Most business professionals assume that Dell’s “Push-Pull” is merely a supply chain strategy, one that reduces the costs of inventory obsolescence by maintaining minimal inventory counts. However, at its core, it’s an order fulfillment strategy, one that drives the company’s supply chain by allowing it to push customized finished goods to its customer base. Once a customer places an order, their unique requirements pull components and consumables through the company's supply chain.
Dell adheres to three essential principles in order to ensure that its approach is a success. What are these three principles and what can a company do to emulate this unique order fulfillment and supply chain strategy?
1. Minimal Inventory Counts: One of the pivotal rules of Dell’s strategy is that it relies upon maintaining minimal inventory counts of components and consumables. Inventory obsolescence is avoided at all costs and steps are constantly taken to reduce the costs of outdated and antiquated inventory. A large portion of this strategy is borne out of necessity; the company must maintain minimal inventory levels due to the rapid changes in technology within the computer industry, changes that make consumables and component inventory all but obsolete from one day to the next. However, the strategy also helps to reduce the company’s cost of capital.
The company lowers its costs of inventory financing and receivable financing by only taking in what it’s guaranteed to ship to customers. This allows the company to reduce it costs of capital, improve its cash flow and most importantly, reduce its financing. In essence, Dell gets paid for its product through a direct sales model well before the company has to pay its own vendors.
2. Custom-Made Finished Goods: The order fulfillment portion of the strategy allows Dell to provide a custom-made finished good, one where customers decide upon options that are controlled by the computer manufacturer itself.There are several inherent advantages to providing custom-made products directly to end-users. First, the company eliminates the need to sell through wholesalers and retailers, thereby reducing their markup and eliminating the middlemen in the value chain. Second, providing finished goods directly to end-users allows the computer manufacturer to employ a direct sales model, one that it can use to push other products and services to its customer base. Third, providing custom-made finished goods gives the company an advantage over its competitors in terms of its ability to provide a value-added product and service, one that is matched to the customer’s unique requirements and one that is rarely matched by Dell’s competition.
3. Strong Direct End-User Customer Service: Dell employs a strong direct end-user customer service support system. Customers are able to deal directly with the company's service technicians and customer support center. While Dell is a large enterprise, it doesn’t appear as such in the eyes of its customer base. In essence, it isn’t viewed as a large, faceless corporation. Eliminating those aforementioned retailers allows Dell to have more control over its product offering, and more control over the type of customer service its customer base receives.
The company gains invaluable insight into its customers’ preferences and the multiple customer segments within its market. The costs to manage such information are much less than if the company had to define its market segments and customer preferences through several layers of retailers. In essence, employing a direct sales model reduces the costs of managing vital customer data. Dell need not rely upon others (retailers) in order to define their market, their customers and their business cycles.
How is Dell’s Strategy Put Together?
The strategy is predicated on having the company's customer base drive its assembly line and supply chain requirements. This is ultimately why Dell’s approach can be classified as a push-pull strategy. The company pushes several options to customers, options the company controls but ones that allow customers to choose a customized product. The customer’s choice then pulls demand for the computer manufacturer by dictating what parts, components and consumables are needed within its supply chain and assembly line. The customer makes a decision and that decision then determines what inventory is pulled through the supply chain.
The above video and Push-Pull layout is from the post: Emulating Dell: Outlining a Small Manufacturer’s Push-Pull Strategies
Running a push-pull strategy implies that a company must control the options offered to its customer base via its push strategy. Success depends upon a marketing platform that helps to define these options. Customers must come to understand that they can choose what amounts to a customized product, with a minimal turn time on delivery. When customers make a decision on the option they prefer, the pull portion is enacted and it then becomes an order fulfillment strategy.
Dell's strategy combines the simplicity of an order fulfillment approach with the complexity of a supply chain strategy that focuses on minimizing inventory counts. It reduces the company’s costs of capital and allows it to reduce its costs of financing. Your company could adopt this strategy if it controls the options customers choose, and if it has a vendor base that was willing to hold inventory for extended periods.
To read more, please refer to: What are the Costs of Holding Inventory in Dell’s Push Pull?
To read about an article where I was interviewed about Push-Pull strategies, please go to: The Institute for Supply Management, ISM, Calls Upon Drive-Your-Success
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