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To understand Dell's situation, you have to go back to the start. After being founded in Michael Dell's dorm room at the University of Texas at Austin in 1984, the company mastered the science of supply-chain efficiency. It was a model that made Dell the top-performing stock in the S&P 500 during the 1990s. Because it curtailed its retail store business early on and sold directly to consumers and businesses, Dell could build computers "just in time," which meant that it didn't have to assemble a machine and then let it sit in a warehouse or a retail location until someone bought it. Instead, it generally put together PCs only after customers had already ordered them. That meant Dell could order certain parts for its computers just days before they were needed—and often not pay for them until after the assembled computers were shipped off to customers

derstand Dell's situation, you have to go back to the start. After being founded in Michael Dell's dorm room at the University of Texas at Austin in 1984, the company mastered the science of supply-chain efficiency. It was a model that made Dell the top-performing stock in the S&P 500 during the 1990s. Because it curtailed its retail store business early on and sold directly to consumers and businesses, Dell could build computers "just in time," which meant that it didn't have to assemble a machine and then let it sit in a warehouse or a retail location until someone bought it. Instead, it generally put together PCs only after customers had already ordered them. That meant Dell could order certain parts for its computers just days before they were needed—and often not pay for them until after the assembled computers were shipped off to customers. But in the past few years, Dell has tried to expand its market by selling in stores. That has forced Dell to deal with several new challenges, among them that big chains such as Best Buy and Wal-Mart stock their shelves with a fixed lineup of PCs rather than customizing machines for each buyer. "We've had to change the entire supply chain to build fixed configurations," the company's chief financial officer, Brian Gladden, recently told Technology Review. And retailers order these machines months in advance, not days or weeks. google_protectAndRun("ads_core.google_render_ad", google_handleError, google_render_ad); As a result, Dell must try to figure out over the summer what to charge for PCs that will actually be made and sold during the holiday season. If the price of a major component such as memory chips jumps between July and December, Dell's profits can get squeezed. That's what happened in 2009. Even a plunge in prices can be damaging, because the company hedges many of its component purchases to lock in prices within a certain range. If prices fall way below the expected level, it has overspent for the parts. E-mail Print Favorite Share 12 Related Articles Bringing Down the High Costs of Business Forecasting Cloud-based services now provide a way for companies to plan ahead without relying on cumbersome spreadsheets. But what's a boon for smaller companies is disrupting the market for higher-end solutions. Dating Sites Try Adaptive Matchmaking New software is inspired by algorithms that target online ads or recommend books and movies. The Brainy Learning Algorithms of Numenta How the inventor of the PalmPilot studied the workings of the human brain to help companies turn a deluge of data into business intelligence. Tags business business impact Dell Predictive Modeling To comment, please sign in or register Username Password Forgot my password Adverti

niversity of Texas at Austin in 1984, the company mastered the science of supply-chain efficiency. It was a model that made Dell the top-performing stock in the S&P 500 during the 1990s. Because it curtailed its retail store business early on and sold directly to consumers and businesses, Dell could build computers "just in time," which meant that it didn't have to assemble a machine and then let it sit in a warehouse or a retail location until someone bought it. Instead, it generally put together PCs only after customers had already ordered them. That meant Dell could order certain parts for its computers just days before they were needed—and often not pay for them until after the assembled computers were shipped off to customers. But in the past few years, Dell has tried to expand its market by selling in stores. That has forced Dell to deal with several new challenges, among them that big chains such as Best Buy and Wal-Mart stock their shelves with a fixed lineup of PCs rather than customizing machines for each buyer. "We've had to change the entire supply chain to build fixed configurations," the company's chief financial officer, Brian Gladden, recently told Technology Review. And retailers order these machines months in advance, not days or weeks. google_protectAndRun("ads_core.google_render_ad", google_handleError, google_render_ad); As a result, Dell must try to figure out over the summer what to charge for PCs that will actually be made and sold during the holiday season. If the price of a major component such as memory chips jumps between July and December, Dell's profits can get squeezed. That's what happened in 2009. Even a plunge in prices can be damaging, because the company hedges many of its component purchases to lock in prices within a certain range. If prices fall way below the expected level, it has overspent for the parts. E-mail Print Favorite Share 12 Related Articles Bringing Down the High Costs of Business Forecasting Cloud-based services now provide a way for companies to plan ahead without relying on cumbersome spreadsheets. But what's a boon for smaller companies is disrupting the market for higher-end solutions. Dating Sites Try Adaptive Matchmaking New software is inspired by algorithms that target online ads or recommend books and movies. The Brainy Learning Algorithms of Numenta How the inventor of the PalmPilot studied the workings of the human brain to help companies turn a deluge of data into business intelligence. Tags business business impact Dell Predictive Modeling To comment, please sign in or register Username Password Forgot my password

A recent KPMG International survey, “Global Manufacturing Outlook – Relationships, Risk and Reach” of 200 senior-level executives from North America, Western Europe and Asia-Pacific on supply chains dynamics as a result of prevailing economic uncertainty, shows that 66% feel cost is the leading consideration of their supply chain models, but 63% agreed that more attention should be paid to non-financial elements of the supply chain and 38% said that an acute focus on cost has harmed relationships with suppliers.

While the market has grown exponentially, and a 30% increased expenditure last year is eye-opening, the nature of these engagements doesn't give us confidence that this market will sustain its growth trajectory unless customers think beyond short-term labor arbitrage, and service providers introduce significant process and technology enhancements to the early adopters to help them optimize their delivery.  This "lift and shift" model could well result in customers losing more than they save.