INSTITUTE OF PROFESSIONAL EDUCATION AND

RESEARCH

ASSIGNMENT

ON

PRODUCTION &OPERATIONS MANAGEMENT OF

DELL COMPUTERS

Submitted to: Submitted By:

Prof. Hersh Sharma Mohit Malviya (21)

Varsha Nair (48)

Aniket Bushal (57)

INTRODUCTION
Dell grew during the 1980s and 1990s to become (for a time) the largest seller of PCs and
servers. As of 2008 it held the second spot in computer-sales within the industry. The company
currently sells personal computers, servers, data storage devices, network switches, software,
and computer peripherals. Dell also sells HDTVs, cameras, printers, MP3 players and other
electronics built by other manufacturers.
In 2006, Fortune magazine ranked Dell as the 25th-largest company in the Fortune 500 list, 8th
on its annual "Top 20" list of the most-admired companies in the United States.
Dell today announced a series of moves to drive industry standards further into systems
management architectures, resulting in new capabilities that can simplify and automate the
administration of IT resources in the enterprise. The company unveiled the Unified
Manageability Architecture that provides a blueprint to standardize infrastructure management,
a new console architecture in collaboration with systems management leader Altiris and new
industry partnerships. Dell also announced that it is simplifying its existing portfolio of Open
Manage tools. Dell is committed to simplifying the management of IT resources so customers
can focus on what is most important to them – growing their business. Today they have taken a
tremendous leap forward in enterprise systems management.

DELL COMPUTER’S STRATEGY

The company’s strategy was built around a number of core elements:

• Build-to-order manufacturing,
• Partnerships with suppliers,
• Just-in-time components inventories,
• Direct sales to customers,
• Award-winning customer service and technical support,
• Pioneering use of the Internet and e-commerce technology.
Management believed that a strong first-mover advantage accrued to the company from its
lead over rivals in making e-commerce a centerpiece in its strategy.

1) Build-to-Order Manufacturing

Dell built its computers, workstations, and servers to order; no one were produced for inventory.
Dell customers could order custom-built servers and workstations based on the needs of their
applications. Desktop and laptop customers ordered whatever configuration of microprocessor
speed, random access memory (RAM), hard disk capacity, CD-ROM drive, fax/modem, monitor
size, speakers, and other accessories they preferred. The orders were directed to the nearest
factory. In 2000, Dell had PC assembly plants in Austin, Texas; Nashville/Lebanon, Tennessee;
Limerick, Ireland; Xiamen, China; Penang, Malaysia; and El Dorado do Sul, Brazil. All six plants
manufactured the company’s entire line of products.

Until 1997, Dell operated its assembly lines in traditional fashion, with each worker performing a
single operation. An order form accompanied each metal chassis across the production floor;
drives, chips, and ancillary items were installed to match customer specifications. As a partly
assembled PC arrived at a new workstation, the operator, standing beside a tall steel rack with
drawers full of components, was instructed what to do by little red and green lights flashing
beside the drawers containing the components the operator needed to install. When the
operator was finished, the drawers containing the used components were automatically
replenished from the other side, and the PC chassis glided down the line to the next
workstation. However, Dell had reorganized its plants in 1997, shifting to "cell manufacturing"
techniques whereby a team of workers operating at a group workstation (or cell) assembled an
entire PC according to customer specifications. The shift to cell manufacturing reduced
Dell’s assembly times by 75 percent and doubled productivity per square foot of
assembly space. Assembled computers were tested, then loaded with the desired software,
shipped, and typically delivered within five to six business days of the order placement.

Dell’s build-to-order, sell-direct strategy meant, of course, that Dell had no in-house stock of
finished goods inventories and that, unlike competitors using the traditional value chain model. It
did not have to wait for resellers to clear out their own inventories before it could push new
models into the marketplace—resellers typically operated with 60 to 70 days’ inventory. Equally
important was the fact that customers who bought from Dell got the satisfaction of having their
computers customized to their particular liking and pocketbook.

2) Quality Control Programs

All assembly plants had the capability to run testing and quality control processes on
components, parts, and subassemblies obtained from suppliers, as well as for the finished
products Dell assembled. Suppliers were urged to participate in a quality certification program
that committed them to achieving defined quality specifications. Quality control activities were
undertaken at various stages in the assembly process. In addition, Dell’s quality control program
included testing of completed units after assembly, ongoing production reliability audits, failure
tracking for early identification of problems associated with new models shipped to customers,
and information obtained from customers through its service and technical support programs. All
of the company’s plants had been certified as meeting ISO 9002 quality standards.

3) Partnerships with Suppliers and Just-in-Time Inventory Practices

It made much better sense for Dell Computer to partner with reputable suppliers of PC parts and
components rather than integrate backward and get into parts and components manufacturing
on its own. A central element of Dell Computer’s strategy, was to evaluate the various makers of
each component, pick the best one or two as suppliers, and partner with them for as long as
they remained leaders in their specialty. Management believed long-term partnerships with
reputable suppliers yielded several advantages.
First, using name-brand processors, disk drives, modems, speakers, and multimedia
components enhanced the quality and performance of Dell’s PCs. Because of varying
performance of different brands of components, the brand of the components was as important
or more important to some end users than the brand of the overall system. Dell’s strategy was
to partner with as few outside vendors as possible and to stay with them as long as they
maintained their leadership in technology, performance, and quality.
Second, because Dell’s partnership with a supplier was long term and because it committed to
purchase a specified percentage of its requirements from that supplier, Dell was assured of
getting the volume of components it needed on a timely basis even when overall market
demand for a particular component temporarily exceeded the overall market supply.
Third, Dell’s formal partnerships with key suppliers made it feasible to have some of their
engineers assigned to Dell’s product design teams and for them to be treated as part of Dell.
When new products were launched, suppliers’ engineers were stationed in Dell’s plant, and if
early buyers called with a problem related to design, further assembly and shipments were
halted while the supplier’s engineers and Dell personnel corrected the flaw on the spot.
Fourth, Dell’s long-run commitment to its suppliers laid the basis for just-in-time delivery of
suppliers’ products to Dell’s assembly plants. Many of Dell’s vendors had plants or distribution
centers within a few miles of Dell assembly plants and could deliver daily or even hourly if
needed. To help suppliers meet its just-in-time delivery expectations, Dell openly shared its daily
production schedules, sales forecasts, and new- model introduction plans with vendors. Using
online communications technology, Dell communicated inventory levels and replenishment
needs to vendors on a daily or even hourly basis. Michael Dell explained what delivery
capabilities the company expected of its suppliers:

They tell their suppliers exactly what their daily production requirements are. Every two weeks
deliver 5,000 to this warehouse, and they’ll put them on the shelf, and then they’ll take them off
the shelf. For the next day they need 8,562, and deliver them to different by 7 am."

Dell also did a three-year plan with each of its key suppliers and worked with suppliers to
minimize the number of different stock-keeping units of parts and components in designing its
products. Current initiatives included using the Internet to further improve supply chain
management and achieve still greater manufacturing and assembly efficiencies.

4) Just-in-Time Inventory Practices

Dell’s just-in-time inventory emphasis yielded major cost advantages and shortened the time it
took for Dell to get new generations of its computer models into the marketplace. New advances
were coming so fast in certain computer parts and components (particularly microprocessors,
disk drives, and modems) that any given item in inventory was obsolete in a matter of months,
sometimes quicker. Having a couple of months of component inventories meant getting caught
in the transition from one generation of components to the next. Moreover, it was not unusual
for there to be rapid-fire reductions in the prices of components—in 1997 and early 1998, prices
for some components fell as much as 50 percent (an average of 1 percent a week).
The economics of minimal component inventories were dramatic. Michael Dell explained:

If they have got 11 days of inventory and their competitor has 80 and Intel comes out with a new
450-megahertz chip, that means they are going to get to market 69 days sooner.

In the computer industry, inventory can be a pretty massive risk because if the cost of materials
is going down 50 percent a year and the company has two or three months of inventory versus
11 days, they have got a big cost disadvantage.

Collaboration with suppliers was close enough to allow Dell to operate with only a few days of
inventory for some components and a few hours of inventory for others. Dell supplied data on
inventories and replenishment needs to its suppliers at least once a day—hourly in the case of
components being delivered several times daily from nearby sources. In a couple of instances,
Dell’s close partnership with vendors allowed it to operate with no inventories. Dell’s
supplier of monitors was Sony. Because the monitors Sony supplied with the Dell name already
imprinted were of dependably high quality (a defect rate of fewer than 1,000 per million), Dell
didn’t even open up the monitor boxes to test them. Nor did it bother to have them shipped to
Dell’s assembly plants to be warehoused for shipment to customers. Instead, using
sophisticated data exchange systems, Dell arranged for its shippers (Airborne Express and
UPS) to pick up computers at its Austin plant, then pick up the accompanying monitors at the
Sony plant in Mexico, match up the customer’s computer order with the customer’s monitor
order, and deliver both to the customer simultaneously. The savings in time, energy, and cost
were significant.
The company had, over the years, refined and improved its inventory tracking capabilities, its
working relationships with suppliers, and its procedures for operating with smaller inventories.
Fiscal Year Average Inventory Turn Over Ratio
1995, 32 days.
1997, 13 days.
1998, 7 days,
1999, 6 days’
Gateway’s 14-day average,
Compaq’s 23-day average,
estimated industry 50 days.
The company’s long-term goal was to get its inventories down to a 3-day average supply.

5) Direct Sales

Selling direct to customers gave Dell firsthand intelligence about customer preferences and
needs, as well as immediate feedback on design problems and quality glitches. With thousands
of phone and fax orders daily, $35 million in daily Internet sales, and daily contacts between the
field sales force and customers of all types, the company kept its finger on the market pulse,
quickly detecting shifts in sales trends and getting prompt feedback on any problems with its
products. If the company got more than a few of the same complaints, the information was
relayed immediately to design engineers, who checked out the problem. When design flaws or
components defects were found, the factory was notified and the problem corrected within a
matter of days. Management believed Dell’s ability to respond quickly gave it a significant
advantage over rivals, particularly PC makers in Asia, that operated on the basis of large
production runs of standardized products and sold them through retail channels. Dell
saw its direct-sales approach as a totally customer-driven system, with the flexibility to change
quickly to new generations of components and PC models.

Despite Dell’s emphasis on direct sales, industry analysts noted that the company sold perhaps
10 percent of its PCs through a small, select group of resellers. Most of these resellers were
systems integrators. It was standard for Dell not to allow returns on orders from resellers or to
provide price protection in the event of subsequent declines in market prices. From time to time,
Dell offered its resellers incentive promotions at up to a 20 percent discount from its advertised
prices on end-of-life models. Dell was said to have no plans to expand its reseller network,
which consisted of 50 to 60 dealers.

6) Dell’s Use of Market Segmentation

To make sure that each type of computer user was well served, Dell had made a special effort
to segment the buyers of its computers into relevant groups and to place managers in charge of
developing sales and service programs appropriate to the needs and expectations of each
market segment. Until the early 1990s,

Dell had operated with sales and service programs aimed at just two market segments:
(1) corporate and governmental buyers who purchased in large volumes and
(2) small buyers (individuals and small businesses).
But as sales took off in 1995–97, these segments were subdivided into finer, more
homogeneous categories

65 percent of Dell’s sales were to large corporations, government agencies, and educational
institutions. Many of these large customers typically ordered thousands of units at a time and
bought at least $1 million in PCs annually. Dell had hundreds of sales representatives calling on
large corporate and institutional accounts. Its customer list included Shell Oil, Sony, Exxon-
Mobil, MCI, Ford Motor, Toyota, Eastman Chemical, Boeing, Goldman Sachs, Oracle, Microsoft,
Woolwich (a British bank with $64 billion in assets), Michelin, Unilever, Deutsche Bank, Wal-
Mart, and First Union (one of the 10 largest U.S. banks). However, no one customer
represented more than 2 percent of total sales.

Dell recognized that its direct-sales approach would temporarily put it at a disadvantage in
appealing to small-business customers and individual consumers. But Dell believed that over
time, as Chinese consumers became more familiar with PCs and more comfortable with making
online purchases, it would be able to attract growing numbers of small-business customers and
consumers through Internet and telephone sales.

Migration to New Technology Dell had opened facilities in both Europe and North America to
assist its customers and independent software providers in migrating their systems and
applications to Windows 2000, Intel’s new 64-bit Itanium computer chip technology, and other
next-generation computing and Internet technologies. Dell was partnering with Intel, Microsoft,
Computer Associates, and other prominent PC technology providers to help customers make
more effective use of the Internet and the latest computing technologies. Dell, which used Intel
microprocessors exclusively in its computers, had been a consistent proponent of standardized
Intel-based platforms because it believed those platforms provided customers with the best total
value and performance. Dell management considered both Intel and Microsoft as long-term
strategic partners in mapping out its future.
Dell has achieved a system that at times leaves them with average inventories for long
enough to last only three days. Instead of incurring holding costs, Dell doesn’t order
until the demand is in place.
The system Dell has achieved is referred to as a Just In Time (JIT) system. JIT is designed to
keep inventories as low as possible by producing only what is needed and when it is needed.
The technology involved allows customers to place an order on Dell’s website and receive their
computer within days. Dell’s website is connected to their electronic data interchange (EDI)
system which allows suppliers to see what parts Dell requires as soon as the customer orders
the computer. The suppliers, who make multiple shipments to Dell daily, supply Dell with the
parts they need when, and only when, they require them. Although the software is costly, for
Dell, and some many other firms, the result is savings that give competitive advantage.
However, JIT is an extremely difficult system to set up that requires years of practice and
extremely cooperative suppliers to perfect. For many firms, this is not an option. In particular,
this system is not designed for products that have a very large backorder cost.

Dell is integrating the new architecture into its own products, including the Dell Remote Access
Controller and Baseboard Management Controller for Dell PowerEdgeTM servers. Hardware,
operating system and application partners such as AMD, Intel, Avocent, Broadcom, Microsoft,
Novell, Oracle and VMware have already adopted many of these standards.
Dell Delivers Two Paths for Integrated Systems Management
Dell's unique approach to systems management gives customers two paths to integrated
enterprise systems management. For customers who value choice of tools and seamless
integration, the company collaborates with partners to integrate software and hardware
management on a single console using industry-standard protocols. This gives customers
control of Dell hardware using leading systems management applications and can minimize the
tools required to deploy, monitor and update their enterprise infrastructure while helping reduce
cost and simplifying operations.
Dell's use of just in time results in cost savings, superior customer satisfaction, limited waste,
and the ability to provide their suppliers with more information. In the end these benefits all
result in a cost savings for Dell and higher revenue. Since Dell holds minimal inventory, they do
not have to fund raw materials, work in process or finished goods inventory.

Dell effectively get the right products to their customers when they need it. Both companies
have achieved a competitive advantage within their industries due to utilizing the just in time
process and allowing visibility between them and other members of the value chain.

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