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Bite-size Case Study

How Dell reformed its supply chain technology to reduce risk

Published on December 29, 2016 Originally recorded 2012   8 min
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Back in 2008, Dell was using, in the US market, a so-called GeoManufacturing strategy, consisting of assembling identical desktop computers in different manufacturing plants, which were assigned different geographic markets. This created the benefits of manufacturing closer to the end consumer and therefore reducing outbound shipping costs from the factories. This also spread the disruption risks across multiple locations with identical capabilities. However, this strategy also increased component inventories by spreading buffer stocks of identical components across multiple locations, instead of pooling them together. From an operational standpoint, it also created a need to manage four different inbound streams of material, coming mostly from Asia, taking into account the merge center in Reno, Nevada to where some monitors were shipped directly before being merged with computers manufactured in Austin so that the western market customers would receive their monitors and desktops at the same time.
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For large parts such as chassis and monitors, suppliers in Asia were responsible for maintaining sufficient levels of inventory in the four different locations. To do that, they were provided updated demand forecasts on a weekly basis, covering a rolling horizon of three months, based on which these suppliers were making initial destination and shipment quantity decisions for every part. Because ocean shipping, with a lead time of about one month, was used for these heavy and bulky items, the different inventory levels and actual demand realization across the four main locations would often change a lot while containers were in transit. Dell initially corrected these imbalances by using transfers of component inventories between its different sites and could do that either with a contracted milk run, operating on a pre-set schedule, or with more expensive special shipments. To further reduce these trans-shipments and handling costs, Dell had also developed the capability to change the final destination and ground transportation mode of any container up until two days before it reached the Port of Long Beach near Los Angeles. It called that rerouting a diversion possibly coupled with a ground transportation expedite which relied on fast, but expensive, truck shipping from LA to the final destination instead of the default rail option. Because the volume of monitors shipped by Dell into the US at that time was often more than 300,000 monitors per week, its supply chain presented a very challenging flow optimization problem, namely, based on the latest real-time information, Dell employees had to decide on the best final destination and ground transportation for hundreds of containers at a time along with the transfer shipment origins, destinations, and quantities for both the milk runs and special trucks on a daily basis.
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How Dell reformed its supply chain technology to reduce risk

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