Ford Dell Case

1. Dell: Define virtual integration. Define direct model. What advantages does Dell get from virtual integration?

• Direct model: In this model, there is company, performing all functions of the supply chain. The planning/purchasing department which is responsible for orders to related manufacturing units. The finished goods are stored at the warehouse before being shipped to customer by company’s trucks or distribution company when it is ordered by customer.

That is:

Supplier          Manfacturer           Distribution Channel           Customers[pic 1][pic 2][pic 3]

• As the traditional direct model becomes slow to adapt to changes in the market, which makes it difficult to control all stages of production, the model evolves to include the utilization of outsourcing and partnership especially. In this context, virtual Integration can be called as a new organizational model for information age, enabling  across company boundaries to achieve efficiency and productivity and returns to investors. It includes customer focus, supplier partenership, customer focus, supplier partnership, mass customization strategies as pieces.

That is:

Suppliers   [pic 4]manufacturers          Customers[pic 5]

• The main contributions this strategy provides to Dell are:

1. Changing the focus of the work from how much inventory there is to how fast it is moving. By using IT technology, information is shared with partners selectively in a real time fashion (sophisticated data exchange) and there is less inventory risk and less need to hold capital. Here the companies working with this kind of suppy chain do not have to choose partners based on proximity but their skills and pricing. The relation with these partners last as they maintain their leadership in technology and quality. This means less number of suppliers in a leaner process of supply chain.  
2. In a virtually integrated suppy chain there will be a a supply network controlled by company’s planning department but by not directly customer order but by logistics management and forecasts for demand and receipts. This means a better inventory management and as manufactuaring partners use the information in their planning.
3. As the production is made owing to real time data and customer order while suppliers do not need to worry about sell-through, producers hold raw material on hand for a very limited time and customers receive the product without any lag and the delivery time ranges between 15 minutes to 1 hour.

1. Define “Inventory velocity”. In the computer industry, why is holding inventory risky?

• Inventory velocity is the time period beginning with the receipt of raw materials and ending with the sale of the resulting finished goods. Thus, it is the period over which a business has ownership of inventory. It is very much in the interest of a company to keep inventory velocity as high as possible.
• For computer industry especially for several reasons:

As there will be a requirement for warehouse, security arrangements, tracking systems, and more there will be cost disadvantage to hold the products. Besides, as the cost of the inputs/materials that you use to make production declines there will be a huge cost disadvantage. That is obsolence: inventory must be sold off rapidly in order to reduce the risk of a sudden decline in the value of that inventory.As the cash is invested in these products, the company is foregoing the investment of that cash in an investment that would have generated a significant return as well.