Hanze University International business School

Daniel Prieto MBA 2008/09

Operation Management: Dell

1 Introduction
Dell is a technological sales company which performs their business in the whole world as is possible to see in the following diagram.

With a net revenue of $61,133,000,000 is the second largest computer manufacturer company in the word and the number one in United States. Dell focuses on Business to Business(B2B) and Business to Consumer(B2C) commerce to satisfy their business and individual customers. Dell differentiates between classes of customers because the needs of their business customers, who buy large quantities of computers, are different than the individuals who want to configure a single unit. The present document is oriented to analyze Dell just since the point of view of operations management starting with a review of the company, after a look over Product design process, the internal process and the technology associated, how Dell forecast the coming productions rates, how Dell manages their

inventory, which is the quality model followed by the company, which is the human resource strategy to finalize with conclusions and reflections.

2 Dell Company
2.1 Vision
Fully integrate environmental stewardship into the business of providing quality products, best-in-class services, and the best customer experience at the best value

2.2 Mission
Create a company culture where environmental excellence is second nature

2.3 Operations Strategy

Identify the operations strategy of Dell is go almost in all the main activities of the company where operations is relevant. Under this perspective, the list of strategies is related to some areas of operations inside of the company: Be the greenest technology company on the planet and the first computer company to achieve carbon-neutral operations by the end of 2008 Continue leadership with the climate strategy and global recycling programs Partner with customers in energy-efficiency and climate-protection initiatives Broaden the Global Citizenship commitment Recommit efforts to improve sustainability governance

3 Product design process

For Dell, Globalization has impacted directly in the management of the product life cycle involving more stakeholders during the process of product development; thereby the complexity of this process has become more complex as well. The most important factor introduced in the product life cycle is the environmental issue. For Dell, the design products have to be energy efficient, to avoid unnecessary materials and to be easy to use, which is supported by rigorous business controls and supplier audits that consider (Dell, 2008): Energy Efficiency: Dell delivers optimized performance per watt, and help customers deploy systems efficiently. In this way, IT is an important avenue to decreasing cost of ownership and enhancing productivity while reducing a customers carbon footprint. Precautionary Chemicals and Materials Use: Dell design to eliminate the use of unregulated substances if we believe they possess hazard characteristics similar to other, regulated substances. If alternatives are not yet viable, Dell works to develop reliable, environmentally sound and commercially scalable solutions Supply Chain Sustainability: We expect suppliers to uphold the same commitment to environmental responsibility as we do, as a condition of doing business with them.

Dell design activities are compliant with this internationally recognized standard for environmental management system criteria (ISO 14001 certification program) Other main stream of definition of what Dell is doing in terms of product design rely on the participation of their own customers. The website Dell IdeaStorm (http://www.ideastorm.com) where customers participate directly in the conceptualization of products giving their own ideas of develop, voting for another ideas already posted or simply criticizing products from the company. This website is a very comprehensive platform to cover an appropriate SWOT analysis of products design due to the huge variety of post and group discussion on it.

4 Processes and Technology

4.1 Production process
The well known operation model of Dell called Dell Direct base its value added in just work on demand eliminating intermediaries in procurement, manufacturing and distribution processes. The technology used by the company in the manufacturing process is the base of success and therefore play a very important role in its operations. Dells technology allow to the company to combine its resources, its relationship with suppliers and its consumer communication capabilities, developing one big advantage over its competitors. Dell is in Mass Production process category due to mainly the stable demand of products, the assembly work as a main line of production and with a good level of efficiency. To consider Dell as a manufacturing or assembly company is a constant discussion even for the employees of the company. Due to the nature of the products (mainly computers) they build new products that do not exists in the market, in this sense they are manufactures. But in another sense they just assemble component which production is on suppliers, in this sense could be considerate that dell buy to sell. In this document the company will be considered as a manufacturer company. The generation of innovative ideas for the production line is pulled due to the necessity of new kind of products defined basically due to the interaction with suppliers and customers. The following diagram illustrates the main zones of manufacturing centers for dell around the world.

All the Dell manufacturing centers use the same processes enable by the same systems and are measured in the same way. This insurance consistency award quality across the global network and also allows identifying and implementing best practices. The standardized process of manufacturing is divided as is illustrated in the following diagram.

Kitting

Build

Boxing

Order accumulation area

Customer Order Pull

Software Installation and Testing

Final Test and labeling

These processes are described as follow: Customer order pull: receive the electronics orders closer to the ship destination. In this point the order is transferred from Dell order management systems to the Manufacturing scheduling system. The servers of the facility keep the track of order process associating serialized parts with unique codes.

Kitting: the build to order process of Dell generate request for materials which is delivered to the factory. Since there are no warehouses the inventory system is very important and every part is serialized and labeled since this is received from suppliers (which are basically important for Dell quality system). The scanning of these tags associated to the order indicates to the personnel which components should be part of a specific order, and at the end of the kidding line, all the parts of a single unique order are ready for the next step. Build: the scan of the code associated to the single order gives to the personnel specific instructions to builders based in the customer requirements. In this step, Dell associates every single component using bar codes to the order allowing a better quality control for the company. Software Installation and Testing: Directed by the main brain, the central gives specific instruction to ensure all the components are presents and operating properly before to install any software in machines. Boxing: This process ensures all the components required by the user are properly stored and ready for the ship. Once finished the boxing, the order goes straight for shipping or the order accumulation area. Order accumulation area: When the client creates and order, all the required products start at the same time but not all of them finish at the same time due to process variability. Once all of them are finished the shipping process starts.

Depending form the order, there is an external synchronization with others manufactures as monitors or printers manufacturers for example, which allow to Dell to reduce inventory with extern products to the production line (Dell, 2007).

4.2 E-business
E-business is central to Dell's entire operations and Dell uses e-business extensively across its entire value chain to deliver high levels of service to its customers and suppliers. Dell basically does trades with two of the four main kind of e-business (B2B, B2C, C2B and C2C) and both of them based in the internet architecture B2C: the main stream is represented by direct communication between Dell and their customers. Internet allows this direct communication avoiding intermediaries. This guarantee a good quality service for the customers, efficient processes, decision makers in real time, higher customer expectations and globalization. B2B: this stream of communication connects Dell with their suppliers allowing and efficient process of communication with the same benefits described in B2C. Also, the when big corporations and governments are clients, the definition of relation is established in a very particular way treating them as a special customers that need a special attention.

4.3 Technology
In terms of technology, Dell in all its experience in all the manufacturing centers, has implemented a large number of solutions in order to accomplish a constant improvement in the value chain. Basically,

the main source of constant improvement has been Internet, helping Dell to establish good relations with both their suppliers and their customers. The high level of integration that this technology has allowed is on simple evidence through the corporate website (www.dell.com) where for example suppliers are allowed to follow their material as it used throughout Dells operations. They can log-on, drop off invoices, check engineering change orders, review negotiated and forecasted cost reports, and track their overall performances and progress. The Dell i2 Supply Chain Management (i2SCM) is the name of the solution implemented to cover communications necessities with suppliers. This implementation enabled to Dell to reduce costs providing component suppliers and Dell planners with global views of product demand and material requirements. In partnership with IBM, both have managed to maintain high employee productivity. The join in between companies to design the productions lines provide near unlimited availability to their IT infrastructure. Another outcome of this partnership is the use of electronic catalog with appropriate search functionality. As an example time ago, Altiris Recovery Solution was selected by Dell for integrated delivery of backup and disaster recovery. Altiris along with Dell Open Manage Client Administrator (OMCA) will provide Direct integration of Altiris backup and recovery technology with Dell OMCA which helps ensure business continuity and helps provide additional cost savings for Dell customers through proactive IT management. These factors implemented into a concrete disaster recovery plan provide Dell and IBM with the confidence to scale and complex IT network.

4.4 Production Layout

Dell is by definition an assembly manufacturer company, where basically the process is only one and the assembly line as well. Dell does not build any part or piece of the computers, lodging basically in their own suppliers which have the necessary expertise and commitment with dells production line. If we consider Dell and their suppliers as a unique company it will be represented as typical Process Layout, and Dell will be of course in this exercise the assembly department. The main advantages of the Product layout (or assembly line production layout) are: The amount of time for a product to be ready is faster in general if it is compared with other kind of process layout The set up cost of the product layout is low due to the facilities does not vary in position and functionality. Due to the tasks of every stage are very specific, the efficiency of this kind of distribution (production layout) is higher than others types of layouts. This very related with the high continuity of the assembly line. The necessary planning in order to be concern about matters like synchronization is very low if it is compared with other layouts, this because is just one continue line.

The required level of expertise is not so important as well considering that the main task is to assemble. There is no much hard production processes to take care about. For Dell the level of inventory is very low, maybe too much low considering the average industry in Products Layout companies. This is because the technological advantage of Dell using Internet.

As negative point in Dell layout oriented to product, it is possible to say that the required infrastructure is more expensive than other layouts because the high degree of cohesion that should exist in the assembly line which it demands a high technology and dedicated machinery.

5 Supply Chain
Dell supply chain is illustrated in the following image

: Internet Supplier A

Supplier B

Final user

Supplier C

Supplier D

As is possible to appreciate, Dell Company is in the middle of all the operations since suppliers till the final customer. The simplicity of this model put on evidence the absence of intermediaries in the supply chain, which is synonymous of low cost, fast answer to clients orders. The communication between Dell and suppliers is by Internet, and in real time which it means that the suppliers are constantly monitoring the status of components in order to prepare new orders and negotiate the prices on demand. Usually suppliers have warehouse building nearby Dells Manufacturing Centers in order to reduce the risk of lack of components in the main assembly line of Dell and assuming at the same time the inventory costs that Dell is avoiding.

The suppliers usually feed the starting point of the Dells assembly line, but as the illustration show, it is possible to have some suppliers after the production line of Dell (even out of Dell facilities). Partnership with screen or printer manufacturers, allow to the final user to order for products that are absolutely out of Dells production lines, and it is just necessary to complete the order in their warehouses to finally ship the order to the client. Is important to recognize that the use of Internet is the blood of this system, without this technology would be impossible to coordinate such value system. In order to make the service easier for customers within this supply chain, Dell has divided their home page into a number of major customer groups: Home & Home Office, Small Business Medium and Large Business and Government, Education & Healthcare

6 Forecasting, Planning and Scheduling

6.1 Forecasting
As a forecasting method Dell, as many other big companies, base their analysis on the records stored on the internal Customer Relationship Manager system (CRM). This system stores every registry made by customers in order to analyze the tendency of the actual behavior and predict demand for certain products in the future. Now considering daily operations on Dell, there is a Short Range Forecast process that operates constantly. 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. As the CRM, the mentioned i2SCM (technology section) is another provider of forecast information as well, providing real-time factory scheduling and inventory management. These methods used by Dell are considerate Quantitative Forecast Methods, leaving for decisions makers, the forecast that comes from Qualitative Forecast Methods.

6.2 Scheduling
Dell bases its scheduling process in the system i2SCM system output. One of the basic tasks of i2SCM is to streamlines the supply chain in order to keep a constant flow of component in the starting point of the assembly line, and considering this, as a consequence is in charge of provide a manufacturing schedule the whole plant. This scheduling process is refreshed every 2 hours.

7 Inventory Management
Dell has implemented Just-In-Time Inventory System which operates on only 6 days of inventory. This simple number implies a huge benefit for Dell because this enable to the company to reduce the warehousing costs, also is not necessary to hire people to put in charge and maintain the inventories and though technology become obsolete very quickly, for Dell this is not a problem because they dont hold obsolete technology in its small inventory. The way how Dell controls, in terms of basic definitionits inventory and the costs that this means is being a Demand Pull Company (used as well as a Lean system method), whereas one of its top competitors (Compaq HP for example) is strictly a supply-push company and operates in a more traditional manner.

8 Quality model
Since several years, Dell has been operating their manufacturer plants using the production standards ISO 9001, ISO 14001 and OHSAS 18001 (Dell). Dell operations in China have been distinguished by Ministry of Information Industry (MII) and China Quality Management Association for Electronics Industry (CQAE) receiving wards such as "Excellent Quality Management Corporation", "Excellent Quality Management Team's and "Excellent Quality Management Individual". It demonstrates Dell's commitment to providing high-quality products and superior customer experience (Dell). The main support behind this award is the constant focus in the customer-centric strategy, and the will for a constant improving in the quality management system. In Dell, the quality control process starts from engineering design and the early testing stages during which design for reliability is the priority. Been conscious of quality standards in early analysis of failure mode, the product design is based on typical customer profile and operation requirement. It is important to consider that reliability test and improvement are also keys factors to ensuring the best quality. In addition, Dell has extended the quality chain putting great emphasis on suppliers' quality management, as the company always regards the quality of the components as crucial factors for product quality. According to this, Dell has established a set of scientific and complete management process, which ensures final product quality through rigid selection and process control of industryleading suppliers. Considering the whole process, the Quality Management during manufacturing process is the strongest guarantee of Dell products' quality. Engineering pilot and employee training are conducted before any new product launch. Through Statistic Process Control Quality Analysis, Dell is able to detect and improve incoming material and process issues, which guarantee the best manufacturing quality.

9 Human Resources Strategy

Dells direct business model influenced an organizational structure that fosters direct communication and open-minded listening. As an strategy to accomplish this objective is to listen employees, and this is done through Tell Dell program, a voluntary and confidential employee opinion survey. This program is developed to encourage employees to speak frankly and privately about Dells principles, values, strategies, policies, managerial effectiveness and employee engagement. In this way the HRM department, after taken the measurement, is able to act in direct response to surveys. Some responses to these kind surveys were for example in the past: Implementation of an employee purchase program Greater work-life flexibility Streamlined decision-making processes Increased focus on employee development Improved customer solutions

Less formal but equally important strategy to get employees feedback is Employee Storm. A tool that enables every Dell employee to bring experiences and creative solutions to Dell and our customers. With the objective to reduce mistakes and its consequences, Dell has implemented a strategy related to ethic tools. This strategy define for example policies of communication in order to allow employees approach the company when they feel is necessary according to the defined Dell Code of Conduct. This policies are: Open door policy Global Ethics and Compliance Team Ethic helpline

Since Dell is committed to inclusion and diversity, their mission is to succeed in the marketplace by fostering a winning culture in which Dell employees are highly talented, committed, reflective of our global customers, and recognized as our greatest strength. For Dell diversity is the core of their values and winning culture. For this Dell has implemented the following activities: Employees networking groups. A program that connect employees that share the same nationality, gender, ethnicity, etc.` Diversity Education and Training. Providing quality professional development opportunities to all employees. Work/Life Effectiveness. Committed to balance the employees contribution to the company with their personal lives.

Other areas of strategy where Dell has been working on are: Global talent management Employee health and wellness Employee sustainability engagement

10 Conclusions
It is very interesting to remark that Dell, a multinational company with a big size, is successfully capable to repeat basically the same formula of manufacturing process in every manufacturing center that the company has. Dell has been able to repeat the best practices across the borders around the world which by definition represent a big challenge for any company. Never the conditions will going to be the same: restricted markets, cultural shocks for employees, different cost structure are some of the factor that usually affect multinational companies with operations in many countries around the world. Dell strategy found its success in basically the correct and optimums use of technology; Internet is practically the blood of Dell system, or the base of Dell success. Dells business model bases its success basically in Information technology. There is not a revolutionary change in the way how to do business, is just a perfect example of how to take advantage of technology to become the most efficient competitor in the computer sales industry. Even though Dell business model is very well know, has been a model very difficult to imitate basically because the huge investment that companies should do together with their suppliers. The supply chain structure in this case is the key of success. Is not a matter of investment coming just from Dell to have success, is a sacrifice coming from Dell, suppliers and partners that in some way are trusting in Dell way of doing business. Trust in the value chain, is definitely a very big competitive advantage for Dell. The product mix from Dell is not as broad as directs competitors are doing it, which in one way has allowed to Dell specialization, focus and expertise in the field. But is a risk at the same time because depending basically on a very limited amount of product and services it does not open many alternatives to explore new markets or develop innovative solutions amount the products and services. Even though Dell is considered a very successful business model, the company has been having problems. These problems are reflected in financial reports which indicate that Dell is not reaching the rate of growing that they were expecting. Although Internet is the base of its success, it has been a big problem for Dell as well, since the point of view that important bloggers has been complaining in the net about the pour quality of services and this has spread quickly between users a non god image of the company. Dell is working on this blog phenomenon taking care of every comment done in the net about their products and services. Another problem faced by Dell is that Dell is becoming victim of its size because they are trying to keep the rate of growing in a market where the value of their products fall significantly every year , this means that to keep the rate of growing is necessary to have a higher rate of sales. As a final weak point in the way how Dell is approaching businesses, Dell is relaying increasingly on new markets which it means that Dell is just applying best practices and knowledge in the field rather than go deep with a study of the new entrance. This could be a risk considering the diversity and cultural matters in between their customers (Gross, 2005).

10.1 Recommendations
As a first recommendation, diversification in the product mix is the key. Different markets for new products or services could be a good opportunity and the strength of the brand is supporting in some way the possible adventure for this company.

As a second recommendation, the Research and Development strategy is still focused in innovation but still not so far from the market. Some joint ventures could help Dell going directly to new markets where the actual model of business (where they are experts) could be applied. As a third recommendation, approach the African market with design centers and business centers is an opportunity without exploration for Dell. The huge market in some countries of Africa represent a very attractive market to approach. The last recommendation but not less important than the others, is that Dell should approach a passive big market formed by users without experience in technology, those kind of clients that need specialized attention and that the fact of buy a computer by internet is not possible (usually they do not trust in transaction on internet). Direct sellers behaving like advisor not just will help to sale a new product, because this kind of clients are able to become loyal to the brand since the very first sale.

11 Reflections
In the country if the author of this small research, Dell is not a big seller of technology, other companies like HP, Acer or Toshiba are the big dealers of the market. This means for the author a interpretation of a brand that in some parts of the world almost does not make any advertisement. Is interesting to appreciate how the theory content learned at the school is applied directly in this research document, and be able to compare if the approach followed by the company was the best or according to the theory could have been even better. Is impossible to cover in this document all the details that an appropriate analysis of operations should be, but is a good approach to have at least an idea of which are all the sights that this concept has. Even though the research is small, is not possible to access to all the information that is required to perform a complete document like this mainly because most of this kind of information is classified and not shareable as is information very useful for competitors.

12 References
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Sovereing Publications. (n.d.). Sovereing Publications. Retrieved 06 1, 2009, from Sovereing Publications: http://www.sovereign-publications.com/dell.htm