Supply Chain News Bites - Only from SCDigest

-May 29, 2007


How Many Supply Chains Does Dell Need Now?


Move into Wal-Mart Stores Illustrates How Supply Chain Strategy Must Evolve; Marriage of two Wounded Giants? Pursuing Channel it Once Dismissed as a “No Return” Business


SCDigest Editorial Staff


Dell, long an icon of the supply chain world based on its make-to-order model and direct sales to business and consumers, announced last week it was making a deal for retail giant Wal-Mart to stock and sell a line of its consumer PCs. Dell will offer two desktop PCs priced under $700 in more than 3,500 Wal-Mart and Sam's Club stores in the U.S., Canada and Puerto Rico starting June 10.

The company said this is just the first step in launching a whole new retail channel on a global level, and that more retail announcements can be expected.

The move comes as Dell has seen its stock price collapse amid slowing growth and profits, resurgent competition, and by most accounts market share losses to HP. As a result, founder Michael Dell has taken back the CEO reigns, and a new chief supply chain officer was named for the first time shortly thereafter. (See New Supply Chain Chief at Dell to Revamp Manufacturing and Distribution, While the Company May End Direct-Only Model). Some critics have observed that the direct sales model may not work as well in many international markets, such as China, and even in the US the steady progression to notebook computers over desktops has led more buyers to want to see the products before buying (though Dell has had an active mall kiosk strategy for years).

To compete in retail, Dell will need to substantially transform supply chain processes, as it moves from a make-to-order model to a make-to-stock one. We can assume Dell will adopt “pull-based” strategies within this new make-to-stock model to minimize inventories and maximize responsiveness, and indeed the consumer electronics industry as a whole has made great strides in managing both these issues in recent years. But regardless, Dell will now have to build a third supply chain to add to its existing ones for make-to-order computers and service parts.

Still, it will be interesting to see how Dell manages this supply chain transition, and whether it can in fact lead to improved financial performance. One Wall Street commentator thinks it’s unlikely.

“The company may end up burning a lot of capital pursuing this strategy. If you want a definition for cut-throat competition and low margins in the technology world, it would probably involve three words: consumer, Wal-Mart and desktop,” said the Breaking Views’ blog from the Wall Street Journal.

Some may be surprised to learn this is not the first deal between Dell and Bentonville. In the early 1990’s, Dell did try for awhile to sell PCs through Wal-Mart’s Sam’s Club warehouse club chain. It killed the deal after just a short while.

"This is a no- or low-return business. We like to be in businesses where we can make money, and we know how to do that in the direct business." said Michael Dell the first time around.

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