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Because Apple uses a make-to-stock strategy, the Conversely, if the company has excessive raw materials
company must pay extremely close attention to both its or unused production capacity, it loses money.
retail sales and the amount of fi nished goods inventory it Although Dell’s customers are accustomed to
has in stock in order to estimate its demand as accurately waiting a few days for their computers to arrive, they
as possible. If Apple overestimates the demand for a par- probably will be upset if their deliveries are delayed for
ticular product, the company will be stuck with a large several weeks due to a shortage of raw materials or a
inventory of very expensive fi nished goods that custom- backlog of production orders. Alternatively, Dell’s prof-
ers don’t want to buy and that will decrease in value itability will suffer if its production lines are idle or its
while they sit on the shelf. Conversely, if it underesti- warehouses are fi lled with unused raw materials.
mates the demand for a product, customers who want to Both Apple and Dell have chosen a produc-
purchase the computer will be told it is out of stock. They tion strategy that maximizes their profi tability. Apple
will then have two options: place a back order and wait believes that by controlling the entire buying experi-
until the store gets resupplied with inventory, or shop ence through their Internet and physical stores, they
for the product at a different store. Either outcome will can attract more customers. This strategic objective
make consumers unhappy and could result in lost sales. drives Apple to place a much higher emphasis on hav-
In contrast, one of Apple’s major competitors— ing products available in the store when a customer
Dell—employs a make-to-order production strategy. Dell comes there to shop, which increases the likelihood
was the fi rst company in the industry to build computers that she or he will make a purchase. In addition, Apple
only after they had received a fi rm order and thus knew realizes signifi cant cost savings through large, planned
exactly what product the customer wanted. Because Dell production runs and close coordination with retail sales
does not have many retail outlets like Apple (although data generated by their online and physical stores. For
it has recently tested some retail partnerships), the com- all these reasons, the make-to-stock production proc-
pany relies primarily on telephone and Internet sales ess is probably the best strategy for both Apple and its
channels for the majority of their sales. In contrast to customers.
Apple customers, then, when Dell customers place an In the case of Dell, the make-to-order production
order, they anticipate that they will have to wait a few process fi ts well with the company’s rapid assembly and
days for the computer to be produced and delivered. standardized products. Dell’s customers are comfortable
After the customer places an order, Dell typi- ordering a computer that they have never seen because
cally assembles the computer from raw materials it they know that Dell uses high-quality, industry-standard
has on hand and then ships it directly to the customer. components. They also trust Dell to ship them a fi nished
Unlike Apple, then, Dell does not need to be very con- computer in just a few days, and they are willing to wait
cerned with estimating demand for its fi nished products for it to arrive rather than pick it up in a store.
because it knows exactly what customers want based In essence, the preferences and behaviors of each
on customer orders. However, Dell must be extremely company’s customers determine, to a great extent, the
careful in purchasing raw materials and managing its production process for each company. Apple’s cus-
production capacity. Because its production runs are tomers want to touch and experience the product in
very small—sometimes one computer at a time—it a retail store, whereas Dell’s customers are content to
must estimate its raw material needs and production buy something over the phone or the Internet. Each
scheduling based on an unknown customer demand. company has optimized its production process to match
If Dell mismanages its production planning process, it both its specifi c set of customer requirements and its
is especially susceptible to an oversupply or undersup- internal profi tability goals and cost structure.
ply of raw materials and shortages or idleness in pro-
duction capacity. If Dell does not have suffi cient raw Source: Adapted from Magal and Word Essentials of Business
materials or production capacity, customers will have Processes and Information Systems. John Wiley & Sons, Inc.
to wait much longer for their computers to be shipped. (2009).

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