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Dell – Supply Chain Management Case Study 1 Case Contents 1. Introduction†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 2 2. Dell – Company Overview †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 2 3. Dell Products and Services †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 3 4. Dell – Key Facts †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 4 5. Dell Timeline†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 6. Dell – Business Segment Information†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 6 7. Dell’s Evolving Supply Chain Strategy†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 7 7. 1. Typical Working of Dell’s Supply Chain †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 7 7. 2. Five key strategies in Dell’s successful Direct Model †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 7 7. 3. A supply chain with old technology is of little value â € ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 8 8. Restructuring at Dell †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 8. 1. New Distribution Channels – Direct Model and Retail Strategy †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 8 9. Integrating the Supply Chain †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 9 This case study covers the following issues: 1. Examine and analyze Dell’s Direct model, its basic working, success and future challenges 2. Typical Working of Dell’s Supply Chain and future supply chain challenges 3. Highlights Dell’s evolving Supply Chain practices and strategy and steps being taken by it to recapture its lost market leader positionCase Study Keywo rds: Dell, Direct model, Supply Chain Management, Supply Chain Strategies, Build-to-order model, Inventory optimization, PC Manufacturing, Retail Distribution Channel, HP, Notebook computers, Desktop personal computers, Competitive Business Strategies, Sustaining competitive advantage, Michael Dell 1 Please note: This case study was compiled from published sources, and is intended to be used as a basis for class discussion. Accuracy of information cannot be guaranteed. Please do not copy without permission.  © casestudyinc. com 2008 1. Introduction Dell thinks about their offerings as microprocessors, disk drives and frames-per-second graphics. But consumers just want a computer they can be proud of when they show it to their friends, listen to music, watch videos and do office work† – Christian Terwiesch, a Wharton professor Dell has been following its unique ‘direct build-to-order’ sales model for more than 20 years. Customers can plan their own configu ration and place orders directly with the company via the phone or its Web site. Over the years, Dell’s supply chain efficiencies and direct sales gave it a competitive advantage.In 2006 however, Dell faced several problems. Many customers complained about long delays in supplies. Recall of Sony battery cells in its laptops brought undesirable media hype to the company. Increasing discontent of customers led to a slowdown in sales. Consequently, Dell lost its market leadership to HewlettPackard Co. (HP). Industry analysts felt that, with Dell's competitors also improving their supply chains and matching Dell's direct model, the company had been losing its competitive edge. Dell will have to bear additional costs with its foray into retail distribution thereby minimizing its cost advantage.Besides, profit margins of Dell will drop further since it will have to offer incentives to compete with HP in retail stores. Though Dell spruced up its product design and range but Apple is clearly far ahead of it. Many experts feel that such new initiatives will only distract Dell from its supply chain operations. 2. Dell – Company Overview Dell is a leading technology company, offering a wide range of computer product categories. Its product categories include: desktop computer systems, mobility products (notebooks), servers, storage, software and peripherals, and services.Dell is the number one supplier of personal computers in the United States, and the number two supplier worldwide. Dell also offers various financing alternatives, asset management services, and other customer financial services. Dell has manufacturing locations worldwide. Dell’s build-to-order manufacturing model allows it to substantially reduce costs and at the same time offering customers the ability to customize their product purchases. 3. Dell Products and Services Product Lines and Brands Desktop PCs †¢ OptiPlex †¢ Dimension †¢ XPS †¢ Alienware †¢ Vost ro Servers and Networking PowerEdge and PowerConnectStorage Dell | EMC and Dell PowerVault Mobility XPStm and Alienware, Inspiron and Latitude lines of notebook computers Software and Peripherals Dell branded Printers, software titles, televisions, notebook accessories, networking and wireless products, digital cameras, power adapters, scanners, and other products Enhanced Services †¢ Infrastructure Consulting Services †¢ Deployment Services. †¢ Asset Recovery and Recycling Services. †¢ Training Services †¢ Enterprise Support Services †¢ Client Support services †¢ Managed Lifecycle services Financial Services Various customer financial services for business and onsumer customers in the U. S. through Dell Financial Services L. P 4. Dell – Key Facts Dell: Quick Facts Company Type Corporate Headquarters Revenues Industry Employees Manufacturing Facilities Distribution Product Lines Brands Major Competitors Business/Growth Strategy Key Executive s Name, (age),Designation Website Public (NASDAQ: DELL) Round Rock, Texas $57. 4 billion (fiscal 2007) Hardware, PC Manufacturing Approximately 90,500 total employees (Fiscal 2007) †¢ Brazil — El Dorado do Sul †¢ Florida — Miami (Alienware) †¢ North Carolina — Winston-Salem †¢ Ohio — West Chester †¢ Tennessee — Lebanon and Nashville Texas — Austin †¢ Ireland — Limerick and Athlone (Alienware) †¢ China — Xiamen †¢ Malaysia — Penang Worldwide †¢ Desktop PCs †¢ Mobility products †¢ Servers and Storage †¢ Software and peripherals and †¢ Services †¢ OptiPlex †¢ Dimension †¢ XPS †¢ Dell Precision and Alienware MJ-12 ® †¢ PowerEdge †¢ Dell PowerVault †¢ Inspiron †¢ Latitude †¢ HP †¢ Acer †¢ Lenovo Direct customer model Highly efficient manufacturing and logistics, and New distribution channels to reach custo mers Michael S. Dell (42) Chairman of the Board of Directors and CEO Donald J. Carty (61) Vice Chairman and CFO Michael R.Cannon (54) President, Global Operations Stephen J. Felice (50) Senior VP and President, Asia Pacific-Japan Mark Jarvis (44) Senior VP, Chief Marketing Officer David A. Marmonti (48) Senior VP and President, EMEA www. dell. com 5. Dell Timeline Dell Timeline 1983 Michael Dell used to upgrade IBM compatible PCs in his spare. (He was a freshman at the University of Texas, Austin) 1984 Michael Dell established PC's Ltd with sales US$ 6 million in its first full year of operations 1985 Turbo PC, first computer introduced by the company. Turbo PC was advertised in computer magazines and sold directly to customers 993 Dell joins the ranks of top-five computer system makers worldwide 1996 Dell pioneers Internet sales with earnings approx 1 million dollars per day just seven months after launch of www. dell. com 1998 The company changed its name to Dell Computer Corporat ion 1999 Dell introduces E-support tool to provide online technical support 2000 Online sales continue to grow to $50 million per day 2001 Dell achieves No. 1 ranking on global market share 2003 Dell launches Dell Recycling initiative 2004 Inventory turnover rate in Dell was at 107 times a year, compared to 8. 5 times at HP and 17. times in IBM. 2005 â€Å"America’s Most Admired Company† – Fortune Magazine 2005, 2006 Dell faced several problems, and lost its position as the largest selling PC manufacturer to HP 2007 Dell announced that it planned to move most of its global supply chain and manufacturing operations to Singapore, which would function as the company's ‘shared headquarters 2007 Michael Cannon assumes responsibility as the Head of Global Operations Organization 2007 Michael Dell (Michael) returned as CEO on January 31, 2007 2007 Retail partnerships with Wal-Mart, Staples, Gome, Bic Camera and Carphone Warehouse 2007Dell launches the Direct2Dell corporate blog and other idea forums to listen and engage customers 6. Dell – Business Segment Information Dell conducts operations worldwide. Dell is managed in three geographic regions: †¢ †¢ †¢ Americas Europe, Middle East, and Africa (EMEA) Asia Pacific-Japan (APJ). Major Business Segment Based in Americas Round Rock, Texas EMEA Bracknell, England APJ Singapore Covers Business – sales to corporate, government, healthcare, education, and small and medium business customers U. S. Consumer – sales primarily to individual consumers and selected retail partners Covers Europe, the MiddleEast, and Africa. Covers the Asian countries of the Pacific Rim as well as Australia, New Zealand, and India 7. Dell’s Evolving Supply Chain Strategy Dell’s past performance has been the result of its direct customer model. Dell’s success is attributed to a constant focus on delivering directly to its customers, related technology and services a t the best value. Dell’s operations involve highly efficient manufacturing and logistics to lower the cost of technology. 7. 1. Typical Working of Dell’s Supply Chain Dell Supply Chain works as follows: 1. Customer places an order, either by phone or through the Internet on its website . Dell processes the order in 2-3 days by evaluating financial feasibility (credit checking) and technical feasibility (technical con? guration) 3. Dell processes the order to one of its manufacturing locations 4. These plants can put together, test, and package the product in about eight hours 5. Dell typically plans to ship all orders no later than ? ve days after receipt 7. 2. Five key strategies in Dell’s successful Direct Model Five key strategies in Dell’s successful Direct Model †¢ †¢ †¢ †¢ †¢ Rapid time to volume Built to order products Elimination of reseller markupsSuperior customer service and support Low inventory and capital investment 7. 3. A supply chain with old technology is of little value The direct model involves bypassing retailers and selling personal computer systems directly to customers. This helps avoid the delays and costs of an additional stage (holding inventory) in the supply chain. Typically, each technology component loses about 0. 5 to 2 percent in a rapidly changing environment. A supply chain with old technology is of little value. Dell maintained very little inventory and concentrated on pacing its products through its supply chain.This also meant that there was no question of selling old products at a discount. 8. Restructuring at Dell Dell failed to meet its quarterly financial forecasts. Consequently, Dell lost its market leadership to Hewlett-Packard Co. (HP). In order to settle a few accounting issues, the company decided to restate its financial results for the last four years. Michael Dell had to take the CEO’s responsibility again, replacing Kevin Rollins. Michael Dell felt th e importance of increasing the capacity, via the direct model, to manufacture close to its customer and fully integrate its supply chain into one global organization.To do so Dell had to innovate and adapt its supply chain model to help drive differentiated product design, manufacturing and distribution models. He began a series of restructuring exercises. 8. 1. New Distribution Channels – Direct Model and Retail Strategy While part of the restructuring involved cutting 8,000 jobs, or 10. 0% of its workforce, the biggest surprise was the move of Dell to complement its ‘direct sales model’ with sale of PCs through retailer channels as well. To reach even more customers globally, Dell launched new distribution channels to reach commercial customers and individual consumers around the world.This meant moving from a model of direct sales to making its goods available in stores across the world. This move allowed Dell to reach customers that it could not reach directl y previously. From June 2007, it started placing its products in the shelves of Wal-Mart and Sam's Club stores. In December 2007, Dell also announced that its Dell laptops and desktop computers will be sold through Tesco stores in Britain and Ireland as well as the high-growth eastern European markets of Poland, Czech Republic, and Slovakia. In U. S. Asia and Europe, Dell added Best Buy, WalMart, Staples, China's Gome Stores, Japan's Bic Camera, France's Carrefour and British phone retailer, Carphone Warehouse to sell its products at nearly 10,000 retail outlets worldwide. In December 2007, Dell also chose WPP, the world's second-largest marketing, media and communications conglomerate after Omnicom, to create a new agency that will handle $4. 5 billion in accounts over the next three years. Dell hoped that creating the agency would increase the time and money spent focusing on marketing and customers rather than pitching for the next project 9.Integrating the Supply Chain Earlier, Dell's manufacturing, supply chain and procurement activities functioned separately. Procurement functioned as a standalone unit, the regional business executives were in-charge of manufacturing, and supply chain was a part of the worldwide operations of the company. All Dell's factories had been managed regionally, and procurement functioned as a separate division. Michael aimed to integrate its supply chain and achieve higher efficiency and quality through Global Operations Organization (GOO). GOO is Dell's center for integrating its global manufacturing, procurement