Inventory management refers to the methods and principles employed by the managers to maintain the optimum level of stock for the firm. In the contemporary business environment, which is characterized by stiff competition, firms are utilizing every opportunity to lower the operations costs. One way to achieve cost savings is by managing the inventory effectively (Muller, 2011). The inventory of the firm should be maintained at an optimal level so that it is neither too high nor too low.
Holding too much stock contributes to high warehouse costs not to mention that it may increase the risk of destruction or loss of the stock items (Blanchard, 2010). Insufficient stock, on the other hand, may lead to delays in production, which may lead to cost overruns. This paper compares the inventory management practices for Apple and Dell to determine the effectiveness of inventory management in lowering the operations costs. The paper shall also give recommendations for both companies based on the shortfalls identified.
The types of inventories managed
Apple and Dell’s inventory is composed of electronic raw materials in the form of the components used to make computers and mobile phones. Apple has emerged as one of the market leaders in the production and sale of Smartphones across the globe. Therefore, its inventory is also comprised of finished laptops and Smartphones such as iPad, MacBook, MacBook Pro, iPhone, Mac Mini, Smart Cover and MacBook Air in addition to the raw materials.
On the other hand, Dell specializes in the production of laptop computers hence its finished stock is laptops. As in the case of all the electronics, the inventory for both companies depreciate at high rates hence the need to maintain the holding time at the least time possible.
Design concept integration
Apple uses a build-to-stock design whereby the products are manufactured and placed on shelves awaiting prospective buyers. To achieve customer satisfaction, Apple applies service-based design concepts, which have been effective in improving the customer experience hence propelling the company ahead of the rivals. The key objective of the company is to maximize the customer experience through user orientation. Through intensive research on the customer needs, the company integrates visual designs and modern operating systems to its devices for simplicity and excellent user experience (Lu, 2016).
In contrast, Dell uses an assemble-to-order design whereby the goods are produced once a customer places an order. Customers are allowed to customize the product by giving the specifications they want in the device.
The role their inventory in performance, operational efficiency, and customer satisfaction
The contemporary business environment is characterized by stiff competition between firms as each organization seeks to outsmart the other and earn a considerable market share. Some of the factors that may lead to the acquisition of a competitive advantage include low prices, quality products, and good customer relations among others (Wang & Toktay, 2008). The use of the low pricing strategy to maximize the market share requires that companies utilize every opportunity present to lower the production costs. To achieve cost savings, companies are today targeting reducing the inventory costs. By holding an optimal stock, a firm is assured of achieving savings regarding the costs associated with holding more or little stock.
Apple’s competitive advantage is attributable in part to its effective management of the inventory. In the late 2000s, Apple introduced a lean strategy, which would see the company outsource the raw materials from third parties instead of producing them internally. The strategy was informed by the view that storing much stock in the company’s stores would lead to losses due to depreciation. It is estimated that the Apple’s inventory depreciates at about 1-2% per week hence the need to maintain the stock at the lowest levels possible. In that regard, Apple maintains only a small amount of stock at the central warehouse in the US while most of the stock items are dispatched to the retail stores for fast disposal to customers.
Just like Apple, Dell outsources most of its raw materials from the suppliers in the form of the laptop components and only assembles the final product. However, Dell is unique in that it does not hold any stock in its stores but requires suppliers to store the raw materials in warehouses owned by Dell (Ye, 2013). The company only gets the raw materials from the warehouses, located not far away from its headquarters, when a customer places an order.
This aspect ensures that the company does not incur any stock holding costs other than the transport costs. The avoidance of stock leads to reduced operations costs, which translate into lower prices for its goods. Additionally, it empowers the customers to customize the product by allowing them to give special specifications when placing an order.
Comparing and contrasting the different types of layouts
Blanchard (2010) argues that the layouts a company adopts may determine its success or failure in the market. Aware of the importance of layouts in gaining a sustainable competitive advantage, both Apple and Dell have special innovative layouts that explain their success in their respective lines of business. The four kinds of layouts for both Apple and Dell are the keyboard, excellent operating systems, screen sensors, and retina displays.
In comparison, the computer devices from both companies have similarities based on keyboard, operating systems, and screen sensors. The listed layouts are similar for both companies apparently because they both procure the raw materials from the same suppliers and they use similar technologies. However, Apple’s products have stronger retina displays compared to those of Dell, which explains why Apple outsmarts Dell in the industry.
The simplicity of the layouts best explains Apple’s relationship with the customers as it makes the products features simple and easy to use. Consequently, the company’s products have gained much acceptance amongst the customers in the recent past making the company the global leader in the Smartphone industry. According to Wang and Toktay (2008), the understandability of the company’s layouts amongst the customers is important and companies need to make them as simple as possible. Noticing the importance of layouts for the success of a company, Dell has integrated layouts into its assemble-to-order design in the recent past.
Two metrics to evaluate supply chain performance of the companies
Inventory Days of Supply
Reports that Apple turns over its entire stock once in every five days as opposed to its closest rival, Dell, which turns over its inventory once in every ten days (Campbell, 2012). The numerous stores that the company owns in different parts across the globe facilitate the short inventory days of supply for Apple. The high number of stores ensures that the company reaches more customers for its products. Dell’s high number of the inventory days of supply may be attributed to the small number of customers the company serves per day. The company only utilizes the Internet to reach the customers and has no retail stores. To reduce the days, the company needs to put up structural retail stores to achieve more sales.
Cash to Cash (C2C) Cycle Time
The cash-to-cash cycle metric measures the period between the time of paying for the raw materials and the time when the firm receives money for the products. Dell has a shorter C2C cycle since it only pays for the raw materials when a customer places an order and receives payment from the customer upon delivery of the finished product (Lu, 2016). Dell receives the raw materials within the same day it pays the suppliers, and it only takes five business days to deliver an order to the customer. On other hand, Apple has a longer C2C cycle compared to Dell owing to the longer period it holds the finished stock items before selling them.
Ways to improve the inventory management
Currently, Dell uses an order-based system of production and only secures the raw materials from the stores when a customer places an order. The strategy not only minimizes the cost of holding the stock but also lowers the overall operations costs leading to reduce prices for its products. The raw materials are obtained from the warehouses located a few miles from the headquarter branch and are obtained every two hours (Campbell, 2012).
The frequent procurement of raw materials in small quantities may increase the operations costs due to the high transportations charges involved. The company needs to assess the average daily raw material requirements based on the past experiences and procure and transport the items in full once in a day. This move will minimize the transport costs and the waiting time between ordering and delivery of the raw materials.
On its part, Apple needs to invest heavily in research and development to establish more markets for its goods. The increase in market share will ensure that the company disposes of its finished goods in the shortest time possible hence minimizing the costs related to holding the finished stock (Lu, 2016). The company should also embrace the concept of Internet stores against the backdrop of the high embracement of e-commerce across the globe. The Internet stores are cheaper than the structural warehouses, and thus, they may reduce the operations costs leading to reduced prices for its products. A reduction in price may lead to high turnover hence reducing the stock holding period for the finished goods.
This paper compares the inventory management practices for Apple Inc. and Dell. The inventory management methods for the two companies differ greatly regarding the stock levels and the procurement procedures. Dell maintains no stock in its stores and only takes in the components from the suppliers once a customer places an order. Apple, on the other hand, maintains only a small amount of stock at its headquarters store while the retail stores hold the rest of the stock items for fast disposal to customers.
The comparison of each company’s inventory management systems, however, reveal some few shortfalls such as high transportations cost for Dell and high stock holding time for Apple. To address the shortfalls in Dell, the transportation of the raw materials should be in large amounts based on estimates for the daily requirement. On the other side, Apple should open more online retail stores to facilitate the acquisition of more customers hence reduce the time the finished stock remain in the stores before their disposal to the customers.
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Muller, M. (2011). Essentials of inventory management. New York, NY: American Management Association.
Wang, T., & Toktay, B. L. (2008). Inventory management with advance demand information and flexible delivery. Management Science, 54(4), 716-732.
Ye, Z. (2013). Dell’s inventory management. Web.