Dell's CTO Supply Chain Strategy: Benefits, Implementation, Analysis

This case study provides an analysis of Dell's configure-to-order (CTO) supply chain strategy. It highlights the benefits of the CTO model, including scalability, lower distribution costs, and cycle time reduction. The study also discusses the implementation of supportive systems for configuration management, procurement, cost control, inventory management, and accounts payable. It further recommends the adoption of a 'build-to-order' (BTO) model alongside the CTO model to offer a wider range of options for customers. The case study emphasizes the importance of continuous optimization and innovation in supply chain management to meet evolving customer demands and maintain a competitive edge in the market.

Dell CTO Supply Chain Strategy1
Dell CTO Supply Chain Strategy
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Dell CTO Supply Chain Strategy2
DELL CTO SUPPLY CHAIN STRATEGY
Executive Summary
Dell is a 60billion-dollar company that employs a system of chain supply like any other PC
producing company in the world. Statistically, Dell is considered as one of the few companies to
ever introduce the configure-to-order supply chain model. The CTO model is whereby clients are
given millions of configurations. With such configurations, they are able to customize their
computers according to what they require. By operating in an approach to direct sales, the
company has built systems ready for order. In this manner, Dell has the ability to introduce new
technologies and products faster than its competitors. Also, with this new, unique model, the
company has been shaped in a way that it is able to estimate the needs of the clients, forecast
demand, and provide low-cost products. However, this model some sort of challenges. First and
foremost, shipment takes between 7 to 14 days since the PCs are manufactured after an order is
placed. Also, because the market trends keep on changing, the PC business has experienced a
loss of shares time to time. As a way of curbing such situations, Dell has changed its principles
thereby, devising a new strategy (the end user computing) to ensure its growth. The plan deals
with simplifying the operations of Dell and also obtaining new market shares. Such would,
however, be achieved through the acquisition of new prospective customers, scaling alternative
solutions to computing, and employing solutions to computing that are end-user in nature.

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Table of Content
Contents
Executive Summary.....................................................................................................................................2
Introduction.................................................................................................................................................4
Benefits Associated with using the CTO Model..........................................................................................5
Implementation of Supportive Systems.......................................................................................................7
1. Management of Configuration.........................................................................................................7
2. Procurement.....................................................................................................................................8
3. Cost.................................................................................................................................................8
4. Inventory.........................................................................................................................................8
5. Payable Accounts............................................................................................................................8
Conclusion.................................................................................................................................................10
Recommendation.......................................................................................................................................10

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Introduction
Apart from the configure-to-order supply chain model, Dell uses a continuous-optimization
framework to ensure that its supply chain potential is fully enabled. However, the framework is
based on four operational steps. In the olden days, Dell was the poster child for the efficiency of
the supply chain through the use of its "direct model." With time, the model was changed to
make-to-stock after which the ultimate model became “make-to-order”. Such a transition was
vital because Dell was able to minimize its cycle times to unthinkable levels within the high-tech
industry. Through the use of such models, the company was able to carry inventory in a few days
instead of several weeks like other PC producing companies (Bala, 2017). As a result, other
companies that were quick to notice Dell's success shifted their supply chains to that of Dell.
However, such companies failed to realize that such best practices in chain supply are not stone-
etched and that such innovative spirit needed to be used several times to ensure that a company
stays relevant to its ever-changing customer demands. Therefore, most of such companies
dropped the use of the direct model. Regarding Dell, the same model worked appropriately when
the company needed a larger more mature base of customers. However, since time and
technology has changed the emerging markets require new business dynamics and innovation to
meet the need of customers. Such explains why Dell focuses on shifting innovation within its
supply chain from time to time. It is the performance of the supply chain that is the competitive
differentiator in the current market (Barbu, 2011, pg. 107).
The supply chain and logistics of Dell alone cost about $2 billion every year. The same serves
about 13 million customers. With the idea of expanding its global reach, the company intends to

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enable its potential through its continuous-optimization framework. The steps, as mentioned
before, include:
a) Assessing the business operations
b) Redesigning the supply chain to meet the dynamic customer requirements
c) Enabling capability.
d) Stabilizing every situation to ensure that the supply chain framework works and always
working.
The structure that is deployed is also used to identify the potential of the full logistics network
within every market (OpenInnovation, 2003, pg. 2). The work of the supply chain team is to look
into the current costs within areas that are relevant to the company. Such areas include country,
region, service level, product, lanes, and transportation mode. Cost drivers are then identified on
the basis of actual shipments. With all that information, Dell can evaluate its full potential cost
(associated with being in the new market) and future opportunities. The main reason behind its
success on the same is because as a company, it focuses on competing by focusing on its supply
chain strengths alongside areas that it operates differently to other companies (Ke and Wei, 2006,
pg. 11).
Benefits Associated with using the CTO Model
The supply chain of any given company needs to ensure that it offers solutions tailored to meet
specific customer needs. There is no such supply chain as one-size-fits-all; meaning that so are
the software and hardware solutions (Institute, 2017). Due to such issues, Dell recognized that
with the advent of configure-to-order model, it stands a chance of helping clients minimize costs
of inventory as well as reduce delivery time in the market. In the same lane, there are a number

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of services associated with the CTO model for the purpose of creating the optimal solution for
Dell. The aspects of a solution that is customized include:
a) Ordering processing, scheduling, and fulfillment of configurations that are client-specific
b) Mastering items and parts and also maintaining the Bill-of-Material
c) The configuration of software devices and Imaging download
d) Device testing and Burn-In
e) Labeling and Asset Tagging
f) Reporting and transactional visibility production
g) Reporting of order history
Some of the associated benefits of CTO model are:
1. Scalability: Through the CTO model, the supply chain of a given company is provided
with a scalable solution which is implementable across business groups and geographies.
2. Lower costs of distribution: The CTO model helps in lowering the distribution costs for
companies. Such is done through system integrators and OEM authorizations (Barbu,
2011, pg. 107).
3. Cycle time reduction: Time is money in the supply chain. Therefore, the creation of a
configure that is customized would ensure that companies experience a time cycle to
revenue as well as an order to cash that is reduced. In this manner, the generation of
revenue is accelerated.
4. Budget: The model also ensures that companies do not go about paying for things that
they don’t require. In this case, an operating expense that is variable-based is created.

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5. Benefits to clients: Through the use of a CTO model, companies are able to access a
global mar
ket via a repetitive service solution provided to the customers. Therefore, the
customers have a greater order visibility (Barbu, 2011, pg. 107).
Implementation of Supportive Systems
Dell has a supply chain management system for the purpose of handling vital business functions.
Such functions are, however, associated with supporting manufacturing operations including
computer delivery and inventory management. However, before putting into operation, such a
system must be designed in a way that it ensures cost-effective scalability and reliability. If any
sort of failure occurs, millions of dollars per minute factory downtime is experienced. As Dell
grew in size and might, its servers that lacked the capacity to handle larger operations were
replaced with servers that were larger and more powerful (Institute, 2017). The updated servers
were redundant and thus updating them didn’t require the shutdown of the entire system. Since
the performance of PowerEdge servers has increased associated models are cost-effective and
highly scalable. The implemented servers are made operational in almost every location in the
world. In every location, they use similar processes to determine issues regarding backup,
disaster recovery, and monitoring of every operation of Dell (Open Innovation, 2003). However,
such advantages are as a result of the fact that the IT section of the company uses models that are
readily supported and cost-effective. In relation to the company’s supply chain, Dell handles
huge amounts of transactions as well as pieces of information. Such operations also include
numerous key components that are vital in ensuring that such operations run smoothly (Barbu,
2011, pg. 107). The key components are:

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1. Management of Configuration
The components that are used to manage configurations are more than one million in number.
However, they are spread to over 200 families of products as well as over 2.5 million bills of
materials (BOMs) every year. The component listing for BOMs is created for the purpose of
building subassemblies or assemblies for parts produced by Dell.
2. Procurement
The component associated with procurement manages close to 2 million purchase order in a
given year from close to 10,000 suppliers globally. In order to ensure that the processes of
procurement are streamlined, an automated application is used by the company for the purpose
of vendor communication and workflow approvals. Such also ensure that services like defective
part replacement are enabled.
3. Cost
This component operates smoothly while in batch mode. It is used to calculate the total costs for
BOMs. The batch processes run weekly, monthly, or quarterly with every job aggregating
material costs.
4. Inventory
This component is used to manage an average of about 5 million inventory movements in a
single day. Such processes are managed from stock rooms to floors in every Dell site. Other
functions include the management of about 3 million messages that are transmitted from one
system to another as well as analysis, reporting, and factory scheduling (Billtrust, 2017).
5. Payable Accounts

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This component is charged with handling close to 15,000 items every day. Such operations
include but not restricted to handling invoices and receipts as well as payments to Dell suppliers.
The information regarding vendors includes location, ID number, contact information, and
negotiated terms.
Apart from such transactions that are order-related, the supply chain system runs other batch
processes. These processes ensure that data is made aggregate in weekly, monthly, or quarterly

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basis. The chain management system is supported by the PowerEdge servers. The servers,
however, work under the influence of five Web-based applications that are internally developed.
Conclusion
This paper is charged with describing the significance of the CTO model alongside other supply
chain issues that Dell face. According to outcomes from other research sources, Dell employs a
system of chain supply like any other PC producing company in the world. By simple definition,
the CTO model is whereby clients are given millions of configurations (Palmer, 2017). With
such configurations, they are able to customize their computers according to what they require.
Through the CTO model as well as operating in an approach to direct sales, Dell has built
systems ready for order worldwide (Oracle, 2017). However, an approach (that is newer) known
as the “build-to-order model” (BTO) has been recommended to be used alongside the CTO
model. With the two models, Dell hopes that it will offer a wider spectrum of options for
customers to choose products from. In addition, since this model is new and unique, the company
stands a chance of being able to estimate the needs of the clients, forecast demand, and provide
low-cost products (Oracle, 2017).
Recommendation
Alongside the CTO model, Dell also needs to introduce the ‘Smart Selection’ program. Through
this program, the company will initiate the pre-building of configurations of popular PC required
by customers and then have them supplied within 24 hours. This model is known as the new
“build-to-order model” (BTO) (MAYER, 2017, pg. 2). The same will be used as a complement
to the existing CTO model. With the two models, Dell hopes that it will offer a wider spectrum
of options for customers to choose products from. Statistics show that the introduction of the

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BTO model changes the landscape of Dell’s supply chain. Such is because the company will start
thinking about increasing the capacity of its warehouse warehouses, unlike the CTO model
which only required the company to keep a small inventory space. Contrary to that, Dell is
associated with a long history of dealing directly with about 2 billion customers in terms of sales.
In this way, the company possesses abundant customer intelligence thus, giving it a competing
advantage over rival companies. Such close relationships with customers via sales help the
company to meet customer demands as well as maintain low inventory (Billtrust, 2017). Besides,
the production of limited configurations helps the company determine the gadgets within every
system. As a result, troubleshooting and maintenance of the manufactured equipment are easy.
Through the use of CTO and BTO, Dell stands a chance of customizing its operations in more
countries. Such will ensure that cost is lowered and revenue was driven. Such reductions in cost
are predicted to come from support and supply chain. In addition to the two strategies, the
company also intends to develop specific educational models. In line with the same, the
company’s Wyse business (the client-cloud computing business) is associated with a growth
trajectory with revenues reaching about $ 1 billion. According to the management of Dell, such
acts as a real future dollar play in which the company needs to work round the clock to drive its
long-term growth (Billtrust, 2017).

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Source: ‘Brand positioning in Asia & North America; Journal of Marketing (1999)
However, since Dell intends to incorporate both CTO and BTO models into its supply chain,
there is a chance that it will deal with a resultant complex mechanism. Apart from just coming up
with a new strategy, the current CTO model provides a platform through which Dell can excel.
However, to ensure that the company recoups all its investments (that is made from the use of
End User Computing strategy for growth) as well as convert its market losses to profits, every
department must show excellence in the generation of revenue and profit margins improvement.
For the growth strategy, introducing the two models to work side-by-side would be important.
However, it is unsure if the two models are complementary to one other and are able to provide
the required economies of scale (Alden, Steenkamp, and Batra, 1999, pg. 75).