Dell is recognized as the number 1 Laptop- seller company in the world. It has segmented its market so as to distinguish between Business to Business ( buyers of large quantities) and business to consumer.
Its success can be explained by the efficiency of its supply chain and distribution system. Dell's selling method is very often described as the direct model which is an e-business infrastructure enabling customers to tailor-make their computers and to order directly to Dell from anywhere in the world.
This company practices lean and agile production. In fact Dell has built its competitive advantage by moving from mass production to the production of customized computers and at the same time by focusing on cost reduction, quick response to environmental changes and eliminating non-value creating activities (minimum inventory level). The key element of success is based on the use of Internet as a means of sharing information with suppliers, vendors and customers.
For Michael Dell, CEO success can be explained by the capability of this firm to regularly create value for customers by increasing their satisfaction, and the performance of computers.
How ca we explain Dell's competitive Advantage
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. What is absolutely remarkable is that it 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.
How?
Consider selectively adding other vendors to its supply chain management system.
Initiate a program to use "Customer Surveys" to gain market share.
Invest more in their Research and Development to develop new products and services.
Consider offering online data back-up capabilities.
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.
Enhance Dell's customer support services.
Increase their company recognition through a national advertising campaign.
Dell's Model
The success of Dell can be summed up in the following way: it practices lean and agile management. When a customer order reaches Dell, the suppliers are automatically informed and within a few hours all the components are shipped to Dell's assembly workshop. This way of working is known as Dell's Direct Model, referring to the direct contact with the customers and the instant connexions with the suppliers.
Dell creates value by practising economies of scope. In fact it is known to be an efficient and effective build-to-order product company. Customers all around the world order customized systems from Dell's website. It is in a position to satisfy all those customers. Its 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. This system allows Dell to offer customers more value for their money by eliminating intermediaries in their procurement, manufacturing and distribution processes
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 uses a strong production planning programs to forecast the quantities of components needed to build the computers. It uses a JIT inventory system. It 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.
Dell's supply chain system
Dell manages today some 100 suppliers delivering more than 3500 parts. . Three years ago, it worked with more than 1,000 suppliers. 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).
This link is known as DVCM (Dynamic Value Chain Management). "DVCM requires synchronized, multi-enterprise collaboration based on streamlined decision-making workflows across companies. It requires companies to push planning and execution toward real-time or near-real time. DVCM's net result is a fundamental change in the relationship between companies and their trading partners- a change that creates tremendous value for companies, their trading partners and their customers (Harrington, 2002)." When Dell utilizes its i2 SCM strategy, Dell "can model and monitor their business in real-time, and analyze issues such as sourcing, distribution, resource and capacity constraints (Harrington, 2002)." Some of the capabilities of DVCM are collaborative demand planning with customers and suppliers, auto-replenishment of inventories, design information sharing with strategic partners, content management and distribution with management. 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.
His very efficient system can also be very dangerous if ever there is a breakdown. This led Dell to take the necessary measures to protect its IT system. Aware of this fact Michael Dell has taken the necessary steps to protect its company against this kind of problems. A system failure would result in a loss of valuable human resources and could decrease employee productivity. For instance, Michael Lambert said recently of Dell's new business workgroup server, "With the PowerEdge 1300, Dell has introduced a highly reliable and manageable system that redefines server value" (New Servers, 2004). The PowerEdge 1300 has the ability to run dedicated server applications such as file and print, Internet/Intranet and e-mail, therefore safely increasing employee productivity through the use of secure workforce systems. Dell and IBM both protect themselves from this potential problem with the use of specific intranets and backup/recovery systems. Recently Altiris Recovery Solution has been selected by Dell for integrated delivery of backup and disaster recovery. Altiris along with Dell OpenManage 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
.
Value-added services
Dell's use of the internet has revolutionized the company. It makes their website extremely consumer friendly to offer an easy order process to the customers.
It keeps consumer information lines open 24 hours a day, 7 days a week. They also all have an easily accessible online help services. Created for Dell by the firm that developed the popular "Ask Jeeves" Internet search engine, the application now handles more than 150,000 questions a week" (Dell courts customers online, 2004).
Customers can order their own custom computer, have it built by Dell in three days and have it delivered to the customers' doorstep within one week.
One way in which Dell is trying to promote itself is by expanding its product line. Dell, just like its three major competitors (Gateway, Hewlett-Packard, and Apple Computer) is trying to depart from its desktop roots by marketing consumer electronics. These new consumer electronics are directed straight to customer's living rooms including such products as wide-screen televisions, digital cameras, videogame consoles, downloaded-music players, camcorders and digital-video recorders.
As a result of an alliance, Gen3 Partners and Arthur Andersen decided to work with Dell in April, 2000. "Gen3 Partners will provide strategic business development and technology consulting services to help Dell's largest corporate customers with headquarters in the United States leverage their existing assets to create, architect and launch Internet-enabled enterprises (2000)." According to Jim Sims, CEO of Gen3 Partners, "The next wave of Internet infrastructure will focus on `brick-to-click' opportunities, as established companies integrate the Internet into their businesses. Gen3 Partners will provide a valuable service to Dell customers by helping them use the Internet to improve their business-to-business (B2B) capabilities and supply-chain processes." Dell has recently introduced services to help customers conduct business over the Internet more efficiently, including a Web hosting initiative called DellHost (www.dellhost.com) and the upcoming introduction of a small and medium-sized B2B marketplace in conjunction with Ariba (2000)." Ariba, Inc. provides solutions that allow enterprises to manage efficiently the purchasing of all non-payroll goods and services required to run their business. Ariba's solutions, which include software applications, services and network access, are designed to provide corporations with technology and business process improvements to better manage their corporate spending and, in turn, save money.
The supply chain system
Identified Problems
Although Dell continues to win market share and turn out record quarterly profits, two recent surveys have shown that they have not been as successful in the area they pride themselves in the most; customer service. In a report that rated the satisfaction of PC buyers, Dell's scores have declined in recent months. Statistically, the results are not catastrophic, but it is still an issue that Dell needs to address and improve in. The March 2004 issue of
Consumer Report, included a survey of 4,100 consumers, who gave Dell 62 points out of a possible 100 for its support on desktop PCs. Although it still managed to top competing brands Hewlett-Packard and Compaq, HP scoring 54 and Compaq 51, Dell's rating represented a decline from a score of 64 which was given in the magazine's last desktop support survey, published in June 2003.
Industry advisory firm, Technology Business Research (TBR), issued a report on support satisfaction among corporate buyers and has indicated that Dell's satisfaction ratings have slipped to 80.98, down from 83.4 in the third quarter of 2003. TBR questions buyers on eight aspects of support, including their overall satisfaction with a company's support service,
New developments
"The paradigm shift we'd like to see is fewer tech support phone calls, allowing our technicians to spend more time solving the more complex problems"
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 the key to the success of its products. Dell and IBM both have a high degree of integration when it comes to transferring data files from system to system effectively. It has been Dell's vertical integration model that, "has kept the company afloat despite the industry downturn" (Schick, 2002). To stay competitive in today's computer market, the ease of integration would have to efficiently match the degree of demand as to manage its resources properly. Also Dell's flatter organizational structure heightens the ability for many sources to have input into the future of the company as it deals with the evolving vision of what the market will call for.
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.
