Section A (10 Marks) Dell Computers designs, develops, manufactures, markets, sells, and supports a range of products, including desktop personal computers, servers and networking products, storage, mobile products, software and peripherals, and services. In many cases, these products are customized to individual customer requirements. Dells recent annual sales were $64 billion, which generated $2.8 billion in net income. The company employs about 80,000 people and is headquartered in Round Rock, Texas. A key component of Dells business model is the elimination of resellers by selling directly to customers. Dell employs a build-to-order manufacturing process that enables customers to direct-order servers and workstations custom-made to their specifications. In addition, Dell can fulfill and ship orders within four days. This all requires an amazing supply-chain system that includes hundreds of suppliers around the globe functioning seamlessly to enable Dell to operate with a near-zero amount of finished goods inventory. Indeed, Dell has no warehouses to store finished goods but is still able to assemble 80,000 computers every day. Two advantages of carrying a minimal amount of inventory are: 1. When a new computer component, say a faster CPU chip, comes out, Dell can more quickly sell its existing inventory of computers with the old chip and get to market with computers based on the new faster CPU weeks earlier than its competitors. 2. Because advances come so quickly in computer components, they depreciate at a rate of up to 1 percent per week. Carrying a minimal inventory means that Dell avoids getting stuck with obsolete parts and suffering a significant financial loss. Dell collects payment from the customer once it receives an order. It then pulls the needed parts directly from its suppliers, builds the computer, and ships the order within four days. Dell makes payments to suppliers 36 days after it receives payment from the customer. The lag between Dells receipt of payment from the customer and Dells payment of its suppliers means that its suppliers are helping finance the cost of Dells operations. This gives Dell a major competitive advantage over non-direct-order computer manufacturers, who must typically pay their suppliers 30 days before the product is shipped to market, put into inventory, bought by a customer, and paid for. Closer analysis shows that Dell holds inventory for roughly two dayseight hours as parts travel across its assembly line and another day while the completed computer is transported to one of its distribution centers, where the unit is combined with a monitor and shipped to the customer. Each Dell supplier, however, is required to maintain a minimum of eight to 10 days worth of buffer stock in multivendor warehouses located nearby each Dell factory. This buffer helps ensure that Dell always has on hand the parts needed to assemble a customer order. Many of the direct-to-Dell suppliers combine components from their own suppliers to build subassemblies, which in turn are shipped to Dell. For example, MMC Technology ships some 50 million disks to Maxtor (Dells hard drive supplier) each year. MMC Technology performs one week of performance testing before it releases its drives. It takes another week for the disks to arrive at Maxtors Singapore factory, and Maxtor insists that MMC carry one week of buffer stock, just as Dell requires of its direct suppliers. As a result, MMC Technology must carry at least three weeks of inventory. So suppliers who ship directly to Dell suppliers carry at least three weeks of inventory, suppliers who ship to those direct suppliers carry additional inventory, and raw material suppliers carry even more inventory. If one examines the entire supply chain closely, Dells suppliers hold anywhere from three to 11 weeks worth of inventory. Meanwhile, Dell carries just three days of inventory. Dell is a very measures-driven organization and does not hesitate to use measures to pressure its suppliers to improve. It meticulously gathers data to rate each of its suppliers on the basis of cost, quality, service, and on-time delivery. These scores are posted on a Web site so that individual suppliers can view their scores. Dells procurement managers meet with all the suppliers executive teams at the firms headquarters for quarterly Business reviews. The suppliers are given feedback and told how they rank against the competition. Based on their ranking, the suppliers are informed as to what percentage of Dells purchases for the upcoming quarter they will be awarded. Says Marty Garvin, Dells procurement chief, You want competitionsuppliers that are fighting very hard for Dells business. You set a high bar and keep raising it, so suppliers have to continually redefine themselves in terms of their efficiency and reliability. Otherwise, they wont be around for very long. If you arent performing, Dell wont hesitate to take some of your business and give it to a competitor, so boo-hoo, says Jerry Gregoire, Dells CEO from 1995 to 2000. Thats bullying? Its called holding the suppliers feet to the fire. If you want my business, youre going to have to meet my expectations. While firms are happy to receive the high volume of business that comes with being a Dell supplier, they recognize that their performance will be closely scrutinized. Suppliers also know that they will be required to finance a portion of Dells operating costs, bear the cost of carrying Dells inventory, and run the risk of getting stuck with obsolete parts. Dell does business with suppliers who are willing to hold its inventory, says International Data Corporation analyst Roger Kay. And if theyre not willing, Dell will find suppliers who are. 6. For how many days does a Dell supplier, is required to maintain a minimum of buffer stock in multivendor warehouses?