P. Borgman and Rachan 2007, pp. 148-157). Delivering the desired service is possible at a reduced level of inventory when optimization and planning of distribution takes place.
So, the phrase of replacing inventory is linked with changing the dynamics of the relationship between supply and demand. When the producer has better information regarding its sales, it has the ability to plan in a better way so that the lead times are reduced and more economical shipments can be dispatched on frequent basis. So, replacing the inventory is more like a tool or a strategy which helps in setting the supply policies. Managing the supply becomes easier and formal with the presence of this information. Information definitely replaces the inventory when it is combined with the most appropriate tools and strategies.
- What were the sources of Dell’s initial competitive advantage?
The major source of Dell’s competitive advantage is its low cost; it had the lowest cost structure in the whole industry. In addition to this, it was the unique model of the company which became the reason for its competitive advantage. Competitive advantage is that element through which an organization stays ahead of its competitors in the marketplace. In the case of Dell, the company used its supply chain to stay ahead of its rivals in the industry (Teece 2010, pp. 172-194). The unique model included two main strategies, the direct selling strategy and the build-to-order strategy. It had focused on responding to the demands and requirements of the customers and encouraged building direct relations with the customers. The concept of direct selling and customization was based on the fact that the middle distribution channel was to be eliminated which also became the reason why it was possible for Dell to offer lower prices to its customers. So, Dell was able to offer its customers everything that they actually required at a very economical price which was not possible for any other competitor (Teece 2010, pp. 172-194). In addition to this, Dell also ensured that each customer got the required product within three days of giving the order which was also one of the sources of its competitive advantage.
Overall, it can be said that the major source was the effective management of its supply chain which gave Dell the competitive advantage. This included: having good relations with the suppliers which made the procurement of hardware easier; having a good channel of information and communication which ensured that customers were well informed; cutting the middlemen and selling directly to the customers; provision of latest products to the customers; and provision of service by experienced workforce.
- What are the advantages and disadvantages of Dell’s choice of the location of its global manufacturing plants?
The major manufacturing sites for Dell are in Brazil, China, Malaysia, Ireland, and the United States of America. The basic advantage from these locations was that these sites had cheap labor which helped in cutting the labor cost; the local workforce in these areas was high in productivity while being more educated too; and another major advantage was that these sites were nearer to the large regional markets (Unknown 2009). The decision of the company of location has been driven by its need to cut the costs while expanding its unique model of direct sales and build-to-order around the globe. The major advantages of all these locations are of course the incentives of local governments, low costs of labor, low transportation costs, ease in access of markets, and availability of information infrastructure. All these markets seem to be receptive to the unique model of the company. It chooses the locations which ave the potential of growth while country has market access. Low cost provides price advantage to the company. Due to higher productivity, more products are being manufactured in the same time which means that the sales increases leading to higher profit margins. Convenience of accessing the target markets leads to lower costs of shipping and faster delivery of the orders to the customers.
These locations can also have certain disadvantages for the organization which include: first of all, each location has different culture which becomes a big challenge. The company needs to plan strategically to make use of the highly diverse workforce; even the learning potential and training has to be done with respect to differing approaches. Another disadvantage is that the local workforce would never be loyal to a foreign-based company which can be a risk. Third challenge could occur when the company needs changing its manufacturing practices and being present in multiple locations can create a gap (Kingsley-Hughes 2013). All the locations would have to be treated separately and the new procedure would have been taught separately which means wastage of time and money. So, it can be said that having such diverse locations can also become a huge barrier to transfer of knowledge in an effective manner. Lastly, there are chances that the developing countries do not have a steady supply of infrastructure; any breakage of equipment or disturbance in the distribution network can adversely impact the unique selling proposition of the organization.
- Why would Dell manufacture PCs in its own manufacturing plants yet outsource the manufacture of the PC components?
The major comparative advantage of the company is in the structure of pricing, rapid fulfillment of the order and customization. Dell has achieved all these advantages through its highly efficient supply chain and effective logistics. By purchasing the components from the independent suppliers, it gains greater flexibility which helps in driving the cost of the firm down and also generates more international orders. By global sourcing, Dell is able to consolidate its buying power and enhance its relations with the suppliers (Miller 2013). Additionally, it also eliminates the risk of obsolescence by outsourcing and ensures that manufacturing remains flexible with lower costs of coordination. Despite all these advantages, the final assembly is centralized and the major reason is that the build-to-order model is the core strategy of the company which shall not be outsourced and the final power shall remain centralized. In addition, it the manufacturing is completely outsourced, and then there are high chances that the company would be creating competitors for itself. As Crockery (2000) states “Dell doesn’t want to pass on the secrets of the direct model to subcontractors. Dell is bringing in more of the box with more stuff in it from suppliers, but keeps control of the complex and proprietary parts of the process.”
- How did Dell lose its ranking as the leading global PC computer maker?
The major change occurred in the computer industry in the late 2000s and this was when Dell loses its ranking in the market. The market conditions changed and portable PCs gained share; these laptops could be completely outsourced and the major target market was the consumer sector rather than the corporate or education sector as was the target for Dell (Kingsley-Hughes 2013). Consumers wanted to touch and trial the product which was not the case in the model of Dell. Not only had it lost the first-mover advantage, but its original source of cost advantage had also been eroded badly. It had to change its model and introduce selling through retailers which was not only a new experience but also a costly one leading to reduction in its profit margins. The production was labor-intensive and complex; due to lower margins, the company had to further focus on reducing its manufacturing costs (Mourdoukoutas 2013). It was again late as compared to its rivals who had outsourced the assembling of the portable computers and concentrated on the marketing and designing themselves. So, this was how it lost the rank of market leader.
- What strategies might Dell employ to restore its lost competitive advantage in the PC market?
Recently, Dell established a relationship with Microsoft and one of the most important steps if the company has to be reinvigorated is to focus on being the provider of a highly trusted enterprise-computing and not compete directly with Apple or Google; rather it should stay in the end-to-end business (Kim and Jun et al. 2005, pp. 1184-1192). Privatization is another strategy as it will allow the company to act more strategically in the new business field. Further, as it is evolving into an IT infrastructure, it would require heavy investments in its research and development, and alter its marketing approach (GRAY 2013). Apart from this, it can explore new niches in the global market which could be either through expansion in the indirect channel of sales or identifying a new segment for an upcoming product which has higher opportunities of growth. But the priority should be to maintain the core value of its brand which is providing higher quality at a lower price. This is also possible when company focuses on providing products that are not only energy efficient but also environmentally friendly (Gardner 2013). I would suggest that they should continue with their original model as well which is the provision of high quality products at lower prices through direct selling; but it should also focus on expanding into the global market through the indirect channels of sales and make partners to enter new markets.
References
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