Dell Computers: a Case Study in Low Inventory
Dell Computers: A Case Study in Low Inventory
When managers discuss low inventory amounts, Dell is really discussed. Heck, even We've mentioned Dell on this site. So why all the bataille? Has their low inventory REALLY helped away that much? In short, yes. Here is info primarily likely to discuss simply how much it helped. This article will not really discuss the way they achieved these kinds of high products on hand turns using a state of the art merely in time products on hand system.
Reasoning behind requirement for lower inventory
The first thing which needs to be discussed is why low products on hand has this sort of a great influence on Dell's efficiency. The reason is fairly simple: computers depreciate at a very high rate. Soaking in inventory, a computer loses a lot of value.
As Dell's CEO, Kevin Rollins, place it in an interview with Quickly Company:
" The much longer you keep this the more quickly it dips -- you are able to literally begin to see the stuff decay, " he admits that. " Because of their short merchandise lifecycles, computer components depreciate anywhere from a half into a full point a week. Trimming inventory is not merely a nice activity. It's a financial imperative. "
We will assume that the depreciation is actually a full stage per week (1%/week) and use that to ascertain how much money large inventory turns can save Dell.
Therefore for every 1 week a computer is located in Dell's warehouses, the pc loses 1% of their value. Ok, now that we know just how much Dell loses for each time, let's have a look at some of Dell's data in the last 10 years that I pulled via www.themanufacturer.com
What I got from this was your inventory turns. An inventory turn, as this website successfully identifies it, is usually " cost of goods sold from the income statement divided by value of products on hand from the balance sheet". Typically, this is changed into a value demonstrating how many days worth of inventory a strong has by simply dividing inventory turnover by 365. We divided the inventory proceeds by 52 in order to present how many weeks worth of...