Understanding The Dell Direct Distribution Channel Commerce Essay

Understanding The dingle assume Distrisolelyion Channel doctor EssayThe direct feign refers to the fact that dell does not substance abuse the retails impart, but sells its PCs directly to customers through its website, this way the intermediary steps that whitethorn add time and cost be eliminated, and dell is directly link up to its customers. The direct approach al funkys Dell to build a relationship, which makes it quick and light-colored for customers to do business with Dell.providerDELLFinal CustomerThe build-to-order model enables Dell to keep stock certificate down very low comp ared to competitors handle Compaq and IBM. Dell has a low armory of five to ten days, patch Compaq and IBM be possessed of inventory of four weeks or more. Dell purchases a important number of comp superstarnts from single sources. In some possibilitys, substitute sources of deliver are not available. In other cases Dell may establish a pull ining relationship with a single source, even when multiple suppliers are available, if the company desires it is advantageous to do so when considering performance, quality, support, delivery, capacity and terms (Annual Report, 1996).If the sum of a critical single-sourced material or comp mavinnt were delayed or curtailed, Dells ability to ship the related product in desired quantities and in a timely manner could be adversely affected. Even where alternative sources of hang on are available, qualification of the alternative suppliers and establishment of reliable supplies could outcome in delays and a possible loss of gross revenue, which could affect operating results adversely (Annual Report, 1996).An Event-On 21 September 1999, an earthquake of magnitude 7.6 enamored Chichi, Taiwan. It had devastating consequences. Baum (1999) reports that after(prenominal) the disaster more than 2,200 people baffled their lives, more than 50,000 buildings were destroyed and total industrial production losses were estimated as $1.2 billion. This theater features eminent production concentration of many other calculator components, e.g. motherboards (more than two-thirds of valet de chambre consumption in 1999) and notebook displays. Local producers of com inducter memory, TSMC and UMC being the lede Taiwanese suppliers, lost signifi flockt quantities of work in progress at the time of the earthquake. Sherin and Bartoletti (1999) report that production lines could not restart at the starting line couple of days after the event as sensitive critical-path equipment had been damaged.The orbit 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 little stock repurchases. Dell electronic computer Co. (2000a) announced that during the fourth quarter of 1999 it lost $300 million in revenue due to the Earthquake.Literature revaluationThe ball-shaped 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 understandably 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, endeavour products like servers, storages, solutions to order, Dell has revolutionized an industry once inundated with unsold inventory and products that quickly became obsolescent. Dells integrated supply ambit has allowed it to gain market persona while remaining profitable.Dells business dodge includes direct route to market, Supplier relationship and E- Commerce.Dell Direct ModelSupplier Relationship (Just In Time Strategy)E- CommerceDirect Model Dells business model is the envy of many competitors. Mos t other competitors are in the shape of ontogeny a direct market dodge but the transition from alive sales channel is not simple. Dell continues to gain market parcel of land by using its knowledge about its customers. First of all, the model eliminates the expect to support a widespread network of wholesale and retail dealers, which allows them to vacate 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 try of obsolescence associated with products in a rapidly changing technological market.Supplier Relationships Dell.s integrated supply strand allows it to keep but 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 e ffectively paying suppliers after customers have settled invoices. Dells relationship with their suppliers has played a key economic consumption in their success story. They have found a way to fetch most suppliers to keep components warehoused within minutes from Dells factories in Austin, Penang, Malaysia, and Limerick, Ireland. This has led them to number their number of suppliers from 204 in 1992, to only 47 today, all of whom have been spontaneous to cooperate with their warehousing plan. These suppliers manage their own inventories, while they run split to Dell as needed. The biggest advantage for Dell is that they dont get billed for the components until they renounce the suppliers warehouse. Dell doesnt 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 a few(prenominal) months.E-Commerce Dell has developed a process whereby they can assess the lowest possible price within an hour. Dells e-commerce infrastructure allows dynamic set outline, 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 effective form of their direct model, providing greater convenience and efficiency to customers as advantageously as to Dell.Theoretical Model - come out Chain Disruption, both electric potential and actual are the enemies of all firm. yield Chain pause can be defined as Unplanned and Unanticipated event that has discontinue the normal flow of goods and material within a supply range of a function. peril Prevails in three categories i.e Internal hazard , External fortune and mesh related insecurity( Juttner et al. 2002). Risk can be catogorised in variables. Variables suggested by Ritchie and marshal ( 1993) include envi ronment, industry, organisation , problem specific, ending maker related variables.Supply Chain Disruption- Anything that affects the flow and supply of raw material, sub component, blameless good from all the way from origin to the nett demand point.On the basis of the adversity of bushels and their likelihood or probability of occurrence, the major establish attributes of shift can be classified as followsThe most lively attribute of rift is the inherent cause of disruption. For example, Murphy(2006) categorized disruptions into natural events, out-of-door man make events, and internal- man made events. Blizzards, labour strikes, and product recalls would be examples of each category respectively (Murphy 2006).Another life-sustaining attribute is on how many spheres or disciplines of the supply chemical arrange 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. Disrupt ions 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 reach take a chances 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 chance calculation, assessment, taproom or mitigation.In order to see the different aspect of risk direction 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 focal point and mitigation factors coordinated 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 easing.Risk Identification Risk identification is an important stage in the risk management process. Consequently, by drawing a risk, finding-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 (ChristopherHYPERLINK idb3et al.HYPERLINK idb3, 2002). Hence, the main think of supply chain risk analysis is to recognize future uncertainties to enable proactive management of risk-related issues.Risk sagaciousness and Evaluation afterward 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 probabilit ies and consequences and put them in a risk map/matrixRisk wariness Strategy Different strategies are adopted for versatile risks according to their impressiveness and nature. Various strategies are suggested in the framework, such as Avoidance, Postponement, Speculation, Hedging, Control, Risk sharing/Transfer, tribute etc.Implementation of Supply Chain Risk focussing Strategy- Once the various strategies have been decided, plans have to be made for implementing the strategies based on their priority.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. A common mitigation for a technical earnest flaw is to install a patch provided by the vendor. Sometimes the process of determining mitigation strategies is called control analysis.Expansion of the Framework and explanation of probabl e Source of Disruption Recovery-The global SCRM frame work knowing by Manuj and Mentzer (2008) was applied on the Dells Value chain to analyze and identify the Risk. The framework was expanded and broken in to various stage and because applied to the Dell Value Chain.Risk Identification In this class various risk were identified by brain storming. The risks were classified in the following sub heads.Supply Risk This includes of Wrong Supplier woof ,Natural Calamity like Earthquake, Hurricane, Low Inventory levels, Quality Issues , Supply disruption and Price escalation.Operations Risk This includes Exchange Rate, Country Factors, and Virtual integrating network breakdown.Demand Risk This includes New Competitor, Technology Changes and Demand Fluctuation.Security Risk- This includes Information system breach and Freight breaches.Risk Assessment and Evaluation In this soma we have calculated the RPN number. Probability and impact of disruption were quantifies on the scale o f 1 to 10 based on the hypothesis on the most severe to be 10 and the least(prenominal) severe to be 1.Eventually the most probable to be 10 and the least probable to be 1. Multiplying the Probability and Probability, RPN was calculated.Risk Management- In this phase we have suggested the various ways by which an organization can derogate the impact by the risk which were identified in the Risk identification. Risks having high RPN number such as Supply Disruption , Low inventory Level should be attacked first, gra triplely coming down to the lesser RPN poem and taking proper measure to minimize the risk.Risk Mitigation Identifying the severity of disruption, risk mitigation strategy was defined.The academic framework by Manuj and Mentzer(2008) was well-tried hypothetically over the case of severe supply chain disruption faced by Dell and other computer systems manufacturer, during the time when Taiwan, one of the largest manufacturing base for semiconductor and motherboard p roduction and assembly, suffered an earthquake, which is critically analysed as an unplanned unstructured risk for any functional supply chain in the manufacturing scenario..After the step wise approach of finalising the framework and implying and expanding it over a sincere time already occurred situation of crisis it was inferred that severe supply chain disruptions have a great impact on the firm. The existence of a distinctly articulated risk management plan for disaster-induced supply disruptions has not appeared in Dells official announcements during the six month period after the event in Taiwan. The inherent supply chain agility of this CDM Company, however, offered it several means of safety during the month that followed the disruption. Dell operates on a configure-to-order basis, thus the final decision on product configuration rests with Dells customer. The moment an inputs price increases, customers may deepen their configuration preferences by requesting less of t he expensive input. Veverka (1999) reports that Dell changed its marketing strategy after the Taiwan earthquake in an effort to shift consumer preferences towards lowmemory products.A second ingredient of Dells supply chain strategy, long-run contracts with suppliers, did not deliver steady prices despite expectations to the contrary in the PC industry press (Deckmyn, 1999). Baljko-Shah (2000) reports that Dell was forced to buy regular fluidram memories after the Taiwan earthquake, while their prices were high. Dell was planning to incorporate in its most innovative product line best-available technology memories (RDRAM). Contrary to early announcements, computer processor unit (CPU) suppliers did not make available on time CPUs compatible with the new technology memories. Dell ended up buying conventional memories during the earthquake-induced shortage in order to meet publicise commitments to increased memory capability in its innovative products. Dell Computer Co. (2000a) an nounced that during the fourth quarter of 1999 it lost $300 million in revenue.With respect to the framework by Manuj and Mentzer ( 2008) , the disruption at dell, in the case of earthquake in Taiwan at the supplier base, disrupting the dells supply chain can be covered by deploying the Risk resilience. The key points to alleviate the damages caused by the Supply Chain disruption are recommended as below.Postponement of Risk - Postponement entails delaying the actual commitment of resources to maintain flexibility and delay incurring costs (Bucklin, 1965). It appeared that an increasing trend toward off-shoring provided a demand for form postponement. Yang et al. (2004) also argue that with increasing attention to mass customization, flying operations, and e-business strategies, in that location should be more interest in postponement however, there has been an absence of empirical look into supporting this implication. Since global supply bonds face high risks, postponement becomes increasingly valuable as the equipoise of off-shore components in the final product increases. Therefore, as a preliminary observation, we believe that as the proportion of off-shore components in the final product increases, the likelihood of a supply chain considering investment in form postponement pass on increase.Speculation of Risk Speculation (also called selective risk taking) is a demand-side risk management strategy that is the opposite of postponement (Bucklin, 1965). It includes such actions as send placement of inventory in country markets, forward buying of ideal goods or raw material inventory, and early commitment to the form of a product, all in anticipation of future demand. In the interviews, speculation emerged as the most commonly used strategy to address uncertainty in the business EnvironmentHedging of Risk In a global supply-chain context, hedging is undertaken by having a globally dispersed portfolio of suppliers and facilities such that a sing le event (like currency fluctuations or a natural disaster) go forth not affect all the entities at the same time and/or in the same magnitude. For example, dual sourcing can be used as a hedge against risks of quality, quantity, disruption, price, variability in performance, and opportunism (Berger et al., 2004), but dual sourcing requires more investment than single sourcing.Transfer of Risk- The channelise of risk primarily encompasses a risk sharing strategy in a case of severe supply disruption by sharing it with third party suppliers and allies.CONCLUSION, RECOMMENDATION, IMPLICATION FOR FUTURE RESEARCH-Conclusion-Supply chain risk management is a decision process often requiring a multidisciplinary approach. Typically, risk mitigation and contingency planning entails skills in operations strategy and supply chains. After a close analysis of the Dell Direct Supply Chain system considering the impact of the Taiwan earthquake on the dell by the frame work developed by Munoj an d Mentzer ( 2008). The overall objective of the framework is to reduce the impact of disruption and understanding the various factors that play a role in the post- disruption recovery and decision making process.Dell Computers doctrinal commitment to minimal inventories, however, is well known. Companies with interchangeable strategic commitments are unlikely to be interested in risk mitigation policies involving emergency inventories along the supply chain. In this case, risk transfer is left as the main option to consider, including contracts with emergency suppliers and insurance contracts. In light of Kunreuther and Bantwals (2000) discussion on rigidities in the successful introduction of Cat-Bonds, one alternative risk transfer instrument, the latter(prenominal) task may be challenging strategy to apply, but appears to be worth the effort.Scope for proximo Research -The Supply chain Disruption Management framework and disruption management process model have regions of inte rest that have not been able to be look ford in this research leaving multiple area for future research. First area of research is understanding of the decision making process and its operational and behavioural factors. Second area of future research is the impact on the risk that disruption and firm strategies have.Putting to practice supply chain theories in order to bridge supply chainstrategy with company financial performance is a daunting task. Supply chain theory attempts to clarify the complex interconnections among many actors in supply networks. Yet, it is unclear whether simple formulas for supply chain performance, encompassing a few variables, will have general application to business practice. In addition, it is voiceless to design empirical studies that would isolate the effect of supply chain strategy on business performance from other company decisions and environmental variables. The call for of supply chain disruptions may provide an interesting exception to the latter restriction, in that disruption impact may test whether supply chain management affects Company risk structure. There is a fast festering literature on alternative methods of risk transfer. It would be interesting to explore whether the latter methods may shield customised product direct marketing companies from investors impatience after disruptions in component markets.