SCM107V TEST 1 MEMO – APRIL2023
Faculty of Management Sciences
Department of Marketing, Supply Chain and Sport Management
MEMORANDUM
Subject Code(s): SCM107V
Subject Description: Advanced Supply Chain Management IV
Course Code: ADSU19
Paper Type: Semester Test 1 Memorandum
Test Date: 26 April 2023
Duration: 2 Hours
Multiple choice N/A Marks
Total Marks:
Long questions/case studies 60 Marks
Assessor: IJ Moodley
Internal Evaluator: Dr L Naidoo
INSTRUCTIONS:
Please read the following instructions carefully. It is the student’s responsibility to
apply to these instructions. Failure to do so will result in consequences as stated.
1. Read the questions carefully and answer all questions on the examination answer
script provided.
2. All questions to be answered in black or blue pen. No pencils allowed except for
drawing of diagrams.
3. This is an open-book test. You may use your textbook, lecture slides, journal articles
and any other printed materials. The use of electronic devices is not permitted.
4. Ensure that your answers are numbered exactly as the questions.
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Question 1: Dell’s Direct Model
Introduction
The Dell Computer Corporation was founded in Texas by a 19-year old Michael Dell
in his university dorm room. The company experienced rapid growth and soon
overtook Japanese counterparts in terms of profitability and market share. Dell did all
this even though the company produces no computer components. Dell does not
manufacture any components, but it can produce custom-built PCs in a matter of hours
and was able to wrestle away significant market share from Japanese giants in the PC
industry.
Corporate Structure
Dell’s corporate headquarters are located in Round Rock, Texas, near Austin, which
is also home to Dell Americas, the regional business unit for both North and South
America. Dell has three additional regional headquarters: Dell Europe, Middle East
and Africa in Bracknell, U.K., Dell Japan in Kawasaki, Japan, and Dell Asia-Pacific in
Hong Kong. Each of these regional business units reports to the Office of the
Chairman. The company has four manufacturing facilities: Round Rock for the
Americas; Limerick, Ireland for Europe, the Middle East and Africa; Penang, Malaysia
for Asia-Pacific and Japan; and Xiamen, China for China. Dell’s products are sold in
more than 170 countries around the world.
The Dell Direct Model
Indirect channels
Figure 1: PC supply chain through indirect channels
PC manufacturers were using indirect sales channels since the inception of the IBM
PC in 1981. The general approach to selling PC’s to corporations through indirect
channels is shown in Figure 1. Under this approach, a distributor/reseller purchased
PCs directly from the manufacturer and distributed them to corporate customers. The
reseller customised the PC to the customer’s requirements, installed components or
software as necessary and often provided additional service and support. There were
a few variations on this theme. For example, retail sales followed a similar supply chain
as Figure 1, except that the PCs were shipped from the manufacturer to the retailer,
who sold them to consumers. In most cases, these sales were not triggered by orders
but rather by forecasted demand.
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SCM107V TEST 1 MEMO – APRIL2023
Direct channels
Dell’s direct model, based on direct sales from the PC manufacturer to the corporate
customer or to consumers, is shown in Figure 2. The model was driven by the “slicing”
of the computer industry and removing the “middle man.”
Figure 2: The Dell Direct Model
Dell pioneered a new business model that focused on speed of execution and
minimum inventory. To this end, the company bypassed the dealer channel, selling
products directly to customers over the phone. This eliminated the reseller’s mark-up
and the costs and risks of carrying large finished goods inventories. The Dell direct
model was characterised by high-velocity, low-cost distribution, direct customer
relationships, build-to-order, Just-In-Time manufacturing, and products and services
aimed at specific market segments. The direct model had several key advantages. By
eliminating the intermediaries, Dell could dramatically reduce its channel costs. Since
every Dell system was built to order, customers got exactly what they asked for. Dell
used the knowledge it gleaned from this direct contact to tailor its service and support
as well as future offerings. Since materials flowed faster in Dell factories, latest
technology was introduced faster than through the slow-moving indirect channels.
Dell relies on information technology (IT) systems to coordinate and manage the
supply chain. With suppliers, the company sets quality measures and the system is
linked to the supplier to monitor material flow in real-time. Suppliers are told exactly
what the production requirements are. Dell does this in order to get suppliers in line
with its high velocity model of production.
Supply Chain Process
Dell puts a strong emphasis on its operations. Every PC manufactured by Dell is
specifically configured to a customer’s order, and the facility has no warehouse space
and no inventory other than work in process. Components arrive from suppliers just in
time for manufacturing through the factory’s cargo doors. Manufacturing is
synchronised to avoid storing parts or finished systems. There is basically no finished
goods inventory. As soon as a product is completed, it is taken out of the factory and
delivered to the customer. This process is enabled by Dell’s close relationship with its
suppliers. Once Dell picks a reliable supplier, it focuses on reducing inventory levels
and increasing speed. For example, Dell trusts Sony to provide high-quality monitors,
so it is unnecessary to truck them to the production facility, test them and then ship
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them (with the rest of the PC) to the customer. Likewise, Dell trusts UPS to manage
the logistics and distribution channel so that the PC and monitor are properly matched
between the Dell factory and Sony’s factory. Trust is cemented by the informational
links between Dell and its supply chain partners.
Customer Service
Dell places a strong emphasis on service and support as part of the product purchase.
It employs more than 1,300 technical support personnel, accessible by phone 24 hours
a day. Dell’s systems extend customisation to after-sales service, with the system
identifiers used in manufacturing becoming post-sales service IDs. The system
configuration is displayed on service reps’ screens when a customer calls for an
upgrade or needs help. In 90% of calls, the service reps can solve technical support
problems on the phone by walking the customer through standard troubleshooting
procedures. This minimises the need for “walk-in” customer service where the
customers would need to take their computers to a physical service centre. But should
the need arise, Dell employs third-party providers such as Compaq, who send out
technicians to assist customers on-site. Even though field-service is contracted out,
Dell still maintains accountability for the customer service. By creating tightly
coordinated relationships with its suppliers, vendors and maintenance providers, Dell
makes its customers feel like they are dealing with just one large company.
1.1.1 Analyse the Dell direct model and indicate where the decoupling point or
push-pull boundary would be located. Explain why this is the case. (5)
1.2 Using evidence from the case study and a relevant diagrams, examine which
global supply chain strategy would be most appropriate for Dell. Make use of
Fisher’s framework and the research by Hau Lee to lend support to your answer
in terms of the type of product Dell manufactures and sells, in relation to market
characteristics. (20)
1.3 Provide a framework for agile supply chains that can be used to inform supply
chain design at Dell. (5)
1.4 You are currently an operations manager at Dell. Supposing they are using the
principle of postponement to streamline operations, you have been tasked with
applying this to your current project. The diagram below shows the structure
before standardisation. Assuming you can reduce the work in progress
inventories to three with the same number of outputs, what would the new
process look like? Outline how this design is more efficient. (10)
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[40]
Question 1.1 Answer
Source: MANGAN, J., LALWANI., C. & CALATAYUD, A. 2021. Global Logistics and
Supply Chain Management. 4th Edition. Great Britian: John Wiley & Sons. Chapter
3, pp.44-45.
Mark allocation: Allocate marks as shown below. Students need to apply the theory
to the case study and may provide evidence from the case. Award maximum 10
marks. Students must indicate where the decoupling point will be located.
• Dell has managed to remove the intermediaries in their supply chain ✓
• They order directly from the supplier and are able to save cost doing so ✓
• Dell employs the build to order process so that customers get exactly what they
pay for ✓
• Through the enhanced relationships inventory levels can be reduced ✓
• Suppliers have a good indication of the exact amounts of inventory that is
required from them and exactly when this inventory is required ✓
• This is a result of the improved coordination enabled by having integrated
information systems in place ✓
• Also, this reduces the uncertainty since forecast error is reduced as suppliers
are aware of actual demand ✓
• This enables the high-velocity, low-inventory system to prevail at Dell ✓
• Dell operates inventory management on an almost JIT basis ✓
• Dell would need to locate the decoupling point at the factory exactly when the
order is placed from the customer ✓
Question 1.2 Answer
Sources: MANGAN, J., LALWANI., C. & CALATAYUD, A. 2021. Global Logistics
and Supply Chain Management. 4th Edition. Great Britian: John Wiley & Sons.
Chapter 3, pp.44-45.
Fisher, M.L. 1997. Choosing the right supply chain for your product. Harvard
Business Review.
Mark allocation: Allocate marks as shown below. Marks must be allocated for
application of the theory. Award maximum 20 marks. Marks must be awarded for a
coherent discussion including both diagrams. Three marks each for the diagrams.
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SCM107V TEST 1 MEMO – APRIL2023
• Dell needs to choose a strategy that would best suit their unique supply chain
and nature of the product ✓✓✓
• The taxonomy for selecting global supply chain strategies provides the
following diagram:
✓✓✓
• The case study explains that Dell holds no inventory and relies on
synchronisation with suppliers and supply chain partners to maintain a lean
supply chain✓
• Dell uses modules from suppliers to manufacture custom computers for
individual users✓
• This approach employs delayed configuration until the final order is received✓✓
• Therefore, the most appropriate strategy for Dell would be leagile production
using logistics postponement✓✓
• In this approach, generic products are produced and shipped to distribution
centres where they are then customised as computers when the orders come
in ✓✓
• Fisher’s Framework further supports this recommendation. The following
diagram is relevant✓✓✓
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• Dell produces innovative products and needs a market-responsive process ✓✓
• This allows us to infer the appropriateness of the leagile approach ✓
Question 1.3 Answer
Source: MANGAN, J., LALWANI., C. & CALATAYUD, A. 2021. Global Logistics and
Supply Chain Management. 4th Edition. Great Britian: John Wiley & Sons. Chapter
3, pp.40-41.
Mark allocation: Allocate marks as shown below. The diagram can be drawn in
different ways but the logic must be sound. Basically, three work in progress items
transformed into six output combinations. An explanation of the efficiency of this
approach must also be provided in line with the diagram. A suggested diagram is
provided below.
The revised process design should be along the lines of: ✓✓✓✓✓
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This new design is more efficient since it reduces the number of parallel production
lines by more than half✓. The new design minimises the risk of redundancy in cases
of demand changes for product lines✓✓. By reconfiguring and making more steps
common, the impact of variability in the demand for finished goods can be reduced✓✓.
Question 2
United Lines is a multinational shipping and transport company that operates in 10
different countries across the world. The nature of the transport sector has meant the
company now faces a number of issues. Main among these are the less than full or
sometimes empty containers moving between ports and different inland destinations.
Another issue is that executives are struggling to formulate a suitable distribution
strategy. You are required to:
2.1 Advise the company on the problem of directional imbalances including
strategies to cope with this. (10)
2.2 Provide recommendation on distribution channel strategies that the company
can apply in their supply chain. (10)
[20]
Question 2.1 Answer
Source: MANGAN, J., LALWANI., C. & CALATAYUD, A. 2016. Global Logistics and
Supply Chain Management. 4th Edition. Great Britian: John Wiley & Sons. Chapter
2, pp.27-29.
Mark allocation: Allocate marks as shown below.
• The challenge is for carriers to match as much inbound freight capacity with
outbound freight capacity as possible. ✓ ✓
• When, however, there are gross imbalances in export and import volumes and
cargo types, this is not always possible. ✓ ✓
• As a result, empty containers may need to be repositioned to where they are
required. ✓ ✓
• Furthermore, this can lead to problems for ports, which sometimes have to store
empty containers. ✓ ✓
• Shipping companies have also tried to come up with solutions such as
developing new routing patterns which minimise empty container movements
and seek to maximise operations on routes with higher traffic densities. ✓ ✓
Question 2.2 Answer
Source: Article on “Risk Assessment and Operational Approaches to Managing
Risks in Global Supply Chains.”
Mark allocation: Allocate marks as shown below.
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• A firm has to consider how it wishes to distribute its products through the supply
chain. ✓ ✓
• The fewer intermediaries there are and the more compressed the supply chain,
the greater the benefits of time-based SCM. ✓ ✓
• 3PL service providers that generally take responsibility for multiple channel
activities have assisted in compressing supply chains. ✓ ✓
• The Internet and e-marketplaces also provide firms with alternative channel
arrangements. ✓ ✓
• An e-market provides the customer with an opportunity to buy directly from the
manufacturer or other intermediaries. ✓ ✓
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