Impact of retail sales and outsourced manufacturing on a build-to-order supply chain

Abstract

Dell Inc. has undertaken a major transformation in strategy since the return of its founder, Michael Dell as company CEO in January 2007. One major aspect of this new strategy is a renewed focus on the consumer market, historically an afterthought compared to Dell's traditional enterprise clientele. In order to more effectively reach consumers around the world, Dell has decided to abandon its direct-only channel strategy and partner with a number of retailers around the world. At the same time, Dell has decided to partner with Contract Manufacturers (CM) and Original Design Manufacturers (ODM) in order to lower manufacturing costs in the extremely competitive consumer market. Dell's initial entry into Retail and move to some CM/ODM has had both positive and negative effects. Sales volumes have gone up and initial feedback from the retail partners has been encouraging. However, these dramatic changes have exposed some weaknesses in Dell's Build-to-Order supply chain including the demand forecast and capacity planning. The Supply Chain group at Dell would like to understand these unintended effects and adjust the supply chain to mitigate any negative impacts. The project involves three phases: identifying the challenges of selling PCs through the retail channel and the challenges of outsourcing manufacturing, quantifying the impact of Retail and CM/ODM on Dell manufacturing capacity and offering recommendations for future supply chain design. The results highlight some unexpected outcomes - Dell could require far more manufacturing capacity in the future than originally anticipated based on the initial effects of retail and CM/ODM. The analysis in this thesis suggests that Dell will need to increase order lead-times or decrease daily order variability in retail sales to manage with its current manufacturing capacity. Additionally, Dell will need to minimize the number of different CM/ODM's it partners with in order to benefit from demand pooling and prevent a need for increased manufacturing capacity.