| Inventory Management in | NCTEBut even by 1994, Dell was a struggl Michael Dell founded Dell in 1984, when he was only 19 years old. Like other PC makers, Dell ordered its components in advance and carried a large amount of component inventory. ee __ Then Dell began to implement a new business model. Its operations had always featured a build-to-order process with direct sales to customers, but Dell took a series of ingenious steps to eliminate its inventories.The results were spectacular. Over a four-year period, Dell's revenues grew from $2 billion to $16 billion Earnings per share increased by 62 percent per year. Dell's stock price increased by over 17,000 percent in a little over eight years. In 1998, Dell's return on invested capital was 217 percent, and the company had $1.8 billion in cash. In fact, since its initial public offering in1988, Dell has seen its stock split seven times and increase by 40,000%!Elimination of Middlemen. Customized Sales. Negative Cash Conversion Cycle. —EEE Just-in-time-inventories. e-Commerce.Inventory management in the computer industry PC components depreciate very fast. If forecasts are wrong, losses have to be suffered by the company. Allowing the customer to customize has always been the focus of Dell. Hence, Dell has to manage individual computer components in its inventory rather than complete finished laptops or PC’s.How can Dell manage to keep its inventories low? Since 1994 Dell adopted a policy of just-in-time-inventories. The following are the most important factors that allow Dell to do so; Creation of a knowledge database Demand Forecasting Demand Management Supplier Management Liquidity ManagementCreation of a Database Dell was one of the first and most eager converts to the Internet. The first company web-site was launched in 1994, when the companies revenue was $3.5 Bn By 1998, internet sales accounted for half of Dell’s revenue, which by then had surged to $20 Bn For each interaction with its customers, Dell recorded the purchasing behavior/ demand patterns/ satisfaction levels. Dell also collects information about the performance of its products.Ty _ Demand Forecasting With a bit of data mining Dell is able to predict; | (Hence the demand in the various market segments can be forecasted. (Dell's demand forecasting is around 70-80% accurate. | (The remaining gap is filled by Demand Management |“Sell what you have” Dell concentrates on managing lead times so that; Dells prices vary every week depending on its inventory levels.Supplier Management The company worked closely with its suppliers to introduce more flexibility into its system. Dell concentrated its supplier base into 50 to 100 suppliers accounting for 80 percent of its purchases. Supplier selection was based only 30 percent on cost, with the other 70 percent on quality, service, and flexibility.Liquidity Management Dell works on the Negative Cash Conversion Cycle. It receives payments from customers before it pays the suppliers for components. Direct sales are explicitly targeted at high-end customers who paid with a credit card. These sales have a four-day cash conversion cycle. Dell takes forty-five days to pay its vendors. This generated a huge amount of liquidity that helped finance Dell's rapid growth.Concluding Real-time matching of demand and supply has helped Dell sustain an zero inventory model over the past 14 years. This has been one of the major reasons for the rapid growth that the company has seen. It can be said that Dell ‘Manages Profits; not Inventories’