Dell's Mass Customisation Strategy Argumentative Essay Example
Computers are one of the common thing used by most people. Humans grow dependent on computers and this has helped in making a high demand for Personal Computers (PC) and laptops. However, the demands are forecasted mainly on the number of PC units, but not on the specification.
A single PC can have thousands of combination in its specification, hardware, Operating System (OS) and even the price, and finding one which really fits our needs is proven to be hard. When looking for one, customers can only differ the PCs or Laptops as low-end, mid-end, or high-end. But does the classification fit our needs? The high-end might be too good, or above our needs, while the mid-end might not be enough for our needs. Thus, Dell created a Mass Customisation strategy, in which customers can build any kind of PC with any specification which meets their needs. And this became the most well-known system through-out the world which allows Dell to be one of the best PC/Laptop vendor.
Dell's Direct Selling Method
Mass customisation was not an easy task for Dell as it hides a very high uncertainty. Customers can access Dell's website to order their goods and then Dell will process the order and build it (Pollard, Chuo and Lee 83). Mass customisation should be expensive, however Dell could achieve a lower price in it.
Direct selling is the one method that plays an important role in Dell's overall strategy creation. Through this method, Dell was able to analyse any trend, any requirement, and forecasting of the future requirements of the customers.
Through all the data, Dell gained an upper hand to prepare its strategy to be able to operate effectively and efficiently in the incoming future. Dell is also able to create several scenario before the competitors are ready.
This helps Dell to gain a competitive advantage against its competitors with addition a great advantage in allocation of resources, consumerism, technology and maintain the risks.
One of the main strategy of Dell is the resource allocation. Theoretically, Dell has no inventory level at all. Inventory, especially finished goods is considered as one of the biggest waste (Fredendall and Hill 126). With no inventory, the cost could be lowered. Dell can be considered as egocentric, this is due to the fact that Dell does not hold any of the inventory, instead Dell asked their suppliers to carry the inventory by themselves, and when Dell needs it, Dell will collect it. This is aligned with Toyota's Just in Time, however it is against the Toyota's philosophy as in Lean Manufacturing, suppliers coordination is one of the most vital activity (Liker and Meier 146).
Dell allocates its resources by getting the most important spareparts from reputable suppliers, and have them to have a warehouse near Dell's plant to facilitate the movement of goods. Usually, the suppliers are asked to have an inventory level which will be enough for 10 days of production (Pollard et al. 84; Kapuscinski et al. 182). In fact, with inventory levels, the suppliers might charge an additional cost for inventory handling, in which if Dell could avoid this, Dell might even be able to lower its prices.
Another allocation of resources is the plant resource allocation. Dell has several plants outside of America such as India and China. The plants in India and China are mainly built for the commercial products.
India and China have lower operating costs than in America, thus these places are the best places for mass production, while the plant in America are mainly used for the mass customisation. The two plants helped Dell to be able to sell its product internationally.
Consumerism has many definition. One of the definition can be as an organised movement to maintain customer's interest (Swagler 347-348) while Quazi (36) explained it as an effort from consumers to achieve a better bargaining position against the seller. Regardless of the definition, consumerism can be defined as maintaining customer's interest either by the organization or from the customers themselves. Consumerism can also be negatively defined as an excessive materialism (Swagler 353).
Dell once experienced a decline in customer's interest. Their customers interest was getting lower and lower or customers started to choose a different competitor product. Until then, Dell realised that customers love a customisation and direct purchase.
Through the mass customisation system, Dell was able to maintain the consumerism of their customers. Dell also offers a better price than its competitors and thus gaining a great competitive advantage. In fact, this method is able to maintain a high consumerism for their customers as customers can always order another customised PC when they have a different need, and this is something that is not offered by any other PC/Laptop vendors.
Additional benefit from consumerism in an IT company is that consumerism greatly determines the investment ration in IT sector (KPMG Study 8).
Dell opens a wider opportunity for its customers to experience the latest technology. Customers can have the right technology for themselves right at their doorstep. Customers could get the hard-to-get technology through Dell's mass customisation to satisfy their needs.
In their supply chain, Dell promotes an improvement for its suppliers so that they can offer the technology that Dell required.
In fact, through their direct selling method, it could gather all the data necessary about the trend in its market. Dell can tell what kind of technology that most people wanted, and Dell can always improve that technology for their own commercial use and social contribution. Dell knows what to improve and what most people expect.
Through technology, Dell could also maintain the customer's consumerism as customers are always attached to new technologies, and with a quick cycle of technology, consumerism is proven to be high (Langabeer and Stoughton 7-8).
One of the best advantage of direct selling is that Dell could analyse the trend in the technical specification of PC/Laptops. Using this, Dell could mitigate the risks in mass customisation by having the suppliers to keep a good amount of the most popular product's material. Thus, suppliers are also risk-free as they know what to get and they know that the products will be sold.
Over-stock can always happen as demand might fluctuate. But since Dell and its supplier keep only the most popular product materials, they can always assemble it outside of the mass customisation system and sell it commercially in retailers and showrooms. And since it is popular, there will be a good chance that the products will be sold, and this will be able to handle any over-stock.
The commercial products are the ones Dell sold worldwide in the countries where mass customisation does not apply. Commercial products are mainly produced in India as the country offers a lower operational cost.
In the supplier's supply chain, Dell advises its suppliers to have warehouses near Dell's plant. This helps Dell to mitigate the risk of a long Lead Time in the supply chain uncertainties. Dell let its supplier to handle the transportation and the movement of goods by themselves, by doing this, Dell allowed itself to focus on its own business without any need to worry about the international export-import deals. Dell does not need to pay extra when there are any disruptions on the supplier's supply chain as the suppliers are the ones responsible to fulfil Dell and customer's demand.
However, the best risk mitigation from Dell is as stated in the previous section that Dell does not hold any inventory. Dell paid nearly no inventory cost. And direct selling also helps Dell to maintain its price and able to avoid the most unwanted bull-whip effect (Tsay and Agrawal 98).
Through analysing its customers, Dell could create a strategy which allows it to gain a great competitive advantage.
Resource allocation requires an understanding of the current state and the expected future state. This could only happen through Dell's direct selling system which allows Dell to query the data at any time to get the result and prepare the plan and strategy for the upcoming event and demand of the customers.
The resource allocation also allows Dell to optimize its operations and earn the optimal profit through the minimum cost.
Dell also understand the technology requirements of its customers and able to maintain the consumerism through this technology allocation. Dell becomes the place where customers spend their technology consumerism, i.e. excessive materialism of technology.
And through the direct selling data, Dell also could mitigate the risk by knowing what to do and what Dell should not do.
The wonderful fact about Dell is that Dell created the direct order strategy, and that direct order strategy also helped Dell to formulate a new strategy to facilitate their operations.
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