Dell Computer Corporation SYNOPSIS In this report an examination will be made of the production and logistics system of Dell Computer Corporation. Emphasis will be placed on the following: ? The important aspects of Dell’s product/ service ? How effective is the firms resource planning procedures? ? Dells internal and external logistics process ? The key difficulties – potential points of failure in the Dell’s logistics process ? How technologies are being used or can be used to make the logistics function more efficient/effective? What is Dell Computers all about? Michael Dell founded Dell Computer Corporation in 1984 having only $1000 start-up capital. To date, his business has grown to become the second largest computer systems producer in the world, with average daily sales of more than $5 million. The ‘hub’ of Dells production system is based in the U.S (Round rock, Texas), while other factories are located in Nashville, Tennessee, Limerick, (Ireland), Penang, Malaysia, Xiamen, China and Eldorado do Sul, Brazil. Dell has offices in thirty-four countries around the world and sells its products and services in more than one hundred and seventy countries. The table below provides a break down of Dells global market growth and position. Monetary values are quoted in US$ in millions. Continent Market Position Net Revenue as at January 28/2000 Annual Growth Rate Dell Americas Dell Europe/Middle East/Africa Dell Asia Pacific and Japan 1 2 7 17879 5590 1796 48% 24% 52% According to Dells forecast it is estimated that total revenue will amount to US$33 billion this year, where US$20 billion will be as a result of online transactions.
(1) In the Appendix of this report, a consolidated statement of income on Dells financial position for the year ending 28/1/00 is presented. The important aspects of Dells Product and Service Dells core competency lies in customising its product – computer hardware and software to the specific needs of the consumer. The organisation has been able to gain a cost advantage by creating a standardised product as well as achieving the market advantage of variety and uniqueness. The modular design of Dells products has made that possible. Dells use of modular design involves using a standardised building block/chassis to which; value is added by building each product to the customer’s specifications, the outcome being a unique finished product.
Modular design also gives Dell the increased flexibility in its procurement function. The diagram below highlights this flexibility: Dell Computers Corp Suppliers (figure 1.1) Suppliers Figure 1.1 provides a simplistic example of Dells supply chain. The numbered squares each represent a component supplier. Hypothetically speaking lets us assume that supplier number 5 provides Dell with circuit boards. Management has discovered that it would be more efficient ordering that component from a regional supplier, therefore decides to cut supplier 5 out of the supply chain and switches to supplier number 6. The modular design of the product makes that possible as well as the fact that the bulk of the components are not being ordered from a single supplier.
Dells product range includes the following: Based on the information above it can be said that, Dell is one of the most ideal models of a market-orientated organisation. By having a direct relationship with its customers the organisation has been able to gain an understanding of their individual needs and therefore, strategically segmenting the market as follows: ? Home and Home office ? Small business Center (businesses under 400 employees) ? Medium and large business (businesses with over 400 employees) ? Internet Service Providers (Internet service providers, application service providers and web hosting companies) ? Health Care business ? Government agencies ? Education facilities Dell has characterised its relationship with the market segments above under one broad heading that is The Dell Direct Model. The Dell Direct Model This model involves several factors namely: ? Build to order manufacturing ? Low cost high speed distribution and procurement system ? Direct relationship with customers These three factors are essentially the backbone of Dells operations and the means through which the organisation is able to differentiate itself from competitors, therefore sustaining a significant competitive advantage. Dell is the entire distribution channel from the procurement to the delivery of the finished product/service to the consumer. By eliminating the middleman in the supply chain Dell is able to exert greater control over cost and quality in the product and the efficiency of the lead-time. The organisation realises that each of its market segments has different characteristics – different support costs, margins, levels of investment and capital growth.
Dells Direct model has brought about the following advantages: ? Tailored support needs and services for each market segment, there by avoiding the cost associated with the traditional distribution channel. There is no wholesaler or retailer support cost to bear, only customer support costs. ? As a result of not using a traditional distribution channel of manufacturer – wholesaler – retailer, Dell does not have to contend for shelf space for its products. ? Building to order means that the organisation operates on just eight days of inventory, if at all any. This is significantly advantageous in a dynamic technology industry.
By having a limited stock of goods Dell reduces the risk and cost of associated with products becoming obsolete. Thereby, providing customers with the most up to date technology. The Dell Direct model does not only involve a direct relationship with customers but also includes suppliers. Through the use of the World Wide Web, Dell has been able to integrate both customers and suppliers into its manufacturing and logistics function. Dell manufacturing and Logistics process Dell is the quintessential model of Just in Time management. Supplies and components are ‘pulled’ through the organisation to arrive where they are needed and when they are needed.
As highlighted earlier Dell operates on just eight days of inventory, alternatively components are pulled through the production system through use of the ‘Kanban’ system. Suppliers or workstations only deliver components when they receive a card (for example an e-mail) or an empty tote informing them those parts are/will is needed for production. Dell has been able to use an ‘integrated Kanban’ process to significant advantage, this process is divided into two areas, which are the transport Kanban and the production Kanban. The distinction between the two is the transport Kanban works on a daily schedule where components are produce by suppliers depending on the specific order for that day. As a result of building to order it is difficult for Dell to determine or forecast the particular components which would be needed, which justifies the use of the Kanban process.
On the other hand the production Kanban outlines when work has to be completed by a particular cell or workstation. Therefore based on that time-scale suppliers are able to determine at which point in the assembly line their particular component would be needed. The integrated Kanban process is based on fixed production schedules and can therefore only be successful with an efficient and effective logistics process. This process is also dependent on mutual trust between Dell and suppliers. To foster this trust and harmonise its relationship with suppliers Dell is making use of E-Commerce technology. This will be discussed in a later section under the heading (Dells use of Technology to make its logistics function more efficient and effective). At this point an analysis of Dell’s external logistics.
The diagrams on the following page is a representation of a blueprint of Dells external logistics process: The pictures labelled A, B, C, D, each represent a Dell customer. The diagram at the center of the page represents Dell’s Austin, Texas Factory, where numbers diagrams 1, 2, 3, 4, 5, 6 are suppliers. When Dell receives an order from a customer, it is broken down into a list of the parts needed to build the computer. After this list has been compiled this information is fed to pertinent suppliers in the form of an electronic message. Those suppliers in turn would have an idea of what components would be needed from them, to facilitate timely delivery they expected to be located at least fifteen minutes away from Dell’s factory.
Communication with in the supply chain would be done via an extranet, where suppliers are also made aware of the production time-scale. Based on these time-scales which have been set suppliers can therefore determine how to best organise their production process to meet the specifications for components. These components are fed into Dell from each specialist supplier; some arriving as and when needed in the production process. Dell found that the lead-time could be further reduced by having some of the components or peripherals sent directly to the customer rather than to the factory and then to the customer. For example, when a computer is ready to be shipped, an e-mail is sent to a supplier who pulls from stock the specified video display unit/s and sends them/it to arrive with the PC.
During this entire process a Dell customer is able to go online and receive some feedback on the status of their order as highlighted in the Appendix of this report. Below, an insight is given into the internal processes involve in getting the finished product to the customer. At this point a Dell sales representative confirms the order, that is the configuration details and form of payment. Payment ca …