Michael Dell founded Dell Computer Corporation in 1984 having only $1000 start-up capital. To date, his business has grown to become the second largest computer systems producer in the world, with average daily sales of more than $5 million. The ‘hub’ of Dells production system is based in the U.S (Round rock, Texas), while other factories are located in Nashville, Tennessee, Limerick, (Ireland), Penang, Malaysia, Xiamen, China and Eldorado do Sul, Brazil. Dell has offices in thirty-four countries around the world and sells its products and services in more than one hundred and seventy countries. The table below provides a break down of Dells global market growth and position. Monetary values are quoted in US$ in millions.
The Dell Direct model does not only involve a direct relationship with customers but also includes suppliers. Through the use of the World Wide Web, Dell has been able to integrate both customers and suppliers into its manufacturing and logistics function. Dell manufacturing and Logistics process Dell is the quintessential model of Just in Time management. Supplies and components are ‘pulled’ through the organisation to arrive where they are needed and when they are needed. As highlighted earlier Dell operates on just eight days of inventory, alternatively components are pulled through the production system through use of the ‘Kanban’ system.
Suppliers or workstations only deliver components when they receive a card (for example an e-mail) or an empty tote informing them those parts are/will is needed for production. Dell has been able to use an ‘integrated Kanban’ process to significant advantage, this process is divided into two areas, which are the transport Kanban and the production Kanban. The distinction between the two is the transport Kanban works on a daily schedule where components are produce by suppliers depending on the specific order for that day.
As a result of building to order it is difficult for Dell to determine or forecast the particular components which would be needed, which justifies the use of the Kanban process. On the other hand the production Kanban outlines when work has to be completed by a particular cell or workstation. Therefore based on that time-scale suppliers are able to determine at which point in the assembly line their particular component would be needed. The integrated Kanban process is based on fixed production schedules and can therefore only be successful with an efficient and effective logistics process.
This process is also dependent on mutual trust between Dell and suppliers. To foster this trust and harmonise its relationship with suppliers Dell is making use of E-Commerce technology. This will be discussed in a later section under the heading (Dells use of Technology to make its logistics function more efficient and effective). At this point an analysis of Dell’s external logistics. The diagrams on the following page is a representation of a blueprint of Dells external logistics process: The pictures labelled A, B, C, D, each represent a Dell customer.
The diagram at the center of the page represents Dell’s Austin, Texas Factory, where numbers diagrams 1, 2, 3, 4, 5, 6 are suppliers. When Dell receives an order from a customer, it is broken down into a list of the parts needed to build the computer. After this list has been compiled this information is fed to pertinent suppliers in the form of an electronic message. Those suppliers in turn would have an idea of what components would be needed from them, to facilitate timely delivery they expected to be located at least fifteen minutes away from Dell’s factory.
Communication with in the supply chain would be done via an extranet, where suppliers are also made aware of the production time-scale. Based on these time-scales which have been set suppliers can therefore determine how to best organise their production process to meet the specifications for components. These components are fed into Dell from each specialist supplier; some arriving as and when needed in the production process. Dell found that the lead-time could be further reduced by having some of the components or peripherals sent directly to the customer rather than to the factory and then to the customer.
For example, when a computer is ready to be shipped, an e-mail is sent to a supplier who pulls from stock the specified video display unit/s and sends them/it to arrive with the PC. During this entire process a Dell customer is able to go online and receive some feedback on the status of their order as highlighted in the Appendix of this report. Below, an insight is given into the internal processes involve in getting the finished product to the customer. At this point a Dell sales representative confirms the order, that is the configuration details and form of payment.
Payment can be made either by credit card or check. Credit card payments take less than 24 hours to approve and therefore are processed much quicker than other methods of payment. Any Correspondence regarding approved orders would be done either via e-mail/telephone. After the order has been processed, the configurations are sent to manufacturing where, a the list of necessary components is compiled. Each PC would then be linked by an electronic bar code to its individual order number.
This bar code facilitates a quick response to any enquiries made by customers regarding the status of any order. At this stage components would then be ordered from pecialist suppliers. The lead-time would depend on the availability of parts and the configurations of individual orders. The customer would be informed of this in the order processing stage. When the parts are received they are separated according to the individual orders. Each order is place in a tote/ bin with the with a spec sheet. These totes are then carried along a conveyor belt to the building process.
When the totes arrive, the assembly process commences. Each system starts with a chassis to which the parts specified by the customer are then added. Parts are also fed into the building process rom suppliers as and when needed. Computers are assembled within a cell, each specialist worker within that cell is accountable for the products quality. After the hardware has been fully installed at this point the components are tested on the basis of their individual functionality as well as their integration into the whole system.
This stage also involves loading the software or operating system requested by the customer. The aim of the testing phase is to ensure that the end user of the product receives the highest quality and satisfaction. When the products have successfully gone through the testing process hey are then boxed including any instruction manuals, these boxes are then placed on conveyor belts destined to be loaded onto delivery trucks. Products, which are to be shipped out of the country, are prepared for delivery.
The necessary paper work is filled out and the products sorted according to their individual destinations, delivery preparation normally takes one day after production. The computers are then shipped to customers, they are expected to reach the customer within 2-5 days of the shipped date. Dell has been able to improve the efficiency of the above processes by using the Internet. Dells use of Technology to make the logistics function more efficient and effective. “The internet is shrinking time and distance it is reducing cost and adding velocity to business.
What we see with the Internet is a mode of business that we refer to as Virtual Integration, where suppliers and customers are linked together using information”. (Michael Dell Speech Archive, The PC industry A Robust outlook). (1) The Dell philosophy is that to truly realise the economies and speed that the Internet provides the organisation needs a fundamentally different perspective on the nature of business relationships and on value created for customers. Therefore the aim of Virtual integration is to bridge the traditional gap between the firm and its stakeholders.
The process of Virtual integration is a hybrid of information technology and Vertical integration. Virtual integration is essentially an information sharing process, which could be in relation to design databases or methodologies. The Internet has made it possible for Dell to work in real-time with suppliers and customers engaged in “collaborative research or product development”. For example, Dell was able to introduce a new line of Notebook computers using the Internet to keep a common set of notes by engineers in the United States and Asia.
These engineers were able to share their expertise, and therefore able to work together to develop this new product. In a traditional vertically integrated company months /years would be spent designing parts and building them. Dells success in utilising the Internet in its business model is regarded as a benchmark for other businesses. At least 50% of the total number of goods produced by Dell Computers are made as a result of being online. In monetary terms an average of over US$40 million within a seven-day period. 1) Dells Premier pages To further personalise the relationship between the organisation and customers, using the Internet, Dell has created personalised WebPages called Premier Pages, which are tailored to customers needs. These pages are specifically designed for large corporate organisations containing information on accounts, procurement and purchase order processes unique to that customer. The WebPages allows Dell to deliver service and support information directly to the customer, relating to their specific products.
Dell designed WebPages for suppliers, this allows the firm to provide them with information on customer feedback the quality of the product, forecast of current and future demand and special technical requirements and end user market pricing. Likewise Dell is able to receive feedback from suppliers concerning their capacity to produce certain quantities of components, information on inventories in their supply lines as well as their current cost structure. Therefore assisting management in making decisions on effective resource planning strategies.