Replacing inventories with Information (Essay Sample)

Name: Institution: Date: * Replacing inventories with Information This phrase refers to the efforts by Dell to use supply chain management as a source of competitive advantage. It implies Dell's effort to minimize the uncertainty associated with inventory by increasing its reliance on information as a way of maintaining the desired level of service. Effective capacity to replace inventory with information is brought about by collaboration with suppliers, partners, customers, market research, and so on (Enarsson, 2006, p.155). Rather than, keep a high level of inventory, that would carry risks of running obsolete, Dell would rely on real-time information regarding the expectations of its market. For Dell, it was essentially a way of making sure that its products were kept up-to-date with new information as it became available. The dynamics of the relationship between supply and demand, in this case, would not be dependent on inventory but rather, market information. The basic supply chain management strategy shifts from being based on inventory to being based on information in order to support such things as building-to-order and so on. According to Hubbard (2012), the way inventory is managed determines the level of success in the retailing ecosystem. Inventory has to be balanced with satisfying customers' needs. Higher inventory presents higher costs of storing the additional products and prospects of obsolescence. Companies minimize their exposure to these potential risks and costs by lowering inventory levels in combination with other strategies (Worthen, 2003). When the strategy applied concurrently is information, such companies can be said to have effectively replaced inventory with information. Such information is at the same time used to avoid the prospects of missed sales, disappointed customers, and decreased revenue. The company uses information to successfully manage its inventory position in order to take advantage of constantly changing trends in the desires and expectations of the market. Dell used this strategy alongside other strategies such as build-to order and express shipping to ensure that the minimized inventory did to affect the company's operations negatively. * Dell's sources of its initial competitive advantage Before companies such as Hewlett-Packard and Apple came to dominate the computer market, and other such as Acer caught up, Dell had various sources of competitive advantage that made it the undisputable leader in the computer market. This early success was the outcome of successful strategies such as build-to-order and direct selling, inventory and supply chain efficiencies, and a low cost structure. By combining this strategy for competitive advantage, the company was able to offer customers a high level of satisfaction in terms of pricing, quality, timely delivery, and so on. Dell used direct selling in order to cut out the distribution chain at the middle and thus offer its customers lower prices compared to what other rival computer manufacturers were offering. Wholesalers and retailers were excluded from the supply chain and direct selling was conducted through telephone conducts, mailing, and later on, the internet. Through Internet selling, Dell offered its customers an opportunity to customize orders according to their personal preferences such as matching and mixing of product features. The capacity to offer customized products and at relatively lower prices, attracted a large portion of the PC market to Dell. The company was also able to significantly reduced costs related to shipping and labor by locating its manufacturing plants at proximity to regional markets that the company deemed important for its success. This included countries such as Brazil, China, and Poland, among others Perhaps an even more powerful source of competitive advantage for Dell was the management of its supply chain. The company, for instance, would take as little as three days to build customized PCs following the placing of an order. Additionally, as part of the global supply chain management strategy, Dell adapted to slashed inventories and substituted this with higher dependence on real-time information. The company could regularly and easily update its products, based on fresh market information, than its competitors. In addition, by maintaining low levels of inventory, it was possible for the company to attain effective cost-reduction and minimizes the costs associated with goods turning obsolete. The obtained information would be passed to all components' suppliers and manufacturing plants to ensure that the advantage was sustained across its global operations. Additionally, the company's internet-based procurement and ordering systems offered the capacity to synchronize supply and demand to an extent that many rival forms could not match. Through these supply chain efficiencies, Dell significantly out-paced its competitors. * Choice of location for the Global manufacturing plants As a strategic move, Dell operated various other manufacturing countries in Brazil, India, china, Ireland, Poland, and Malaysia. This was essentially one of the company's major cost-reduction strategies, apart from other aims such as providing timely deliveries and higher responsiveness to customer needs and concerns. The overseas manufacturing plants enabled Dell to take advantages of the low costs of labor available in countries such as China and Malaysian but absent in the United States. This would result in reduced overall costs of production. Such labor was also highly productive and this meant well for the business operations of the company. Locating manufacturing plants in these foreign countries also enabled the company to reduce the shipping costs of exporting its computers. The markets were located close to large and important regional markets. This not only led to reduced costs but also ensured that the company would deliver its products to the customers quickly (Matthews, 2012). Another advantage of this choice was the increased responsiveness to customers. The company would promptly and appropriately respond to the inquiries and demands of its overseas customers through these manufacturing plants. These positive qualities made the company quite attractive to customers and greatly contributed to the company's huge initial success. The choice of having foreign manufacturing plants also presented a few disadvantages. The company incurred significant costs of shipping components to the geographically distant manufacturing plants. Another probable disadvantage that may be associated with such choice is the inability to apply certain business strategies in plants that are located in foreign countries due to administrative and geographical challenges, among other factors. * Why Dell would outsource that manufacturing of the components The reason why Dell outsourced the manufacture of its PC components while manufacturing the PCs in its own plants has to do with the need to support the various strategies that were the source of its competitive advantage. For instance the company needed to ensure that it would take very little time to build the customized PCs. At the same time, the strategy of build-to-order, intended as a way of replacing inventories with information, needed prompt plans to ensure that the reduced inventory did not adversely affects the company's sales. The company must have realized that dealing with all the aspects of the manufacturing process would result in delays. Sourcing this manufacturing was therefore meant to boost effectiveness. It is also possible that Dell may not have been in possession of the needed expertise to manufacture certain components. It is a popular practice for businesses to outsource components that they cannot manufacture on their own due to issues of expertise or lack of other essential facilitating factors. For example Taiwan's Quanta may have the expertise needed make better notebook computers than Dell. It becomes imperative to get the services from the company that can offer them with the desired effectiveness (Hamlet, 2013). In addition, a company may not be in possession of all the components required for the manufacture of particular products (Rolstadås, Henriksen, & O'Sullivan, 2012, p. 12). For example, in this case, the Taiwanese firm relies on Texas instruments to obtain the digital signal processing chips it needs for the manufacture of the Dell notebooks. It can thus be realistically said that Dell had to source the manufacturing of such components due to this reason Additionally, the decision to source can be a cost-reduction measure. It is possible two companies to manufacture exactly the same products at significantly different level of costs (Simonson & Tompkins, 2005, p.29). One company may manufacture a product a lower price than another company producing the same product. In this case, the decision to outsource the manufacturing may be because Quanta can manufacture the components at a significantly lower price than Dell. Similarly, Dell may find it cost-effective to obtain the components from Quanta rather than manufacture them on its own even if it has the capacity to do so. * How Dell lost its top ranking in PC computers There are various factors that led to the fall of Dell as the global leader in PC computers. During the later years of 2000s, the desktop PCs began to lose a significant market share to Portable PCs such as notebooks and laptops. In addition, inexpensive netbooks from companies such as Apple entered the market. The production model for Dell, of build-to-order and direct sales, that had been behind its success, focused mainly of desktop PCs. The company's main market was the corporate and education sectors that relied on such PCs. It therefore follows that Dell's model of production and sales was not well modeled to the sales of porta...