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Dell + JIT Inventory Management

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Jessica Cecere

on 13 April 2011

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Transcript of Dell + JIT Inventory Management

Dell's Use of Just-In-Time Inventory Systems What is Just-In-Time Inventory? "The minimum inventory necessary to keep a perfect system running." With JIT inventory, the exact amount of goods arrive at the moment they are needed, not a minute before or after. Dell's Reengineered Supply Chain Under a Just-In-Time method, goods are manufactured or purchased just in time for sale. Dell pioneered a new way of making and selling computers. Dell reengineered its supply chain so that it could produce computers with the exact features that customers ordered, ship them within 24 hours of taking the order, and ultimately invest almost no money in inventory. What does JIT Inventory mean? Small amounts of product are held in inventory. This means, at any given time, Dell would have little to no products wasting time in inventory. Essentially, products would be produced as they're demanded and to the customer's specifications. Dell thereby enabled customers to build almost completely custom-made computers. This increased customer satisfaction and loyalty. Were Dell's competitors implicated by this change? YES! In January 1998, Compaq Computer was the largest seller of personal computers and Forbes Magazine's "company of the year." After Dell had implemented this dramatic change in its inventory process, over the next two years, Compaq Computers lost $2 billion and its CEO was out of a job. Compaq couldn't respond quickly enough to this dramatic change, and ultimately merged with Hewlett-Packard (HP). After the merger of HP and COmpaq, HP lost significant market share in the PC market to Dell because its cost structure made it hard to compete with Dell on price. What are some benefits/advantages of using a Just-In-Time Inventory System? 1) Funds that were tied up in inventories can be used elsewhere. 2) Areas previously used to store inventories can be used for other more productive uses. 3) Throughput time is reduced, resulting in greater potential output and quicker response to customers. 4) Defect rates are reduced, resulting in less waste and greater customer satisfaction. Benefits Dell Experienced Due to its low cost production system, Dell is able to underprice its competitors by 10-15%. "While machines from Compaq and IBM can languish on dealer shelves for two months, Dell does not start ordering components and assembling computers until an order is booked. That may sound like no biggie, but the price of PC parts can fall rapidly in just a few months. By ordering right before assembly, Dell figures its parts, on average, are 60 days newer than those in an IBM or COmpaq machine sold at the same time. That can translate into a 6% profit advantage in components alone."

-Gary McWilliams
"Whirlwind on the Web" from Business Week
April 7, 1997 So, why did Dell believe it needed to change its inventory process? Because Computers deprecaiate at a very high rate. Sitting in inventory, a computer loses a ton of value. "The longer you keep it the faster it deteriorates - you can literally see the stuff rot...because of their short product lifestyles, computer components depreciate anywhere from a half to a full point a week. Cutting inventory is not just a nice thing to do. It's a financial imperative."

-Kevin Dollins
Dell CEO History of JIT:
JIT is a production model first implemented by Toyota Motor Corporation in the 1960s. It emphasized the need to have just the required accessories, just the required quantities, and just the required time needed for production and distribution. Dell, as a company, has grown at an extreme rate since its inception solely due to how it has structured its company. Dell Today Thirteen years ago, Dell carried 20-25 days of inventory in a sprawling network of warehouses. Today, Dell has no warehouses. And although it assembles nearly 80,000 computers every 24 hours, it carries no more than two hours of inventory in its factories and a maximum of 72 hours across its entire operation. Simply, by changing its inventory method, Dell experienced an immense change in its finances, and gained an enormous competitive advantage. Dell continues to strive for company-wide improvements. However, one thing is for certain: the company will never stop using Just-In-Time inventory practices. Questions?
Resources:

http://penofaparanoid.blogspot.com/2009/06/just-in-time-production-dell-way_18.html

http://www.inventorymanagementreview.org/2005/09/dell_computers_.html

Managerial Accounting by, hWeygandt, Kimmel & Kieso (5th edition) Jessica Cecere
BADM 3601-11
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