dell - informs Vol. 34, No. 3, MayJune 2004, pp. 191205...

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Vol. 34, No. 3, May–June 2004, pp. 191–205 issn 0092-2102 ± eissn 1526-551X ± 04 ± 3403 ± 0191 inf orms ® doi 10.1287/inte.1030.0068 © 2004 INFORMS Inventory Decisions in Dell’s Supply Chain Roman Kapuscinski University of Michigan Business School, Ann Arbor, Michigan 48109, roman.kapuscinski@umich.edu Rachel Q. Zhang Johnson Graduate School of Management, Cornell University, Ithaca, New York 14853, rqz2@cornell.edu Paul Carbonneau McKinsey & Company, 3 Landmark Square, Stamford, Connecticut 06901, paul_carbonneau@mckinsey.com Robert Moore, Bill Reeves Dell Inc., Mail Stop 6363, Austin, Texas 78682 {robert_a_moore@dell.com, bill_reeves@dell.com} The Tauber Manufacturing Institute (TMI) is a partnership between the engineering and business schools at the University of Michigan. In the summer of 1999, a TMI team spent 14 weeks at Dell Inc. in Austin, Texas, and developed an inventory model to identify inventory drivers and quantify target levels for inventory in the ±nal stage of Dell’s supply chain, the revolvers or supplier logistics centers (SLC). With the information and analysis provided by this model, Dell’s regional materials organizations could tactically manage revolver inven- tory while Dell’s worldwide commodity management could partner with suppliers in improvement projects to identify inventory drivers and to reduce inventory. Dell also initiated a pilot program for procurement of XDX (a disguised name for one of the major components of personal computers (PCs)) in the United States to insti- tutionalize the model and promote partnership with suppliers. Based on the model predictions, Dell launched e-commerce and manufacturing initiatives with its suppliers to lower supply-chain-inventory costs by reducing revolver inventory by 40 percent. This reduction would raise the corresponding inventory turns by 67 percent. Net Present Value (NPV) calculations for XDX alone suggest $43 million in potential savings. To ensure project longevity, Dell formed the supply-chain-optimization team and charged it with incorporating the model into a strategic redesign of Dell’s business practices and supervising improvement projects the model identi±ed. Key words : inventory, production: applications; industries: computer, electronic. History : This paper was refereed. Dell and Our Project 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 com- panies competing in the business, education, gov- ernment, 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 con- cept of bypassing retailers and selling personal com- puter systems directly to customers, thereby avoiding the delays and costs of an additional stage in the supply chain. Much of Dell’s superior ±nancial per- formance can be attributed to its successful imple- mentation of this direct-sales model.
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dell - informs Vol. 34, No. 3, MayJune 2004, pp. 191205...

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