Using the data from the Dell Computer annual report
determine how Dell calculated the four days' supply of raw materials. Do you think four days'supply is a valid representation of the amount of raw material Dell has on hand at the end of the year? Why or why not?
Net revenue (fiscal year 2005) $49,205
Cost of revenue (fiscal year 2005) $40,190
Production materials on hand (28 January 2005) $228
Work-in-process and finished goods on hand (28 January 2005) $231
Days of supply in inventory 4day
Solution
Days of supply calculation = ($228+$231/$40190)*365days = 4.17 days
Dell effectively utilizes just in time. They have revolutionized the selling of personal computers using a direct-business model whose fundamental tenets include taking orders directly from customers, thereby reducing inventory and streamlining distribution .After Dell has received a customer order, they then begin production of the product that the customer desires. A pull system is reactive whereby production is executed in response to a customer order. Customer receives the order in maximum 4 days and at a competitive price by following the supply chain operations. It is a powerful approach to production that emphasizes the minimization of the amount of all the resources (including time) used in the various activities of the enterprise.