Case Study: Dell computer (1994)

In 1994, Dell Computer was a struggling second-tier PC maker. Like other PC makers, Dell ordered its components in advance and carried a large amount of component inventory. If its forecasts were wrong, Dell had major write-downs. 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 …

…demand on a daily, weekly and monthly basis. As it sharply reduced the variance, the need for inventories simply disappeared. In many companies, inventory substitutes for profitability management, tying up valuable capital and preventing the company from focusing on day-to-day business alignment. In most companies, managers face a choice between managing inventory and managing away the need for it. If you manage by profitability over inventory, you can have your cake, and eat it, too.