Inventory Decisions in Dell's Supply Chain

Abstract

The Tauber Manufacturing Institute (TMI) is a partnership between the engineering and business schools at the University of Michigan. In the summer of 1999, a TMI team spent 14 weeks at Dell Inc. in Austin, Texas, and developed an inventory model to identify inventory drivers and quantify target levels for inventory in the final stage of Dell's supply chain, the revolvers or supplier logistics centers (SLC). With the information and analysis provided by this model, Dell's regional materials organizations could tactically manage revolver inventory while Dell's worldwide commodity management could partner with suppliers in improvement projects to identify inventory drivers and to reduce inventory. Dell also initiated a pilot program for procurement of XDX (a disguised name for one of the major components of personal computers (PCs)) in the United States to institutionalize the model and promote partnership with suppliers. Based on the model predictions, Dell launched e-commerce and manufacturing initiatives with its suppliers to lower supply-chain-inventory costs by reducing revolver inventory by 40 percent. This reduction would raise the corresponding inventory turns by 67 percent. Net Present Value (NPV) calculations for XDX alone suggest $43 million in potential savings. To ensure project longevity, Dell formed the supply-chain-optimization team and charged it with incorporating the model into a strategic redesign of Dell's business practices and supervising improvement projects the model identified.