OPERATIONS AND SUPPLY CHAIN

MANAGEMENT CIA 3

CASE STUDY TOPIC: HOW DID DELL OVERCAME THE RECESSION PERIOD
OF 2008-09 WITH THEIR SUPPLY CHAIN NETWORK

Submitted to:

Prof. Narasimhan

Submitted by:

Dhananjay Baweja 1828706

Febin Rajan 1828707

Georgin Paul 1828708

Jobin Paul 1828709

Melvin Victor 1828710

Introduction to Dell Inc

Dell Inc., formerly PC’s Limited (1984–88) and Dell Computer Corporation (1988–2003),
global company that designs, develops, and manufactures personal computers (PCs) and a
variety of computer-related products. The company is one of the world’s leading suppliers of
PCs. Dell is headquartered in Round Rock, Texas.

The company, first named PC’s Limited, was founded in 1984 by American Michael Dell,
who was then a student at the University of Texas in Austin. Initially running the business
from a dormitory room, Dell started out providing customized upgrades for PCs. The venture
proved profitable, and Dell dropped out of college that same year to begin building PCs. In
1985 the company released the Turbo PC, the first computer featuring Dell’s own design.
Founded on the premise of creating and selling custom-built PCs directly to consumers, the
company initially sold its products through advertisements and mail-order catalogs. By
avoiding the costs associated with traditional retail markets, Dell was able to offer high-
quality PCs at competitive prices. Dell emphasized customer support, sending technicians to
service PCs and implementing a policy of risk-free returns. This business model proved
successful, and the company quickly grew, expanding into international markets. The
company, renamed Dell Computer Corporation, went public in 1988.

Dell released its first notebook computer, the 316LT, in 1989. The following years were
marked by advancements in Dell’s mobile technology. In 1991 Dell’s first colour notebook
computer went on sale, and in 1994 Dell was the first company to offer long-lasting lithium-
ion batteries. In 1996 Dell began selling PCs online and also used the Internet for customer
support. Online sales helped Dell overtake the Compaq Computer Corporation in 1999 as the
largest seller of PCs in the United States.

In the early 21st century Dell expanded its product line to include televisions, digital cameras,
and a variety of computer-related products. In 2003 the company was renamed Dell Inc. to
signify a move into the broader consumer electronics market. In 2016 the company and an
investment firm acquired EMC, an American corporation that specialized in data storage. The
merger, valued at approximately $60 billion, was the largest technology deal at the time.
 Weaknesses
Strengths
Market share growth is slow due to competition;
Dell has reliability and excellent customer service along
with strong brand loyalty Fake products/ imitations affect sales
Direct Model Approach, it provides Dell a way to interact
to customers directly, thereby providing them the way for Lack of Dell Stores as main business is done
cross selling to their other products online, can be an issue for some customers.
Has approximately 100,000+ employees worldwide
The customization of products, online and offline by
customers helps them to configure their products as per
the needs
Acquisitions have strengthened Dell's position in the global
market
Dell ProSupport is an excellent service feature providing
customer service 24x7 for the entire year
Strong advertising & branding make it a popular laptop &
PC brand

SWOT ANALYSIS
Opportunities
With increase in e-commerce the online retail
stores of Dell provide them better framework to
tap new business
The Direct approach Model of Dell would help
them there existing to sell the other IT products,
so new product development opportunity is for
the company
Dell can target low priced tabs to capture
emerging markets & rural areas
Tie-ups with research institutes, schools, colleges
etc can further boost the company's business
Threats
With the increase in innovation in the market the
computer systems are becoming outdated, so Dell
should constantly come out with new products
People need the quality products at low price
which was Dell strength due to it’s customize
solution, but now its competitors are coming up
with products in same price range
Technological advancement constant, hence
breakthrough innovation is essential

Competitor of Dell Inc.

Given below are the major competitors of Dell Inc.

1. HP
2. Toshiba
3. Apple
4. Lenovo
5. Acer
Introduction (to the 2008 and the 2009 Recession period)

The computer industry bottomed out in the year 2008 and 2009 due to the recession, even
though they showed a surprising breakthrough in the latter part of the year. During these
years, many computer companies have suffered a great setback due to this recession. It takes
two years for these companies to regain their previous market reputation. Some computer
companies such as Intel, IBM, Apple computers and dell are doing quite well. Due to the
rising demand and the new innovative products like iPhone this industry has received god
result during the year 2010. The other of areas of growth and expectations in the computer
market are netbooks, handhelds, notebook, e-book and tablets system, storage area networks,
Smartphone, cloud computing and server virtualization. The performances of newly emerging
companies are much better than the Europe, Japan and US. Due to the growing demands and
global computer production, China is emerging as the fastest growing country. The
acquisition of the sun Microsoft by the oracle will be a significant contribution in the server
market.

This market is entering into a new phase of the applications like cloud computing and
virtualization and this can be benefitted by the sun oracle tie up. The major players of this
field are HP for its acquisition of Compaq computers, IBM for its leadership in the enterprise
system, Dell for its hyper growth after the many years of struggle, Apple for its class leading
innovation. The personal computer markets are rebounding after a decrease in the demand of
the 1H09. According to IDC, the total growth in the year 2009 was 2.9 percent but in the
mobile computing it was 18.4 percent. In the year 2010, the overall growth was 12.6 percent
due to the market growth.
 Image Source: Companyman

It is clear from the above graph that Dell was hit hard during (2006-2009). A leading PC
manufacturer who made their presence in the industry by going global, had to rethink their
strategies to rise against HP, who took their position.The sales of the notebook may be
affected by the netbook sales. Acer and Asus are the leading company in this field. Apple is
going to continue with the premium segment with the market share of $1000. In the category
of the e-book, Apple iPad is emerging as a trend setting product. Microsoft can able to re-
establish with the windows7. The desktop PC could be helped by the virtualization. Cloud
computing could help the hardware sales. X86 server technologies which is used in the PC
server architecture has RISC server architecture proprietary but most of them are damaged.
HP and IBM is good proprietary segment even during the downturn. Due to the increased
pressure, the ASPs have come in the place of the X86 and parallel system. The given figure
shows the IDC worldwide server factory revenues 4Q09.
Brief about Just In Time (JIT)

Also known as the Toyota Production System, JIT is a common inventory management
technique and type of lean methodology designed to increase efficiency, cut costs and
decrease waste by receiving goods only as they are needed. JIT was originally formed in
Japan as a response to the country’s limited natural resources, leaving little room for wastage.

Today, Just in Time systems are used by many businesses, and it has influenced related lean
inventory management techniques like IBM’s Continuous Flow Manufacturing (CFM). The
rise of drop shipping has made JIT inventory management more appealing for retailers, as it
allows them to sell a product before buying it, then purchase the item from a third party and
have it shipped directly to the customer.

With the right approach, utilizing a JIT inventory management strategy has a number of
potential benefits for businesses:

● Lower inventory holding costs – with inventory purchased or produced at short notice
there’s no need to have unsold inventory taking up valuable warehouse space.

● Improved cash flow – without the need to store large volumes of inventory at all times,
capital expenditure is reduced, and cash can be invested elsewhere.

● Less dead stock – because inventory levels rely on customer demand, there’s less risk of
unwanted stock left sitting in your warehouse.

On the flipside, though, Just in Time inventory management isn’t without its potential
disadvantages:

● Problems with order fulfillment – if a customer orders a product and you don’t yet have
it in stock, you run the risk of not being able to fulfill the order in a timely fashion.

● Little room for error – doing JIT right means having accurate demand forecasts and
insights into customers’ buying habits at all times. Any miscalculation could have a
significant negative impact on business operations.

● Price shocks – with a Just in Time system, you don’t have the luxury of waiting around for
the best prices on goods. When prices go up, profit margins go down.
Supply chain management strategies within dell computers

Supply chain management is a management of the interconnected businesses which is

involved in the provision of the service and product packages that is required by the end
customers. It spans all storage and movement of raw materials, inventory and finished good
from the point of origin to the consumption point. Due to the increasing complexity and
competition, supply chain management become very important for the business world.

Dell computers are one of the most profitable and successful computer corporations. It is
known for its innovative products and customer service configuration. Dell is basically in the
business of manufacturing servers and computers. In the earlier concept of ordering
computers, the customers went to retail or electronic store to buy computers. In this case
customers do not have interaction with the manufacturer. They basically interact with the
salesperson and because of lack of knowledge about the products the salesperson was not
able to increase its market value. Dell adopted the concept of direct interaction with the
customer via phones and internet. The supply chain management system created by Dell
ensured that the right computers parts are always available where and when needed. Dell’s
strong relationship with their customers and suppliers helps them to meet their customers
demand as soon as possible. This approach of Dell towards the demand of customer gives
them a competitive advantage.

The business strategy of Dell basically focused on creating most effective SCM system that
will provide the streamline to the supply chain process by linking planners and suppliers of
Dell together in order to meet customer demand and requirements. In order to meet supply
chain needs, dell deployed the software i2 collaboration planner, i2 supply chain planner and
i2 factory planner. This i2 technology is used to coordinate the process build-to-order. The
company can able to integrate the demand and supply side of business by using the software
that will eliminates the inventory overages.

This system enables the company to pull the materials directly into the factories in every 2
hours depending on the real time customer orders. The result of the new supply chain strategy
is the lowest inventory levels of Dell in the computer industry. Just-in-time inventory and real
time scheduling resulted in the efficient inventory deliveries and turnovers. The maintaining
cost of inventory in a supply chain is included in the final cost of the PC. Therefore when
there will be a reduction in the inventory cost, the customers of Dell will benefitted by the
reduced product prices. The quality of product will be higher with the low inventories
because Dell has ability to detect the problem more easily than with the high inventories.

Dell Value Chain

Image source
Supplier customer relations

In the 1990s, Dell tried to sell its product through retails outlets but after some time they
realize that this approach was unprofitable. Then they decide to focus on improving customer
relationship and this resulted in the unique strategy. Dell has a simple strategy for the supply
management is to sell the PCs directly to the customers.

The aim of the Dell Company is to combine the close coordination of the vertical integration
with the cost advantage of the horizontal specialization. Dell basically deals with the three
types of customers. First one is large corporate customers which are also known as
relationship customers, another is small businesses and home and last one is public sector.
The communication channels used by the dell company are call centres and internet to help
their customers. Dell also assigns telephone and sales service representative to each
relationship customers. They also provides a website facility where all the registered
customers are able to communicate with them at faster speed and able to place order online
and can ask for the technical support for 24 hours a day.

The central role in the success of the Dell is played by the direct model. This model basically
helps in maintaining customer relationships. Another method used by the Dell in maintaining
customer relationship is Platinum Councils. According to this they organize meetings for
their relationship customers inviting technicians and executives to discuss about their latest
products and give them chance to share their experiences and views. The relationship of dell
with their suppliers is an important column of direct model. These types of bond are also
called business to business relationships.

It can be described as vertical relationship in which they integrate a part or all the supply
chain. The relationship of Dell with their suppliers has undergone through various
development in the last twenty years. In the past, Dell had more than 140 suppliers. As the
time past, the maintenance of these relationships was considered very costly and declined its
performance. Then Dell redesigned its computers in such a way that different models can be
utilized by as many components as possible.

Now, Dell has only 30 suppliers which provide them with 75% of their material needs. Now
days, the strategy adopted by Dell is to have few suppliers as possible. Dell maintains a
dynamic relationship network with their suppliers so that they can stay flexible. The concept
applied by the Dell in year 1999 is just-in-time in order to manage its relationship with its
suppliers. According to this concept, the suppliers will restock its part when they are needed.
In practice, this concept is little bit sophisticated, but the fact is that dell company has no
mass production so they produces build to order. Dell’s supply chain and its suppliers are
correctly interwoven and helped them to make this process work. Dell shares its design
databases, inventory data, quality data, daily production requirements and technology plans
openly its suppliers with the help of the real time window information systems. Dell
Company passed their customer feedback directly to their suppliers so that they can be
adjusted accordingly.

JIT and Location Strategy

Companies generally drive to multi country manufacturing and expand into different
countries in order to achieve advantages such as reduce transport and distribution costs ,avoid
trade barriers or non-tariff barriers ,Secure supplies of raw materials or markets and last but
not least the low labor costs. These will ultimately result in Cost advantages on
manufacturing. Therefore it is evident that Dell too enjoys a mix of above advantages, taking
into consideration of their locations. In the Dell’s case, its manufacturing sites have provided
them the location advantage to meet its core operation strategy to pioneer in the "configure to
order" approach to manufacturing and delivering individual PCs configured to customer
specifications. The Location Strategy and Production model (Hill, C.W.L and Jain, A.K.
2007, p 692) under Product Factors suggests that, when the value to weight ratio is low of an
industry it favors the decentralized production thus Dell gains the advantage on logistics by
having the sites located where they are. Dell’s strategy helped minimize delays between
purchase and delivery. Therefore Dell has a general policy of manufacturing its products
close to its customers which give them obvious advantage. This also allows for implementing
a more realistic and reliable “just-in-time” (JIT) manufacturing approach, which minimizes
inventory costs.

Low inventory is one of the core success factors of the Dell business model. The locations
facilitated an effective use of JIT concept to Dell thus is successful in achieving many
advantages, such as, Lower holding costs helps, fund that were tied up in inventories be used
for expansion and improvements of the firm. For an example the information flow between
the customer, supplier and the firm play a critical role in the Dells’ case. More investments
were possible in the ICT – Information Communication Technology due the heavy saving on
inventories. Fully automated high tech assembling facilities were commissioned from the
funds that otherwise would have been spent on keeping high inventories. On the other hand,
the areas previously used to store inventories were used for other more productive uses. 3
Throughput time is reduced, resulting in greater potential output and quicker response to
customers. Defect rates are reduced, resulting in less waste and greater customer satisfaction.

Outsourcing

In order to compete globally, Dell should look at efficiency and cost containment. Unlike
certain companies who strictly focus on revenue increases; Dell has made use of emerging
concept of outsourcing even at early stage while adding value to it through the advanced ICT.
Firms usually derive two main advantages by outsourcing; i.e. strategic flexibility and lower
costs. Dell outsources because it enables Dell’s business model to be successful. Dell
believed that their comparative advantage is in pricing, customization and rapid order
fulfilment. They also realized that they can explore more advantages through supply chain
management and logistics than focusing on manufacturing of components. It may be true that
Dell does little more than final assembly of components into PC under such concept but the
fact remains that it facilitated Dell to focus on the most critical factors in customer
satisfaction and retention. Dell very correctly focused on core areas where they are good at
while allowing their suppliers to do the rest in other areas of the process

Dells, outsourcing relationships have been focused from cost savings to multidimensional
partnerships that support the core business of client corporations. This type of outsourcing
relationships have delivered lucrative results for Dell to engage in more and more
outsourcing activities as partnerships. Therefore Dells /component providers are taking
increasing responsibility in improving service standards. Dell is so big that the suppliers want
to be associated with them badly thus they revisit their corporate strategy, information
management, business investment, and internal quality initiatives to be on par with Dells
needs.

Flow of materials and information

The flow of materials and information in the dell works as follows. Customers can place their
order either through internet or by phone. After that, Dell will process the order through
configurations evolution and financial evolutions which will takes three to four days then
they will send the order to its manufacturing units in Austin. These plants have the efficiency
to build and package the product in just eight hours. The general rule for the flow of materials
is first in and first out and according to Dell planning they will dispatch the order within five
days. Most of the suppliers basically situated in the Southeast Asia and it takes seven days to
transport the parts to Austin range.

The information about any new product will be available on the Dell websites and on the
other information channels also. Dell provides a real advantage to the customers is that they
can directly place their order without any intermediate. The customers of Dell are global wide
and range from small business, individual, organization like hospital and schools and large
businesses. Dell produces the wide range of the products which are useful for all the
customers.

Optiplex which is desktop PC mainly used for small offices, Vostro notebook series used for
the offices, n series notebook accomplished with Linux used for the professional persons,
Latitude notebook series for the business focused customers and there are many products
which are used the customers according to their needs. The function of Dell organization is to
produce a product as soon as possible and without any defects so that their customers do not
have any problem and their demand will increase in the market. Dell’s mission statement is to
become the most successful PC Company in the world by providing the best customer
services. Michael Dell called this strategy as virtual integration with customers.

Dell basically concentrates on the cost of the inventory management because the assembly
units hold these inventories for the few hours and the company target is to reduce this cost.
The company used the vendor management inventory arrangement according to which they
decide with their suppliers the amount of inventory and when to order these inventories. The
company is also able to save the inventory cost by analyzing the previous year trend
according to which they will order the inventories.
Dell vs other companies

The main competitors of Dell Company are IBM, Apple and Hewlett Packard. HP Company
also adopted the concept of the direct selling but their main concentration on the demands of
the customers. At the time of recession also the production figure of the HP is very high
because of its products which were made according to the demands of the customers at low
cost. The other competitor of Dell is Apple. The products of Apple basically based on the new
technology which brings a new revolution in the field of technology. Apple adopted the mix
strategy for the supply chain management and this will help them to reduce its inventory cost.
IBM planned its supply chain strategy on the five themes. They are supply chain visibility,
customer requirements, cost containment, supply chain risk management and globalization.
The strategy which is going to adopt in future for the better supply chain are better
instrumentation, supply chain intelligence and improving integration.

Image Source: Companyman

SCM strategy adopted by Dell

 The SCM strategy followed by Dell is direct selling model in which the need for the
distributors and middlemen eliminated. Dell believes that by selling the computers directly to
customers helps them to understand their needs and demands. In order to maintain the low
cost for the inventories, dell maintains good relationships with suppliers. The procurement
decisions of company were based on the criteria like cost, quality, technology and delivery.
The company maintains a database to visualize the purchasing patterns of the customers and
according to that they can forecast the demands. With the forecasting techniques, the
company is able to determine demand with accuracy of 75%. The company openly
communicates with their suppliers on the changing demand pattern. Dell directly received the
orders through internet, telephone, email. The company also tries to maintain zero inventories
for some of the components. If the cost of inventory will decline then it will also reduce the
product cost.

Competitive advantage

Customer intimacy at Low cost is the source of Dell’s competitive advantage. Rather than
competing on equal factors that were common in the industry, Dell thought “out of the box”.
Dell seems to be able to counter competitive challenges, innovatively which evidences
management capability. This indicates a relatively secure advantage with the huge
experiences they would have gained since its implementation time at small scale. But, just
because it is imitable in principle, it is not fully secure too. The concept is so simple and any
PC company also may initiate a subsidiary company to follow the same model as a separate
profit centre. They may attract suppliers using the prestige of the parent company for
competitive pricing and other terms. They may attract customers using their high brand
image. The IT infrastructure of the parent company may provide a fast information flow to
match even the Dell’s approach. In that manner if the competitor start operation at a smaller
scale and gradually gain the hands-on experience for some time (Smaller scale will mitigate
possible loss due to trial and error) such company can gradually increase volumes under the
subsidiary firm while gaining experience. If they manage to head hunt some key people from
Dell the situation might be even worse.

Limitations

The company has faced various problems in the year 2005 and 2006 because of the strategies
adopted for the supply chain management. Dell lost its position and HP emerged as the
largest selling computer manufacturer. HP was able to move ahead of Dell by producing
components at cheaper price and by improving their supply chain management strategy. The
problems of Dell were the growing complexities in the manufacturing of the products and the
existing price system. At the same time, the sales figure of Dell Company was also fell
because of the demand from the corporate sector got reduced. According to the survey
conducted by CIO sight in year 2006, the money spend on the technology by Dell got
reduced by 1.3%.

Further Recommendation

Dell should concentrate on providing the good facilities to the customers so that in future if
recession takes place it will help the company to maintain its production levels. The company
should also try to find new techniques to reduce the cost of the products and time of
dispatching the products. The company is needed to change its existing strategy of cost
control based model to the innovative based model according to the needs of the customers.

Bibliography

● https://hbr.org/2010/03/roaring-out-of-recession
● https://www.zdnet.com/article/dells-secret-to-riding-out-the-recession/
● https://hbr.org/2008/02/taking-advantage-of-a-downturn.html
● https://www.slideshare.net/yunrufeng/dell-2009
● https://www.scribd.com/presentation/36046676/Dell-Inc-in-2009
● https://www.academia.edu/3687086/Strategic_Management_case_analysis_DELL