OPERATIONS MANAGEMENT – II

PROJECT REPORT

ON

SUPPLY CHAIN MANAGEMENT OF DELL

Submitted to:

Prof Neeta Gupta

Submitted by:

Group 3, FMG – 19 B

Ashima Mathur (191080)

Manas Tripathi (191095)

Neeraj Sharma (191098)

Nishat Parveen (191099)

Parul Garg (191103)

Yukti Mittal (191122)

Contents

Company Profile..........................................................................................................................................3

History.....................................................................................................................................................3

M&A........................................................................................................................................................4

Products..................................................................................................................................................4

Manufacturing.........................................................................................................................................5

Competition.............................................................................................................................................7

Dell Outlets in India.................................................................................................................................9

DELL – Suppliers.......................................................................................................................................9

DELL Supply Chain Management...............................................................................................................11

I. Directs Sales Model............................................................................................................................11

Customer Segments...............................................................................................................................12

II. Build-to-order and integration with suppliers...................................................................................13

Advantages of built-to-order and JIT.................................................................................................14

Relationship with suppliers................................................................................................................14

Selection of suppliers.........................................................................................................................14

Minimizing Inventories......................................................................................................................14

Use of Internet and IT for SCM..............................................................................................................15

III. Other approaches.............................................................................................................................15

Company Profile

Dell Inc. is an American multinational information technology corporation based in Round Rock, Texas, United States, that develops, sells and supports computers and related products and services. Bearing the name of its founder, Michael Dell, the company is one of the largest technological corporations in the world, employing more than 96,000 people worldwide. Dell is the third largest PC maker in the world. It is listed at #38 on the Fortune 500 (2010). Fortune also lists Dell as the #5 most admired company in its industry.

Dell has grown by both organic and inorganic means since its inception—notable mergers and acquisitions including Alienware (2006) and Perot Systems (2009). The company is in the business of personal computers, servers, data storage devices, network switches, software, and computer peripherals. Dell also sells HDTVs, cameras, printers, MP3 players and other electronics built by other manufacturers. The company is well known for its innovations in supply chain management and electronic commerce.

History

Dell traces its origins to 1984, when Michael Dell created PCs Limited while a student at the University of Texas at Austin. The dorm-room headquartered company sold IBM PC-compatible computers built from stock components. Michael Dell started trading in the belief that by selling personal computer systems directly to customers, PCs Limited could better understand customers' needs and provide the most effective computing solutions to meet those needs.

In 1985, the company produced the first computer of its own design — the "Turbo PC", sold for US$795. PCs Limited advertised its systems in national computer magazines for sale directly to

consumers and custom assembled each ordered unit according to a selection of options. The company grossed more than $73 million in its first year of trading.

The company changed its name to "Dell Computer Corporation" in 1988 and began expanding globally—first in Ireland. In June 1988, Dell's market capitalization grew by $30 million to $80 million from its June 22 initial public offering of 3.5 million shares at $8.50 a share. In 1992, Fortune magazine included Dell Computer Corporation in its list of the world's 500 largest companies, making Michael Dell the youngest CEO of a Fortune 500 company ever. 1996, Dell began selling computers via its web site, and in 2002, Dell expanded its product line to include televisions, handhelds, digital audio players, and printers.

M&A

Dell's first acquisition occurred in 1999 with the purchase of ConvergeNet Technologies. In 2003, the company was rebranded as simply "Dell Inc." to recognize the company's expansion beyond computers. Later, Dell acquired Alienware, which introduced several new items to Dell products, including AMD microprocessors. To prevent cross-market products, Dell continues to run Alienware as a separate entity but still a wholly-owned subsidiary.

The company acquired EqualLogic on January 28, 2008 to gain a foothold in the iSCSI storage market. Because Dell already had an efficient manufacturing process, integrating EqualLogic's products into the company drove manufacturing prices down.

In 2009, Dell acquired Perot Systems, a technology services and outsourcing company founded by H. Ross Perot. On August 16, 2010, Dell announced its intent to acquire the data storage company 3PAR.On November 2, 2010, Dell acquired Software-as-a-Service (SaaS) integration leader Boomi.

Products

The corporation markets specific brand names to different market segments.

Its Business/Corporate class represents brands where the company advertises emphasizes long life-cycles, reliability, and serviceability. Such brands include:

OptiPlex (office desktop computer systems) Vostro (office/small business desktop and notebook systems) n Series (desktop and notebook computers shipped with Linux or FreeDOS installed) Latitude (business-focused notebooks) Precision (workstation systems and high-performance notebooks),[36]

PowerEdge (business servers)

PowerVault (direct-attach and network-attached storage) PowerConnect (network switches) Dell/EMC (storage area networks) EqualLogic (enterprise class iSCSI SANs)

Dell's Home Office/Consumer class emphasizes value, performance, and expandability. These brands include:

Inspiron (budget desktop and notebook computers) Studio (mainstream desktop and laptop computers) XPS (high-end desktop and notebook computers) Studio XPS (high-end design-focus of XPS systems and extreme multimedia capability) Alienware (high-performance gaming systems) Adamo (high-end luxury laptop)

Dell's Peripherals class includes USB keydrives, LCD televisions, and printers; Dell monitors includes LCD TVs, plasma TVs and projectors for HDTV and monitors. Dell UltraSharp is further a high-end brand of monitors.

Dell service and support brands include the Dell Solution Station (extended domestic support services, previously "Dell on Call"), Dell Support Center (extended support services abroad), Dell Business Support (a commercial service-contract that provides an industry-certified technician with a lower call-volume than in normal queues), Dell Everdream Desktop Management ("Software as a Service" remote-desktop management), and Your Tech Team (a support-queue available to home users who purchased their systems either through Dell's website or through Dell phone-centers).

Discontinued products and brands include Axim (PDA; discontinued April 9, 2007), Dimension (home and small office desktop computers; discontinued July 2007), Dell Digital Jukebox (MP3 player; discontinued August 2006), Dell PowerApp (application-based servers), and Dell Omniplex (desktop and tower computers previously supported to run server and desktop operating systems).

Manufacturing

From its early beginnings, Dell operated as a pioneer in the "configure to order" approach to manufacturing — delivering individual PCs configured to customer specifications. In contrast, most PC manufacturers in those times delivered large orders to intermediaries on a quarterly basis.

To minimize the delay between purchase and delivery, Dell has a general policy of manufacturing its products close to its customers. This also allows for implementing a just-in-time (JIT) manufacturing approach, which minimizes inventory costs. Low inventory is another signature of the Dell business model — a critical consideration in an industry where components depreciate very rapidly.

Dell's manufacturing process covers assembly, software installation, functional testing (including "burn-in"), and quality control. Throughout most of the company's history, Dell manufactured desktop machines in-house and contracted out manufacturing of base notebooks for configuration in-house. However, the company's approach has changed. The 2006 Annual Report states "we are continuing to expand our use of original design manufacturing partnerships and manufacturing outsourcing relationships." The Wall Street Journal reported in September, 2008 that "Dell has approached contract computer manufacturers with offers to sell" their plants.

Assembly of desktop computers for the North American market formerly took place at Dell plants in Austin, Texas (original location) and Lebanon, Tennessee (opened in 1999). The plant in Winston-Salem, North Carolina (opened in 2005) is scheduled to cease operations in November 2010, while the Miami, Florida facility of its Alienware subsidiary remains in operation. Dell servers come from Austin, Texas.

Dell's desktop plant in Austin, Texas was shut down in 2008. It closed its desktop manufacturing in Lebanon in early 2009. The last major U.S. plant in North Carolina is scheduled to close in November 2010. It is expected that most of the work carried out in North Carolina will be transferred to contract manufacturers in Asia and Mexico, though Dell said some of the work will move to its own factories overseas.

Dell assembles computers for the EMEA market at Limerick in the Republic of Ireland, and employs about 4,500 people in that country. Dell began manufacturing in Limerick in 1991 and went on to become Ireland's largest exporter of goods and its second-largest company and foreign investor. On January 8, 2009, Dell announced that it would move all Dell manufacturing in Limerick to Dell's new plant in the Polish city of Łódź by January 2010. European Union officials said they would investigate a €52.7million aid package the Polish government used to attract Dell away from Ireland. European Manufacturing Facility 1 (EMF1, opened in 1990) and EMF3 form part of the Raheen Industrial Estate near Limerick. EMF2 (previously a Wang facility, later occupied by Flextronics, situated in Castletroy) closed in 2002,[citation needed] and Dell Inc. has consolidated production into EMF3 (EMF1 now contains only offices). Subsidies from the Polish government didn't keep Dell for a long time. Manufacturing Facility in Lodz was sold to Foxconn as announced in Dec 2009.

Dell's Alienware subsidiary also manufactures PCs in an Athlone, Ireland plant. Construction of EMF4 in Łódź, Poland has started: Dell started production there in autumn 2007.

Dell opened plants in Penang, Malaysia in 1995, and in Xiamen, China in 1999. These facilities serve the Asian market and assemble 95% of Dell notebooks. Dell Inc. has invested an estimated $60 million in a new manufacturing unit in Chennai, India, to support the sales of its products in the Indian subcontinent. Indian-made products will bear the "Made in India" mark. In 2007 the Chennai facility had the target of producing 400,000 desktop PCs, and plans envisaged it starting to produce notebook PCs and other products in the second half of 2007.

Dell moved desktop and PowerEdge server manufacturing for the South American market from the Eldorado do Sul plant opened in 1999, to a new plant in Hortolandia, Brazil in 2007.

Competition

Dell's major competitors include Apple, Hewlett-Packard (HP), Acer, Toshiba, Gateway, Sony, Asus, Lenovo, IBM, Samsung, and Sun Microsystems. Dell and its subsidiary, Alienware, compete in the enthusiast market against AVADirect, Falcon Northwest, VoodooPC (a subsidiary of HP), and other manufacturers. In the second quarter of 2006 Dell had between 18% and 19% share of the worldwide personal computer market, compared to HP with roughly 15%.

In late 2006, Dell lost its lead in the PC-business to Hewlett-Packard. Both Gartner and IDC estimated that in the third quarter of 2006, HP shipped more units worldwide than did Dell. Dell's 3.6% growth paled in comparison to HP's 15% growth during the same period. The problem got worse in the fourth quarter, when Gartner estimated that Dell PC shipments declined 8.9% (versus HP's 23.9% growth). As a result, at the end of 2006 Dell's overall PC market-share stood at 13.9% (versus HP's 17.4%).

IDC reported that Dell lost more server market share than any of the top four competitors in that arena. IDC's Q4 2006 estimates show Dell's share of the server market at 8.1%, down from 9.5% in the previous year. This represents a 8.8% loss year-over-year, primarily to competitors EMC and IBM.

Dell Outlets in India

DELL – Suppliers

http://content.dell.com/us/en/corp/d/corp-comm/cr-ca-list-suppliers.aspx

(pl check… I think this is for US only)

Headquarter Locations of Key Dell Suppliers

DELL Supply Chain Management

Dell has achieved to become one of the most successful PC companies in the world, by emphasizing and aligning its strategies with the design of its supply chain. The innovative ideas of its founder, Michael Dell, and their successful implementation have turned Dell into the most quoted example of the Supply Chain research community.

Michael Dell’s strategic choices and his effective way of realizing them have played a significant role in Dell’s success story. The key element of his successful business model of the company is its supply chain management; hence, many theorists of Supply Chain Management have tried to investigate Dell’s SC strategies, and several companies have attempted to “copy” Dell’s business model, without success however. This fact shows the complexity of Dell’s SC strategies and its unique way of putting them into practice.

The core elements of Dell’s business model are its direct sales model, usually referred as “direct model”, and the build-to-order strategy.

I. Directs Sales Model

The direct model refers to the fact that Dell does not use the retails channel, but sells its PCs directly to customers through its website, Dell.com. This way the intermediary steps that may add time and cost are eliminated, and Dell is directly linked to its customers.

Distribution channel of Dell vs. a traditional company:

Indirect Distribution Channel of the PC Industry:

Dell’s Direct Distribution Channel:

In fact, Dell sells directly to all its customers, “from home-PC users to the world’s largest corporations”. This way it creates a direct relationship with each individual customer, which turns out to be a great source of competitive advantage.

As Michael Dell has stated, this direct relationship “creates valuable information” about the customer, thus Dell knows who the end users are, what they have bought from Dell and what their preferences are, a fact that allows Dell to offer add-on products and services, and stay, in general, closer to the customer. As Lawton et al suggest, this “provides Dell with a wealth of marketing and product development information”.

Customer Segments

Dell distinguishes three rough customer segments:

1. Large organizations (large companies or government institutions)2. Small and medium businesses 3. Personal consumers

The mix of customers served is wide (no customer represents more than 1-2% of Dell’s revenues) and there is a focus on large customers (70% of Dell’s sales corresponds to them).

Suppliers PC Makers DistributorsRetailers/Resellers/

Integrators

Final Customer

Suppliers PC Makers Final Customer

This fine customer segmentation in combination with the direct model, leads to the ability to better forecast demand.

Especially in the case of large customers, the above-mentioned direct relationship is upgraded to virtual integration. With the help of information technology and traditional face-to-face human contact, customers work with Dell as partners; this means that “Dell is not going to be just their PC vendor anymore, but their IT department for PCs”, as Michael Dell claims.

There are two main facilities that bring Dell and its customers closer: Premier Pages and Platinum Councils.

1. Premier Pages, now called Premier.Dell.com, are customized IT procurement and support sites for big clients, which let them decide and manage their purchases from Dell, thus leaving to salespeople a more consultative role. Premier.Dell.com represents a customized sales channel and as Dell has realized how beneficiary that is, it has increased the number of Premier Pages from 1000 in 1998 to 50,000 in 2000.

2. Platinum Councils are regional meetings of Dell’s largest customers, where executives, salespeople and technicians discuss their experience with Dell and their needs and expectations from technology.

Additionally, Dell’s Customer Experience Initiative, Dell Forums, the Direct2Dell blog and the IdeaStorm illustrate the importance that Dell places on its customer relationships.

II. Build-to-order and integration with suppliers

The new business model that Dell has pioneered within the computer industry has broken the “we-have-to-develop-everything” existing view of the world and has managed to highlight component assembly as a respectful core activity of a computer company, as Michael Dell states. The build-to-order strategy takes this achievement one step further.

Build-to-order SC as a strategy is defined as “a value chain that manufactures quality products or services based on requirements of an individual customer or a group of customers at competitive prices, within a short span of time, by leveraging the core competencies of partnering firms or suppliers and information technologies, such as the Internet and WWW, to integrate such a value chain” according to Gunasekaran et al.

Thus, in the case of Dell, a computer is built only after a customer has placed an order; then lean manufacturing and just-in-time production take place. This means that once an order is placed, configuration details are sent to the manufacturing floor and the assembly begins; once the computer is built and the requested software is downloaded, it is shipped by a 3PL to the customer.

Advantages of built-to-order and JIT

The choice of a build-to-order and JIT manufacturing procedure has several advantages for Dell.

1. The level of inventories is very small, leading to low inventory costs and faster response to demand changes – for instance, when a new microprocessor comes out in the market, Dell can immediately order it from its suppliers, as there is no excess inventory to get rid of first.

2. It is common that customers pay for an order before Dell pays its suppliers for the product’s components, thus letting Dell operate on a negative cash conversion cycle. This way, the customized products are offered, and instead of guessing, that is Dell knows exactly what its customers want before producing it.

Relationship with suppliers

Dell’s relationship to its suppliers also facilitates its build-to-order model. Dell fully adopts the approach of the extended enterprise by viewing its suppliers as an integral part of doing business and a key factor for its success. “The supplier effectively becomes our partner”, as Michael Dell states.

Selection of suppliersDell selects suppliers that have “expertise, experience and the ability to deliver value”, and their performance is regularly evaluated against pre-agreed measures. Every quarter Dell meets with its suppliers to provide direct feedback on performance and future expectations. The performance is evaluated through a scorecard that compares each supplier with its competitors based on cost, quality, reliability and continuity of supply. As a reward, Dell’s well-performing suppliers are provided with training and support in order to improve their processes.

Minimizing InventoriesUnder the effort of minimizing its inventories, Dell demands from its suppliers to provide them with goods in a “high speed” – so instead of orders such as “deliver 5000 to this warehouse every two weeks”, the form of orders is more like “tomorrow morning we need 6.795 to be delivered at door A3 (of the warehouse) by 7 am”. A new notion that Dell has introduced is the one of inventory velocity, and it focuses on minimizing inventory and maximizing speed.

Dell holds an average of less than 6 days of inventory, while the corresponding average of its competitors is 6 weeks. In order to deal with these high rhythms, the main suppliers are required to maintain inventory near or in Dell’s plants; they can either produce close or keep inventories

in revolvers or supplier logistics centers (small warehouses close to Dell’s assembly plants, that are shared by suppliers who pay the corresponding rent).

Use of Internet and IT for SCM

All the practices described above require close collaboration between Dell and its suppliers – mutual trust and sophisticated data exchange are key factors to achieve it. This wouldn’t have been possible without the use of Internet and IT: The most important facility towards information sharing is the website ValueChain.Dell.com which operates as an extranet between Dell and its suppliers.

Through ValueChain.Dell.com Dell’s suppliers can get informed about the level of inventory in the supply chain, supply and demand data, component quality metrics and new part transitions. This way, Dell shares demand and production forecasts with its suppliers, so they can themselves decide on production levels, avoiding the bullwhip effect.

III. Other approaches

Another approach followed by Dell is the appropriate coupling of process and people elements. Dell’s R&D focuses on process and quality improvements in manufacturing and one of their main objectives is to find managers who can share and respond to rapid shifts. The following table gives an insight into this approach.

SCM Capabilities Processes People

Demand Management Direct Model / Build-to-order Maniacal about execution / Bias for action

Internal Collaboration Information Technology Culture of information sharing

Leverage Partners Linked partner planning and execution

Value of personal/business relationships

Business Fundamentals Balance sheet and P&L Rewarded for decreasing costs

Table: Dell’s appropriate coupling of supply chain capabilities with processes and people

There are three central points in Dell’s value web model: Dell’s powerful role in coordination and control of the value network, its close physical integration with its suppliers and business partners, and the importance of information technology, the Internet and other electronic communications. The following table gives a view of the key principles for Dell’s business model.

Key principles for Dell’s business model

Build-to-order Direct sales

Exchange inventory for information Velocity, value and volume

Constant change Criticality of coordination

Table 2: Key principles for Dell’s business model according to Pearlson et al