The direct model refers to the fact that Dell does not use the retails channel, but sells its PCs directly to customers through its website, this way the intermediary steps that may add time and cost are eliminated, and Dell is directly linked to its customers. The direct approach allows Dell to build a relationship, which makes it quick and easy for customers to do business with Dell.

Supplier

DELL

Final Customer

Dell’s direct distribution channel

The build-to-order model enables Dell to keep inventory down very low compared to competitors like Compaq and IBM. Dell has a low inventory of five to ten days, while Compaq and IBM have inventory of four weeks or more. Dell works on the strategy of single supplier. In some cases, alternative sources of supply are not available. Even if the multiple suppliers are available, Dell prefer to work with the single supplier, if the company believes it is advantageous to do so when considering performance, quality, support, delivery, capacity and price (Annual Report, 1996).

If the supply of a critical single-sourced material or component were delayed or curtailed, Dell’s ability to ship the related product in desired quantities and in a timely manner could be adversely affected. Even where alternative sources of supply are available, qualification of the alternative suppliers and establishment of reliable supplies could result in delays and a possible loss of sales, which could affect operating results adversely (Annual Report, 1996).

An Event:-

On 21 September 1999, an earthquake of magnitude 7.6 struck Chichi, Taiwan. It had devastating consequences. Baum (1999) reports that after the disaster more than 2,200 people lost their lives, more than 50,000 buildings were destroyed and total industrial production losses were estimated as $1.2 billion. This area features high production concentration of many other computer components, e.g. motherboards (more than two-thirds of world consumption in 1999) and notebook displays. Local producers of computer memory, TSMC and UMC being the leading Taiwanese suppliers, lost significant quantities of work in progress at the time of the earthquake. Sherin and Bartoletti (1999) report that production lines could not restart at the first couple of days after the event as sensitive critical-path equipment had been damaged.

The world markets of memory chips reacted very fast to this news, as supply was constrained at the last part of 1999. The spot price of memory chips went up fivefold. computer memory increases were not passed on to consumers as higher product prices, but they were absorbed by the company and were passed on to investors in the form of less stock repurchases. Dell Computer Co. (2000a) announced that during the fourth quarter of 1999 it lost $300 million in revenue due to the Earthquake.

Literature Review

The global presence of DELL with sales offices in 43 countries, sales presence in 170 countries, 6 global manufacturing sites in Brazil, Tennessee, Texas, China, Ireland and Malaysia clearly defines its leading position in the computer systems market. The annual revenue for Dell Inc was $ 61.8 Billion (FY 2008- 2009). By cutting .the middle man and building PCs, enterprise products like servers, storages, solutions to order, Dell has revolutionized an industry once inundated with unsold inventory and products that quickly became obsolescent. Dell’s integrated supply chain has allowed it to gain market share while remaining profitable.

Dell’s business strategy includes direct route to market, Supplier relationship and E- Commerce.

Dell Direct Model

Supplier Relationship (Just In Time Strategy)

E- Commerce

Direct Model: Dell’s business model is the envy of many competitors. Most other competitors are in the process of developing a direct market strategy but the transition from existing sales channel is not simple. Dell continues to gain market share by using its knowledge about its customers. First of all, this model helps them to eliminate the need of supporting a widespread network of wholesalers and retail dealers, benefiting them in several aspects. It allows them to avert dealer mark ups. They need not have to invest high on inventory costs associated with the retail or wholesale channel and to face the competition for retail shelf space. It also nullifies the risk of obsolescence associated with every product in a rapidly changing technological market.

Supplier Relationships: Dell’s integrated supply chain allows it to keep only four days of inventory. Component price in computer industry falls almost 6% a week. The company can provide the component price decline to its customers quickly. In addition, Dell shares demand information with suppliers, so ensuring that inventory is kept to minimum. Dell also enhances cash flow by effectively paying suppliers after customers have settled invoices. Relationship of Dell with its supplier proved out to be a key for their success. Eventually, they developed a way to trace most suppliers to keep components warehoused within a time limit of minutes from Dell’s factories at various places like Austin, Penang, Malaysia, and Ireland. This brought up a remarkable different picture of the suppliers, reducing their number from 204 in 1992 to 47 currently, all of whom are ready to support the warehousing plan. These suppliers apart from supplying to Dell, run their own inventory as well and supply to Dell on demand. One of the greatest advantage for Dell in this type of services is they don’t get billed until the component leave the supplier’s warehouse. This is an excellent step taken by Dell to overcome the problem of rapidly falling prices. They don’t order the component unless an order is placed by the customer, saving them a lot of money.

E-Commerce: Dell has developed a process whereby they can assess the lowest possible price within an hour. Dell’s e-commerce infrastructure allows dynamic pricing strategy, whereby the same product and service can be sold at different prices, depending on the buyer. The result of their innovative transformation profited them with $30million internet sales, which accounts for about 30%of their overall revenue. This proves internet as the most genuine and efficient form for Dell’s direct model, making it more convenient and efficient for Dell and their customers.

Theoretical Model :-

Supply Chain Disruption, both potential and actual are the enemies of all firm. Supply Chain disruption can be defined as “ Unplanned and Unanticipated event that has disrupted the normal flow of goods and material within a supply chain. Risk Prevails in three categories i.e Internal risk , External Risk and Network related risk( Juttner et al. 2002). Risk can be catogorised in variables. Variables suggested by Ritchie and Marshall ( 1993) include environment, industry, organisation , problem specific, decision maker related variables.

Supply Chain Disruption:- Anything that affects the flow and supply of raw material, sub component, finished good from all the way from origin to the final demand point.

Mapping probability and consequences (from Sheffi and Rice 2005)

On the basis of the severity of impacts and their likelihood or probability of occurrence, the major established attributes of disruption can be classified as follows:

The most vital attribute of disruption is the inherent cause of disruption. For example, Murphy(2006) categorized disruptions into “natural events”, “external – man made events”, and “internal– man made events.” Blizzards, labour strikes, and product recalls would be examples of each category respectively (Murphy 2006).

Another vital attribute is on how many spheres or disciplines of the supply chain have been affected by a given disruption at one time.

The third vital attribute is whether or not the disruption is associated an environmental change. Disruptions that cause an environmental change usually impact some form of the infrastructure for either a long time period or permanently.

The fourth and the final attribute of disruption is the duration of the disruption itself.

The framework tests the supply chain risks based on the above mentioned attributes and classifies them as deviation disruption or disaster, based on the severity of the disruption over the supply chain and the probability of occurrence as a parameter for risk calculation, assessment, prevention or mitigation.

In order to see the different aspect of risk management in a supply chain, a frame work prepared by Manuj and Mentzer( 2008) has been reviewed.The schematic diagram of the framework is shown below.

Global SCRM and mitigation framework from Manuj and Mentzer (2008a)

The framework is created in view with firms having