The Department Of Industrial And Systems Engineering

Published Date: 02 Nov 2017

Department of Industrial and Systems Engineering

ISE 452 Seminars

Individual Project

Student Name: Chan Kwok Nam Anthony

Student ID : 11527847d

Programme: 02004-LEM

Executive Summary

In 21st century, normally people are living in information age. Computer is one of the essential thing in everyone daily life. The reason is that computer has a many different functions that can allow people doing their desire job without going outside. For example they can use the computer to communicate with other, buy things through internet, search information, watch news and etc. Besides, due to the rapid advance of technology, the computer manufacture realize that electronic products depreciate in time and keeping them in warehouses will caused them tremendous loss. In order to avoid this, the computer manufactures need to manage their inventory level to very minimal level in order to save their potential loss.

In this report, it is going to study the inventory management in a particular computer manufacture and examine the current inventory policy which can solve their inventory problem. Also analyze how the inventory management policy can benefit to the particular company and what is the limitation by adopting that policy.

Thus, several aspects will be discussed in this report in order to achieve the goal of this report. Those are the role of inventory, different method for managing the inventory level, and the JIT approach. Through these kinds of topic, it can gave a better understanding about the modern inventory management technique and also the concept of JIT approach to the reader.

Table of Content

Chapter 1 Introduction

Dell, which is an American multinational computer technology corporation, develops, sells, repairs and supports computers and related products and services. It is a successful example for using the JIT approach. Therefore, Dell has been selected a case to understand the inventory management approach.

1.1 Overview of Dell

As a leading technology company, Dell offer a broad range of product categories, including desktop PCs, notebooks, software and peripherals, servers and networking products, services, and storage. They are the number one supplier of personal computer systems in the United States, and the number two supplier worldwide.

 

Dell has manufacturing locations around the world and relationships with third-party original equipment manufacturers. This structure allows us to optimize their global supply chain to best serve our global customer base. They continue to expand their supply chain which allows them to enhance product design and features, shorten product development cycles, improve logistics, and lower costs, thus improving their competitiveness.

Moreover, the management principle of Dell as well as its supply chain is founded in "Build-to-Order" philosophy. This philosophy is aligns business units and people of Dell. At the key of the success at Dell was their strategy of exchanging inventory for information. This meant that instead of keeping inventory in hand at Dell, or on hand at a retail outlet, or on hand in a warehouse, Dell kept information about customer orders, forecasts and needs. Manufacturing predicted what orders would come in, alerted suppliers of anticipated needed parts, and staffed up to meet demands. There are several reasons showing that Dell receive same of the advantages in the marketplace. Actually it is because the information was easier to store, move and discard than inventory.

However, the key advantage of direct sales and build-to-order production is that expensive inventory does not build up in the channel and lose value before it can be sold, and new products can be introduced without having to clear out old inventory in the channel. The build-to-order process has been carefully honed for years, and involves the entire production cycle and supply chain. Therefore, a PC of Dell is designed to minimize human touches in production, suppliers are selected to ensure high product quality, suppliers are physically integrated into production, and the entire order fulfillment process is managed by a sophisticated combination of internal and external information systems.

1.2 The role of inventory

Inventory is critical to supply chain management because it directly impacts both cost and service. Since demand is almost always uncertain and it takes time to produce and transport product, some amount of inventory is inevitably required somewhere in the chain to provide adequate service to the end customer. However, it typically generates an incremental cost of 20 to 40 cents per year when invested each dollar in inventory for the company that owns it. The customer service and revenue will be increased when supply chain inventories increased, but it comes at a higher cost. The aim of supply chain inventory management is both to get a supply chain onto the efficient frontier by right-sizing inventories and to shift the efficient frontier outward through better inventory strategies and supply chain designs.

Dell is widely considered to be one of the great business success stories of the past decade. Their supply chain inventory practices have been largely credited for their success. Dell pioneered the direct model, a supply chain approach that is refined in its clearness. Dell takes orders directly from its customers and builds PCs to demand, by passing the traditional dealer channel.

As a result, Dell eliminates the risks and cost associated with carrying large inventories of finished goods. Dell has also used information and technology to vague the traditional boundaries between its supplier and itself in an approach it calls virtual integration (Magretta 1998). Suppliers keep a standard five days of inventory in multi-vendor hubs located within close proximity to Dell's factories. This helps Dell carry just four days of total inventory in its facilities as compared to a month at some of its competitors. With this lean supply chain model Dell has become the leader of computer maker and was able to chalk up $361 million in profits in 2001 while the rest of the industry logged $1.1 billion in losses (Park and Burrows 2001)

Chapter 2 Just-in-time approach

2.1 Overview of just-in-time approach

Just in time is a production strategy that intends to improve a business return on investment by reducing in process inventory and associated carrying cost (Wikipedia, 2013). The basic elements of JIT were developed by Toyota in the 1950's, and became known as the Toyota Production System. JIT was well-established in many Japanese factories by the early 1970's. JIT began to be adopted in the U.S. in the 1980's, and the JIT/lean concepts are now widely accepted and used.

Actually the basic idea of JIT approach is seeking ways to reduce waste and enhance value in production process. By working to reduce inventory to the lowest possible level, company must constantly adjust its schedule of ordering and delivering. Therefore, the most critical thing is the communication of the upstream and downstream of supply chain.

Besides, Dell is the only company within computer technology that effectively utilizes just in time. They have "revolutionized the selling of personal computers, using a direct-business model whose fundamental tenets include taking custom orders directly from customers, thereby reducing inventory and streamlining distribution" (DI D RECT, 2001). After Dell has received a customer order, they then begin production of the product that the customer desires. This show that a pull system within the supply chain. A pull system is reactive whereby production is executed in response to a customer order. This unique supply chain provides Dell with a competitive advantage within its industry allowing them to become the market leader over Compaq in 2001 (DI D RECT, 2001).