What is Supply Chain Management? How it Boosted Dell Sales

Every company or enterprise that deals in products and services need Supply Chain Management. The management of the flow of goods and services, starting from the raw materials to the final product, is called Supply Chain Management.

It is an essential part of any company so that all operations run smoothly. The sequence of processes involved in the production and distribution of a commodity is called a Supply Chain. And managing all the processes efficiently is Supply Chain Management, or SCM.

Supply Chain Management

Cornell University, New York, defines Supply Chain Management as “the design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and also measuring the performance globally” 

Supply Chain Management is basically controlling the order size, production, and logistics so that maximum demand can be met with the lowest capital and in a smooth manner. And in order to do so, the SCM depends on industrial technology, information technology, operations management, market demand predictions, procurement, and logistics. It also includes managing the network of suppliers that process the product for a company.

Any company that deals in goods, either in B2B or B2C space, relies heavily on its Supply Chain Management. One error can cost the company a fortune.

How Supply Chain Management works?

A company buys a bunch of raw material from a  supplier and sends it to its manufacturing unit, where the raw material is processed into finished material. It can take multiple processes to convert raw material into a finished product, but sometimes it can be done under one roof too.

After that, the product is packed and moved to a storage unit from where it is sent to distributors and then to the retailers. If it is an online D2C business, the product is directly forwarded from the warehouse to a courier delivery service that ships it directly to the customer.

This entire process is very complex as the company needs to run this whole system as smoothly as possible and with minimum capital. In order to do so, the company needs to figure out the demand for the product, its warehouse storage capabilities, its manufacturing capabilities, the shelf life of the product, cheaper raw material, faster logistics, etc. Managing this entire system is Supply Chain Management. 

This was an example of where SCM is needed.

But how does it manage such a hefty task?

Supply Chain Management involves 5 major processes:

  1. Planning – It is very important to plan out all the nuances of the supply chain from customer demands to acquiring raw material. A company should invest its capital and workforce only in meeting the demands of the customer and not pile extra stocks. Therefore, it is very important to calculate and predict the demand in the market at different times. Also, the manufacturing/processing unit should also be planned and designed in order to meet the highest demands of customers efficiently. Warehouse and storage facility is also an important part of the chain as it should be planned with extra stock in mind, etc.
  2. Sourcing –  There are many suppliers in the market that provide raw materials, but there’s a difference in quality, price, and service between them. One should choose a supplier that always provides the best quality at a reasonable price. Also, it is very important that the supplier is able to increase supply with increased demands. And if there comes a problem, the company must also have a backup.
  3. Manufacturing – To have a good product in the market, a company should have a well-managed manufacturing facility established. The facility should have skilled workers and the manufacturing capacity should be planned with the surge of demand in mind. But the most important part of manufacturing is the quality of the product. The company must ensure that the product is manufactured, packaged, and shipped according to the company’s requirements through thorough tests and checks.
  4. Delivery and Logistics – Logistics is the most important part of Supply Chain Management. Goods need to be moved from one location to another for various purposes. Some companies have their manufacturing unit at a different location than their assembly plant, then after the product leaves the assembly line, it needs to be moved to a warehouse. Then it is delivered either to the distributors or directly to the consumers. To ensure the safety of the goods, a company must maintain or hire a good logistics service that not only delivers the goods fast but is also safe. Once the product reaches the warehouse, a faster delivery system is needed as consumers want their orders to be delivered between one to three days. Thus fast and secure delivery service is very important for customer satisfaction.
  5. Returning – The last part of the Supply Chain Management is Returns. Many times an order is returned back to the seller, and this could be due to many reasons. Sometimes the product is not selling in retail stores, so the distributor sends them back; sometimes the product is damaged, or has some other issues; on e-commerce sites, often people order a certain product and then return it after opening the package. The seller needs to have a fast system that can deal with such instances too.

These are the 5 major processes that the SCM team needs to handle to make the supply chain robust and efficient.

Importance of Supply Chain Management

It is important to have Supply Chain Management because it allows the company to have control over things like manufacturing, logistics, storage, etc. which in turn helps in better quality products and faster delivery to the consumer. It largely reduces the cost, time, and waste by just organizing everything from the start to the finish in an efficient manner. 

With so many companies adopting Supply Chain Management, it has now become a necessity for any other company to do the same in order to compete in the market. It also helps retailers and distributors in getting fresh and new products to the consumers as quickly as possible.

According to CIO.com, Supply Chain Management helps companies in three main scenarios:

  • Identifying potential problems
  • Optimizing price dynamically
  • Improving the allocation of inventory

When the supply chain is monitored from head to toe, all problems can be easily identified and can be dealt with. In an unmanaged system, it can be pretty troublesome to detect any problems, but in SCM, any inefficiency can be easily detected and solved. 

When the supply chain is completely planned and every expenditure is calculated, it becomes easier to calculate the cost price of the product and also the selling price. Thus, if the cost of any material or service in the supply chain goes higher, it becomes easier to adjust the price of the product with respect to the cost increase.

Nowadays, everything is done with the help of computers. There are multiple software’s in the market that helps make tracking goods and services easier with the help of information technology, so that the company can exactly locate and keep track of all its inventory, logistics, production, etc.

According to the Council of Supply Chain Management Professionals (CSCMP), any business needs to adopt Supply Chain Management due to 3 main reasons:

  • Boost customer service

Customer satisfaction is very important for any business to grow. And every customer likes it when businesses value them. With a robust supply chain, there will be fewer damaged products being sent to the customers, a faster delivery system, newer and fresher products in retail markets, and easier returns. After-sale services like repairs and replacements can also become quicker and more efficient. Thus, with satisfied customers, there will be more returning customers and therefore more growth potential for the business.

  • Reduce Operating Costs

With Supply Chain Management, businesses can predict the demand of the market. So if the demand is decreasing, the management can decrease the manufacturing of the products to match the demand and vice-versa. Similarly, it can also decrease the order for raw materials from the suppliers or can place an order for more material beforehand so that they can ramp up the manufacturing as soon as demand increases. This results in saving a lot of capital in manufacturing and storing the goods. Also, if the goods have a short self-life, there can be a lot of wastage too. With Supply Chain Management, businesses can follow the Direct Sales model where the product is assembled after the order is placed. This enables goods to move faster through the chain and saves a lot of capital in operating costs.

  • Improve Financial Position

When the supply chain costs are reduced, the cost price of the product reduces drastically and gives more margin to the businesses. Greater the margin, the greater the profit. Also when the complete supply chain is managed efficiently, there would be lesser use of large warehouses as the goods would be moving fast. Thus the businesses could reduce or rent out their unused assets and therefore save a lot in maintenance charges.

Apart from the financial benefits for the business, Supply Chain Management also benefits society in multiple areas. As stated by the CSCMP, Supply Chain Management has the following societal roles:

  • Ensuring human survival by making basic services like healthcare and electricity more efficient and quick to access.
  • Improving the standard of living as a good SCM helps businesses grow, which in turn creates a lot of jobs, helps in the economic growth of the country, etc.
  • Development starts booming in the country as everything becomes well-managed and therefore everyone involved in the supply chain benefits from it.

How Supply Chain Made A Great Impact In Dell

Dell is now a very popular name in the personal computers business. But back in 1984, when it started, it had very tough competition. IBM and Compaq were its biggest competitors with IBM alone having more than 61% of mainframe computers in the market. IBM had distributors and resellers all over the US and dominated the market. Dell was relatively new and had to come up with something different to make its way into the market. But it had no new innovation in the PC field. It used to just buy components from different manufacturers and assemble them. Even though IBM was doing the same thing, it was nearly impossible to challenge a brand that had become a household name during the time. 

That is when Michael Dell came up with a genius strategy in the supply chain. Instead of selling the pre-assembled computers through resellers, Dell started reaching out directly to the customers. This is called the direct sales method, where the assembly of the product starts only after the customer places the order, thus eliminating all middlemen. 

This also enabled Dell computers to be way cheaper at $1000 to $2000 as compared to IBM’s $3000 computers. IBM had an inefficient supply system. Instead of focussing on the customer’s needs, IBM would offer about a $1000 margin to resellers per unit. This encouraged resellers to sell IBM computers to the customers instead of any other brand like Dell. Even though IBM sold computers at much high costs, it offered little to no customer support. On the other hand, Dell used to customize computers specifically for the customers and also used to provide after-sales support.

Gradually Dell established an efficient supply chain where customers could order a computer through dell’s website and mention all the specifications. Dell would then assemble all the PC and get them delivered to the customer in no time.

Another problem with IBM at the time was that due to an inefficient supply chain, they could not meet the demands. The demand for PCs was growing at a rapid pace and IBM was not able to keep up. 

And Dell was fast to respond to this supply and demand gap and started producing customized computers at a large scale. Dell started becoming so popular that even resellers started taking orders for Dell computers at a lower margin as compared to IBM.

Due to an organized Supply Chain Management, Dell’s days of inventory were just 5 days, i.e. its computers would stay in the inventory for just 5 days on average before being delivered to the customer. Compared to that, IBM’s days of inventory were 49.4 days.

And by the mid-1990s, Dell became the largest computer manufacturer in the world overtaking both IBM and Compaq.

About Chris Fryer

I'm Chris, A fintech & technical analysis expert. I started my journey in 2012 & entered the Cryptocurrency Industry in 2015. Currently, I'm helping people by sharing my knowledge related to finance tools on the web. My expertise is in investing & technical analysis for stocks, and crypto & I have a good experience in TradingView analysis. I don't give any financial advice, I only publish reviews & guides of tools and platforms.

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