Supply chain management: Dell computers

Executive Summary

Constantly changing technology directly impacts Dell’s success and future. Although Dell is an extremely successful company, there are areas of improvement and enhancement that should be considered. After a thorough analysis of Dell’s IT tools, business model, IT infrastructure and competitive advantage, we have developed seven key suggestions. By implementing these recommendations, Dell can keep its high ranking in the competitive computer industry by increasing customer satisfaction, competitive advantage and superior value chain, without changing its principal operations to achieve these goals.

Our recommendations allow Dell to enhance their supply chain management system, increase customer service, gain market share, and increase revenue.

1. Consider selectively adding other vendors to its supply chain management system.

2. Initiate a program to use Customer Surveys to gain market share.

3. Invest more in their Research and Development to develop new products and services.

4. Consider offering online data back-up capabilities.

5. Implement a program to reduce errors in their direct Internet ordering system and create a clearance area on its website for systems produced in error.

6. Enhance Dell’s customer support services.

Increase their company recognition through a national advertising campaign.

Focus of the Proposal

Dell Computer is a leader in the e-commerce computer hardware market. It is an established brand that leads personal computer manufacturers both in U.S. sales and overall online sales. Its trademark method of selling products to customers, corporate and individual consumers, emanates from the Dell Direct model, a Web-enabled infrastructure that allows customers to customize their PCs and order other products they need or desire. This virtual integration structure eliminates the need to manufacture everything, and instead uses the power of the Internet to share and exchange information with suppliers and vendors to build a truly superior supply chain that keeps inventory turnover low and costs to a minimum.

The primary method Dell uses in order to achieve and sustain their competitive advantage is a unique, direct to customer business model. The model is known as Dell Direct, referring to their relations with their customers as being direct. This model helps Dell focus on price for performance, customization, service and support, latest technology and superior shareholder value. Additionally, Dell is able to distinguish itself from its competitors with its customized on- demand manufacturing. With this customization, Dell is able to offer customers more value for their money by eliminating intermediaries in their procurement, manufacturing and distribution processes.

Dell’s primary resources include the most up-to-date technology and IT tools that allow it to successfully move along their superior supply chain and achieve the value they strive for. Dell’s value chain allows Dell and its suppliers to exchange information and interact with each other. The Internet, Dell’s key IT factor in its success, results in lower costs to customers than other retailers because customers tell Dell exactly what they want and Dell creates products for the consumer without experiencing wasteful resources in production.

Overall, it is evident that Dell’s competitive advantage lies in its Direct model success. Through Dell’s IT performance, which combines its resources, its relationship with suppliers and its consumer communication capabilities, Dell has developed one big advantage over its competitors.

Analysis of Dell’s Competitive Advantage:

Dell is officially the No. 1 computer systems company in the world. Dell is able to sustain a competitive advantage over competitors in the computer industry because of an extremely efficient supply chain/distribution system. Dell is able to achieve superior profits in the industry because they are a knowledgeable user of information, communication, e-commerce, e-business, internet, and web technologies.

Michael Dell states that Dell is so successful because of Knowledge Management. Mr. Dell defines that term by saying physical assets are being replaced by intellectual assets. This relates to Dell’s inventory system. Dell implements a Just-In-Time inventory system which operates on only 6 days of inventory. Dell is able to achieve greater profit margins and increased profits because of their inventory system. Inventory and labor are the highest liabilities of a firm. Since Dell only operates with 6 days worth of inventory, they are able to cut costs on warehousing, hiring people to track and maintain inventory, and avoid holding on to obsolete technology. This allows Dell to free up cash flow to invest in other value adding activities.

Dell uses a JIT inventory system because Dell’s customers can only order computers directly through Dell itself. Dell uses their website www.Dell.com to take customer’s orders. Dell focuses on direct sales, cutting out other distribution channels entirely. This allows for a deeper relationship with the customers whereby Dell can offer their customer’s better service, savings, convenience, and efficiency. A customer can order their own custom computer, have it built by Dell in three days and have it delivered to the customer’s doorstep within one week.

Dell’s use of the internet has revolutionized the company. Dell makes their website extremely consumer friendly to offer an easy order process to the customers. Dell has also created their Premier Page. This page was made for Dell’s larger accounts including corporations, the Government, and educational institutions (ie Syracuse University). This webpage includes dynamic price upgrades, easier navigability, and a greater range of available upgrades/options. Customer relationship management software keeps close tabs on the types of computers that customers are buying (Pizinger).

Not only does Dell use the internet to make the customer ordering process easier. They also use the internet to build better relationships with their suppliers. In order for Dell to work off of 6 days of inventory, their suppliers have to be very involved in the company to make sure superior service is met. Dell uses state of the art production planning programs that forecast the quantities of components needed to build the computers. After those forecasts are made, supply chain systems pass those forecasts to suppliers, who respond with cost estimates and plan their production as a result (Solis).

To achieve their supply chain superiority, Dell uses solutions from i2 Supply Chain Management. i2 streamlines the supply chain by providing component suppliers and Dell planners with global views of product demand and material requirements. It also provides real-time factory scheduling and inventory management, so employees can generate key reports based on accurate and timely data, pinpoint inventory on the factory floor, and receive supplier deliveries on a true just-in-time basis (i2 supply chain management systems).

This allows Dell to change their manufacturing schedule every two hours to keep up with customer orders. Dell’s suppliers have access to this accurate, timely information. Since the suppliers work with facts instead of forecasts, this allows them to reduce waste and improve efficiency. Once suppliers receive this information, they are directed to deliver needed materials to a specific dock door for assembly for specific product manufacturing. Dell uses the Windows NT operating system and Intel-based servers for all of the i2 applications (Soral).

Dell’s e-commerce is a huge part of their competitive advantage. Their e-commerce internet infrastructure is so advanced and knowledgeable that by using it to determine trends and demands of their products, they have gained superiority over their competitors.

Dell has set up strategic alliances with other companies to have their products sold on Dell’s direct selling distribution channel. Back in 2000, Palm, Inc. made an agreement with Dell to offer an expanded line of handheld Palm products and accessories. This agreement allowed Dell to drive momentum for the Palm operating system market (Dell: 2000, April 17). Along with Palm, Xerox also partnered with Dell to take advantage of Dell’s e-commerce. Advantages to Xerox were increased profits by offering the printers with the Dell computers. Advantages to Dell include selling high quality printers along with their computers, but more importantly, it allowed Dell to be involved in the customer buying process for printers. Being involved in the decision making process is key to Dell’s success because they see directly what the customers want and determine their production schedule from that information (Dell: 2000, May 22).

Dell achieves its competitive advantage over other firms in the industry by having superior supply chain management. Dell utilizes technology to interpret information. By being involved in the customer buying process they are able to determine their customers’ needs. This allows Dell to streamline production and have close relationships with their suppliers which results in getting timely deliveries in order to mass customize customer’s computers.

Analysis of Dell’s IT Tools:

Dell’s supply chain management success can be summed up in one idea. Supply chain management shortens the cycle between the component, the manufacturer and the end customer. We are allowing them to almost touch each other, (E-commerce)according to Michael Chong, e-business Technology Manager of Dell Computer Corporation. Supply chain management is the effective and efficient movement of materials from suppliers, through a company and into products, which eventually is received by consumers.

An important goal for Dell is to enable customers to process their own transactions. Dell is known for their efficient and effective build-to-order business model. This model allows customers around the globe to order customized systems from the dell.com website. Dell’s online supply management allows Dell, suppliers and customers to work together. As Michael Chong states, Because we work directly with customers, we have the ability to connect and understand what products will be required and when (E-Commerce). This helps Dell to inform their suppliers what supplies are needed based solely on customer demand. As a result, there is not an excess of supplies in warehouses that will decrease Dell’s efficiency. As Dell is known for their exceptional service, ease in ordering and responsiveness to customers needs, their competitive advantage is easily distinguished.

Dell’s internet presence through Dell.com, is an important factor in Dell’s success. By involving the customer from the beginning of the ordering process, Dell.com makes it easier to do business for both parties and initiates customer relationships while providing a means for ongoing customer service. With a number of links focused primarily on certain groups and customers, purchases can be made easily and efficiently. No matter what you are purchasing, Dell.com can assist the customer in customizing and evaluating Dell’s offerings. Dell.com can help an individual consumer purchase a single notebook or can help larger companies purchase or lease products that will help them lower their costs. A new service, launched in the year 2000, made it possible for customers to purchase refurbished Dell PCs, notebook computers, digital cameras, scanners, printers and speakers online. The returned equipment comes from companies upgrading systems but wishing to continue using Dell gear, or from cancelled order (Kelsey, 2000).

Specifically, Dell has enhanced its supply chain by using i2 Supply Chain Management to plan orders and communicate with suppliers every two hours. This results in Dell’s efficiency in manufacturing and delivering exactly what its customers want. Time to deployment and overall cost of ownership can be achieved if i2 Pronto and/or i2 Solutions for Value Chain Management are utilized, along with Dell servers and storage. i2 Pronto is a rapidly deployed solution for factory planning and collaboration. Dell possesses a competitive advantage in that they are currently the only hardware platform certified for rapid deployment of i2 Pronto solutions. i2 Solutions enables Dell to reduce costs, lower total cost of ownership and establish a reliable, stable operating environment. Dell’s own implementation of i2 SCM solutions is known as the DSi2 system. DSi2 runs on 120 Dell servers and manages more than 250 suppliers delivering more than 3500 parts. As a result, Dell can deliver customized, replicable configurations, reducing time to deploy and cost of ownership. i2 solutions also enables customers to put Dell’s value chain to work in meeting company goals and attaining value (Jacobs, 2003). i2 SCM streamlines the supply chain by providing component suppliers and Dell planners with global views of product demand and material requirements. It also provides real-time factory scheduling and inventory management so employees can generate key reports based on accurate and timely data, pinpoint-inventory on the factory floor and receive supplier deliveries on a true just-in-time basis (Harrington, 2002). This system allows Dell to achieve a new manufacturing schedule every two hours which shows the latest customer orders, backlog numbers, stock status and supplier commitments. Today, the supply chain of Dell not only runs on 120 Intel-based Dell servers running Microsoft Windows NT, but it also has four primary i2 software modules: i2 Collaboration Planner Demand Fulfillment, Global Supply Planning, Factory Planner and Supply Chain Planner (Harrington, 2002). This success proves that Dell has the best of both worlds. They achieve state-of-the-art performance at an economically attractive price.

llows customers to customize and purchase Dell products online, the Internet also helps suppliers and Dell communicate and focus on improving their efficiency. This method began in mid-1999 when Dell introduced valuechain.dell.com. This website allows suppliers to follow their material as it as used throughout Dell’s operations. Suppliers can log-on, drop off invoices, check engineering change orders, review negotiated and forecasted cost reports, and track their overall performances and progress. As a result of their successful Internet system, Dell purchases almost 90 percent of its direct material supplies online. Supplier hubs located near their manufacturing plants are used to deliver supplies to the Dell plants when they are only a few hours old. As said by Michael Chong, We are trying to draw more value out of our supplier relationship. That’s why the name value chain.’ The applications themselves are not replacing the business processes. The business processes are already defined and well ingrained. It is just making the business processes more efficient (E-Commerce). By focusing on inventory control with their suppliers, Dell is able to use industry price declines to their advantage and deliver those savings on to the customers. This also gives Dell a competitive advantage. According to Michael Chong, Our competition has a hard time trying to manage that type of model because their inventory turns are fewer. They have more latent costsbuiltinto the components in terms of their inventory (E-Commerce). An efficient supplier network is important to Dell. In order to increase efficiency between Dell and their suppliers, Dell has reduced the number of suppliers they do business with. Three years ago, Dell worked with more than 1,000 suppliers, but today they only work with 100 suppliers. Dell also uses supply chain management software to reduce inventories, improve material management and enhance relationships with suppliers. This also helps Dell and their suppliers connect to share information about inventory and improve efficiency, which gives Dell an additional competitive advantage.

Dell controls its inventory and costs by being a demand-pull company, whereas one of its top competitors, IBM, is strictly a supply-push company and operates in a more traditional manner. IBM has to be good at forecasting what the customers will need, while Dell makes the computers to order. Dell is more efficient and therefore more profitable because it can buy its component parts based on the customer’s demand and not have to worry about building up its supply of inventory that may or may not be used. The result was that the company wound up with essentially no carrying costs for inventory while maintaining excellent turnaround on orders, because it sold what it had on hand, collected from customers in an average of a few days, and didn’t have to pay suppliers for several weeks (Henricks, 2003). Dell continues to use this successful formula to keep its competitive edge over its customers

With the spread of retail sales on the internet, e-tailers have fallen into two basic groups; pure play or bricks and clicks. Pure play companies use only the internet to sell its products and do not have a physical store. Bricks-and clicks companies use their internet site in addition to maintaining one or more physical stores to sell their products. Dell is a pure play internet company and does not have any physical stores to sell its computers

Dell is a pure play internet company and does not have any physical stores to sell its computers. For Dell, however, the Web is more than a sales vehicle (Thurm, 1998), because customers can access the website for all types of purchasing, service and support answers. Individuals and businesses can check orders and obtain information, while businesses can make use of special offerings and services through password-secured locations. Dell is also ¡°offering several flexible payment options to help make it easier to buy personal computers online (Pellet, 2001). Dell’s initial success as a pure play company was evidenced by the fact that it does more than $10 million daily in Internet sales (1998).

Another advantage to being an e-tailer is the reduced time it takes to adjust your prices or modify your inventory. One of the most difficult tasks for retailers is managing your inventory based on your customer demand. Dell has minimized this problem by matching finished products to orders received

One main goal of any successful company is maintaining employee productivity. A major concern for companies relying heavily on a productive workforce that makes extensive use of digital data, is the threat of a system failure. Since computer based companies do a majority of their internal and external business through the use of computers, a system failure would result in a loss of valuable human resources and could decrease employee productivity. Dell and IBM both protect themselves from this potential problem with the use of specific intranets and backup/recovery systems

Another way Dell and IBM protect themselves from a potential system crash is through the use of the internet. Dell specifically does the majority of its business through the use of the internet. This allows customers and suppliers to have a very intimate relationship from anywhere in the world. This concept, known as global reach, is one of the major competitive advantages that Dell has created. Through the use of the internet, the customer has a much greater say in what decisions the supplier makes. Dell and IBM both have managed to maintain high employee productivity consistently. One of the main ways in which they have managed to do this is to provide near unlimited availability to their IT infrastructure. Dell and IBM both keep consumer information lines open 24 hours a day, 7 days a week. They also all have an easily accessible online help services.

In addition, the reliance on the internet for its business practices allows Dell the luxury, to easily redefine its image by nearly dismissing the time necessary to change the system (image, function, etc). This design saves untold amounts of money because it is ready to adapt to nearly any market, business, or economic change.

Enhancing decision making is also a critical factor in the sustained life of a computer company because technology is constantly changing. With today’s fast-paced computer market, innovation through customer feedback is key to the success of its products

Dell and IBM both maintain very competitive business partnerships and alliances through the use of electronic catalogs. Dell does nearly all of its business through the use of electronic catalog and IBM continues to increasingly rely on the business generated through them. The use of electronic catalogs gives a specific competitive advantage because it presents products to customers or partners all over the world. This is also a factor in Dell’s and IBM’s global reach enhancement. Perhaps the biggest advantage of the electronic catalog is the search functionality. The customer has a much more powerful search capability, making it easier for them to find the proper product. Another major advantage of online shopping is the speed in which customers can purchase their final product. A recent Dell customer reiterates this concept, Its information hierarchy is so clean that you can purchase an entire unit in 10 minutes (Dell.com, 2004).

Increasing employee productivity, creating business partnerships and alliances, enhancing decision-making, and enabling global reach are vital to the continued success of Dell and IBM in today’s fast-paced technology driven environment.

Our Recommendations

After analyzing Dell’s IT and their competitive advantage as a result of their advanced and successful IT, it was challenging to come up with recommendations to help them achieve more success in an industry that they already prosper in. However, even with Dell’s current success, we realize that in an ever-changing technology industry, there is always room for improvement.

1) Dell should consider selectively adding other vendors to its supply chain management system. Due to the increase in Dell’s global sales, Dell may need to consider to selectively adding additional suppliers to their supply chain management system. The additional suppliers should not result in any significant cost to Dell and Dell might be able to negotiate better component costs from new suppliers. New suppliers would want to participate in this exchange because they would be seen doing business with a leading technology company

2) Use ¡°Customer Surveys to gain market share. Although Dell does well in its markets overseas, Dell has lost some domestic market share and has more potential overseas. It is important for Dell to advertise and get their products noticed in international markets. In order achieve this goal, in-depth customer satisfaction surveys should be used in markets where they trail their competition. Even in the US, where they are ranked high against their competitors, Dell’s margin of leadership has declined. Dell can send out questionnaires to previous consumers to see how they can improve. By going directly to the consumers, they can get feedback from sources they care most about. It also makes consumers feel that Dell truly cares about how they feel about their products and service.

3) Invest more in Research and Development. With the growth of quality competition, it is crucial for Dell to keep its competitive advantage by offering new technology products and services.

Dell should consider expanding into peripheral product markets that would compliment their computer sales. This might include specially designed systems for specific industries (architects, doctors, etc.) or additional hardware for specific markets (gamers, music lovers, etc.) It is also important for Dell to watch its competitors and see what new products and techniques they introduce.

4) Dell could offer online data back-up capabilities. Another way to increase revenue is to offer existing customers (business and individual consumers) back-up capabilities on Dell’s own servers. This process will have advantages for both consumers and Dell. For consumers, especially businesses, if something happens to their plants and computer systems, they can always retrieve their data from Dell who has their information backed up offsite on their system. By keeping their data saved at another location that is maintained by Dell, Dell can make money by charging for this additional service. Dell also has a built-in customer list based on the sales that they make for computer systems.

5) Reduce errors in Dell’s direct Internet ordering system and create a Clearance area on its website. It is important that Dell keeps their service of DellDirect efficient by avoiding mistakes and making sure that purchases online are correct. Since all purchases can be done on the Internet, it is easy for consumers to click a wrong button when customizing their products. Therefore, Dell should enhance its online ordering system with customer confirmation before manufacturing starts. This would help reduce costs of production if there are incorrect orders and it will also help increase consumer satisfaction. If there are cancelled orders or completed orders that don’t get paid for, Dell can start a clearance area on their website. This section can include these systems at lower prices because they would be final sales on pre-configured systems. (This might be the result of Dell’s unsuccessful mediation through its order resolution policy. In addition to pre-made systems, Dell can offer discontinued items (older models of components), that remain in Dell’s inventory. This will also help Dell keep its revenues high by not experiencing extra costs because of items that were not sold. If they place a section on their website titled, Clearance Products, they will appeal to customers who want to buy a computer at a cheaper price and do not have a strong preference on what features the product has. Therefore this recommendation is a win-win situation for both Dell and the customer.

6) Enhance customer support services. Since successful customer support and communications are crucial to Dell’s success, it is important that Dell keeps enough well-trained people on the phones and on the Internet for customer support. Based on the results of some surveys that say that Dell might be losing customers because of actual or perceived decrease in support, Dell should do a cost-benefit analysis to determine whether they should invest in more people who can answer technical questions & support customers with their problems and needs. In addition to more people, they should review their service support training and quality control procedures. This is an area where possible over-staffing might be worth the additional costs. Like many companies, Dell has taken advantage of the cheaper labor in other countries by routing most of its technical support calls from the US to headquarters in India. The only problem with this was that ¡°Corporate customers were telling us they didn’t like the level of support they were getting, and in the normal course of business, we made some adjustments (Brewin, 2003), according to Jon Weisbatt, the company spokesman. As a result of prior experience with Indian support staff, they need to either train Indian support staff more effectively so they can take advantage of the cheaper labor in India or keep support staff here in the US.

7) Increase Company recognition through a national advertising campaign. In order to keep the name Dell out in the market, it may be helpful for Dell to consider a national advertising campaign to increase Dell’s visibility. These ads would probably be most effective for the small business and individual user markets. This may include ads on the Internet, as well as commercial, magazine and newspaper ads. Dell succeeded increasing its brand name recognition once before with its Dell guy campaign. This will only help Dell get its good name out there for all people to see, recognize and eventually result in purchasing Dell products.

Boone, James (2000, May 12). Dell’s Competitive Advantage.

Retrieved April 3, 2004 from University of Central Florida, Web

site: http://www.bus.ucf.edu/jcourtney/EcommPPT/DellAdvantage.ppt

Jacobs, D. (2003). Retrieved Mar 1, 2004, Anatomy of a Supply Chain, from http://www.totalsupplychain.com

Soral, Prashant., & St. Clair, Lance. Dell: Building a

World-Class Supply Chain Solution. Retrieved April 3, 2004 from

, Web site:

http://www.intel.com/ebusiness/pdf/affiliates/i2-dell.pdf

or over twenty years, Dell’s marketing mix has been to provide products directly to consumers through the Internet and telephone sales. They’ve relied on low prices to maintain their market share. These low prices and low margins have come at the cost of Research and Development. Dell has not been as active in this area as other competitors and has a much less innovative product offering. Their marketing strategy for over twenty years has been to provide an inexpensive personal computer directly to consumers at the lowest possible price (Lee, 2006).

Apple has taken a different path than Dell. Apple can not afford to live on the same small profit margins that Dell can. Since it’s market share in the home computer industry is much lower than Dell’s, Apple has focused more money into Research and Development and created an innovative MP3 player. As of July 2006, the Apple iPod enjoyed a 73 percent market share, putting it atop the industry. Although Apple does offer its products online to customers, they have store fronts across the country where consumers can get a hands-on look at their innovative products. Since it is unable to compete toe-to-toe with Dell in the home computer market, Apple has positioned itself in a niche that identifies itself with customers interested in simplicity and innovation (Green, 2008).

Interestingly, Apple and Dell do not target each other specifically in their advertising. Apple focuses primarily on targeting Microsoft’s Windows operating system. This is right in line with Apple’s marketing strategy to focus on simplicity. By convincing users that the user experience of their operating system, Mac OS X, is superior, they directly increase their sales. This is at the expense of Dell and other PC vendors.

Dell, on the other hand, is focused on getting as many buyers as possible. Therefore, their advertising focuses on pricing. Unlike Apple, Dell runs discounts throughout the year (Lee, 2006). These discounts are generally advertised in direct mailings which coincides well with their direct to consumer approach.

Dell and Apple share a similar market. Both are computer companies, but neither has chose to market their products to the same target segment. Apple has differentiated itself from Dell by focusing on a niche market that values simplicity and innovation. These differing target segments influence each company’s marketing mix.

Dell

-Offers a huge amount of options. You can start with a $399 computer and bring it to over $1000 depending on what options you pick.

-Customizable laptop tops and desktop panels allowing you to really put style into your computer.

-Dell’s website is built very user friendly

-Provides excellent customer service.

HP

-In some cases provides cheaper systems than Dell.

-More models to choose from than Dell.

-HP website is also very user friendly, but cannot compare to what Dell has.

-Almost the same amount of options as Dell, but still lacking a few.