According to their website Dell is an American company selling information technology products such as Desktops, Servers, Notebooks, Netbooks, Televisions, Scanners and others. It is one of the biggest companies in the U.S. and they are "the preferred desktop and laptop provider of enterprises in the US". Moreover, they have been the "No. 1 PC supplier to small and medium businesses in the United States for 10 years in a row".
I have often heart about their just-in-time manufacturing process but I have never learnt about it. I would finally like to take the chance to have a look at Just-in-Time Inventory Control and how Dell manages to build its computers just in time.
I will start with an introduction to Just-in-Time:
Sometimes it is a good idea to have a look at Wikipedia (http://en.wikipedia.org/wiki/Just-in-time_%28business%29)
They say that Just-in-Time is an
inventory strategy that strives to improve a business's return on investment by reducing in-process inventory and associated carrying costs.
An "inventory strategy" is a way of viewing inventory and how it relates to management.
For JIT "inventory is waste" and its aim is to "reduce inventory in a firm". 12Manage gives a pretty good definition on JIT http://www.12manage.com/methods_jit.html :
Just-in-time was pioneered by Taiichi Ohno in Japan at the Toyota car assembly plants in the early 1970s. It is a manufacturing organization philosophy. JIT decreases waste by supplying parts only when the assembly process requires them. At the heart of JIT lies the kanban, the Japanese word for card. This kanban card is sent to the warehouse to request a standard quantity of parts as and when they have been used up in the assembly/manufacturing process. JIT requires precision, as the right parts must arrive "just-in-time" at the right position (work station at the assembly line).
For a more scientific explanation about the pro and cons I have read the section 8.10. in the German book "Logistik" by "Timm Gudehus".
The book is partially available in google docs
Or can be bought at amazon
I have translated the major pro and cons from the book in the following figure:
The book also says on page 264, that using JIT can only be successful and economical if
- the degree of adherence to schedules of all involved parties is high
- the degree of reliability and system stability is high
- bundling of orders does not allow cost savings
Now, lets talk about Dell:
In another blog I have read about Dell and their JIT model: http://www.inventorymanagementreview.org/justintime/
In there it says:
Dell [...] has become famous for its JIT model which involves not even being in possession of the raw materials needed to fulfill an order until that order is placed and yet they are still capable of filling orders in a short period of time.
For Dell a low inventory is very important because
Computers deteriorate at a very high rate --> If a computer is in inventory it loses a value
In an interview with FAST COMPANY Kevin Rollins, who is Dell’s CEO, says it like this
The longer you keep it the faster it deteriorates -- you can literally see the stuff rot," he says. "Because of their short product lifecycles, computer components depreciate anywhere from a half to a full point a week. Cutting inventory is not just a nice thing to do. It's a financial imperative.
How Dell manages its building of computers in the video:
(Unfortunately it cannot be uploaded, I will try again later)
At 1:37 the actual process starts and at 2:46 it is explained that in Dell there are no warehouses.
Starting in 2001, Dell has continued to lower inventory and by checking out their newest annual reports, day's inventory went down just about a day.