Retail Supply Chain Management & Warehousing

Case Study on:Managing Operations

A Study On Dells Supply Chain Management

Submitted By:Submitted to:Yashpalsinh Jadeja
Dhaval Patel Anil Gami Savan Bhatt Vishal Patel

Objectives
This Case intends to critically study and analyze the Operations Management activities within the organisation of Dell and how it can optimize the business strategy and process of the plants and offices around the globe. How they are Managing the Distribution & Supply chain system. Strategy for supply chain & Distribution Innovation. What is the Performance and Improvement Strategy? How they are developing their Suppliers. To know future strategy of Dell.

INTRODUCTION TO OPERATIONS MANAGEMENT

Operations Management (OM) is a chain of activities involved in the creation of a product or services through transforming input of raw material to output of finished goods. OM is about managing people, processes and systems to deliver a product or service with the collaboration between departments such as sales & marketing, finance, accounting, human resource management and production.

 Operations management is an area of management concerned with overseeing, designing, and controlling the process of production and redesigning business operations in the production of goods or services. It involves the responsibility of ensuring that business operations are efficient in terms of using as few resources as needed, and effective in terms of meeting customer requirements. It is concerned with managing the process that converts inputs (in the forms of materials, labor, and energy) into outputs (in the form of goods and/or services).

Type
Industry Predecessor(s) Founded

Founder(s) Headquarters Area served Key people

Private Manufacturing Software development IT services Dell Computer Corporation Austin, Texas, United States (May 1, 1984) Michael Dell Round Rock, Texas, United States Worldwide Michael Dell, Chairman & CEO

Products

Services Revenue Operating income Net income Total assets Total equity Owner(s)

Employees Website

Personal computers Servers Peripherals Smartphones Televisions IT services US$ 56.94 billion (2013)[3] US$ 3.01 billion (2013)[3] US$ 2.37 billion (2013)[3] US$ 47.54 billion (2013)[3] US$ 10.68 billion (2013)[3] Michael Dell Silver Lake Partners 1,08,800 (2013) dell.com

 Michael Dell founded PCs Limited in 1984 and later changed its name to Dell Computers in 1988. Dell was listed as the Worlds 500 Largest Company by Fortune magazine making Michael Dell the youngest CEO of a Fortune 500 company. It has 6 manufacturing plants, business centers and support offices around the globe. Dell started its operation in Malaysia by Opening its first plant in 1995 and its second global business center based in Cyberjaya in 2007. Dells product offering are desktops, notebook, servers, storages, switches and information technology peripherals. Dell manufactures its entire product range. Dell is well known for its build to order module whereby the product is only manufactured upon ordered. Dells direct go to market has also proven to be effective as the resellers are eliminated and the saving is passed on back to the customer.

PROCESS TECHNOLOGY STRATEGY

Order Approval And Credit Check

1. Order being received from the sales department. 2. Credit check will be run on the customer. If it is a consumer end user, then the term shall be prepaid and the finance department will ensure the correct payment has been omitted. 3. The completion of the credit check, the finance credit department will release the order to flow to production.

Order is pushed to Manufacturing Department

Once the order is pushed to manufacturing, the line operator will be fed the custom specification of the model through a unified communication system.

7 stations in line
1. 2. Besides the line operator that receives the order. After other will collect chassis, motherboard, processor, ram, hard disk and power supply. The last operator will push the assembled machine to Line 2. Relevant drivers and softwares is loaded to the hardware and pushed to a burn test. The burn test will take from 4 hours to 48 hours depending on the configuration of a system. The burn test is a stress test to identify defect on the hardware. This is a continuous flow of production with no halt until boxing of a product. It will goes for Shipping.

3. 4. 5. 6. 7.

CAPACITY MANAGEMENT

Capacity Management is a process used to manage information technology (IT). Its primary goal is to ensure that IT capacity meets current and future business requirements in a cost-effective manner.

Success story of DELL

Dell success is because it built its supply chain management from backwards, from customer to production by prioritizing its customers. Dell has set up a Supply Chain Management Institute in Xiamen, China to work with Tianjin University and Antai College of Economics to share its expertise and experience. Dell identifies its resources capacity by assessing it labour hours, the plant runs on a 24 hours shift and takes 25 minutes on average to finish a typical desktop or server. The assembling machineries work at the paces of the operator. At its optimum level, the process can be finished within 20 minutes instead of 25. If the is 5 workers at a station, with 8 station and 2 lines, the service output is measured at 240 units of server per hour.

 Dell measures the capacity of labour needed by previous years record. In fact many of Dells decision is based in past year trend analysis. This also gives Dell a better control of capacity planning and capacity management. This trend is not only monitor on production basis but also in sales processes, assuming the factory receives a spike in order for 500 GB hard disk, the system will trigger the parts planner who will alert the Sales & Marketing department

ORGANISATION AND SYSTEM DEVELOPMENT

Being one of the organizations practicing Just In Time (JIT), Dell holds just enough inventories for three to four day compared to a conventional method of holding a months stock. They key to this success is by continuous monitoring of demand and supply in real time. Having a couple of months of component inventories meant getting caught in the transition from one generation of components to the next. Striving to deliver quality in speed, a senior operator can take as less as 3 minutes to build a PC. This is possible after a period of monitoring by observation and improvement, instead of screws and bolts, Dell has modified its hardware to clips, which snaps right into places. This does not only saves time but also allows easier means for customization pre-production and post-sales.

 Dell was using ERP solution from i2 Trade Matrix and Oracle before creating its own ERP system. With its in house developers, Software as a Service (SaaS) team and the strategic partnership with Sales force (Sales force, 2003), Dell has created its own suite of ERP and Customer Relationship Management (CRM) modules. The legacy system is designed to incorporate the front end and the backend of the operation. The data available is real time from various departments such as Human Resource, Finance, Sales & Marketing, Credit and Production enables decision making much easier.

LEAN PRODUCTION
Dells model of production is simple as a pay as you use. It only pays for the inventory delivered to the manufacturing plant 30 days post invoicing. With its implementation of JIT, Dell has saved much cost and turned them into profit. The economics here is when Dell has 4 days of overall companywide stock, its competitors carries 80 and when a new technological upgrade is released, Dell will be able to market 76 days ahead of it competition. When a new upgrade is launched the cost of current part drops tremendously and being vulnerable to product transition will lead to inventory of obsolete products (Thompson & Strickland, 2001).

 By producing custom built orders and not for inventory, Dell does not face the problems of being stuck with older generation technology. Often when this happens, a manufacturer will need to drop its price to clear the stock hoping to at least cover its cost. And by having a built to order module, Dell has the first hand market intelligence of what a customer wants, what are their demands like and the purchasing pattern and trend of the marker instead of relying on its channel partners to feed these informations.

PERFORMANCE AND IMPROVEMENT STRATEGY

Certification Dell has qualified are, ISO 9001, ISO 20000, ISO 27001, ISO 14004 and OHSAS 18001 (Dell, 2012c). Dells commitment to zero waste Kaizen approach aims to deliberately constructing an environment conducive to having capable and empowered people creating and rapidly implementing idea The program is conducted in each country with 1 week classroom training, 1 week hands on training with 2 months period of learning and monitoring. The outcome from the program saw a result of 13% to 60% improvement in production and capacity (Tuite, 2004)

 Warranties cover next business day and on site Dell even offers a 1 to 1 product exchange One of Dell success factor is standardization; it standardizes system and workflow, creating continuity in system.

SUPPLIER DEVELOPMENT STRATEGY

Using the performance report, Dell awards the percentage of parts to be supplied by each supplier. With 30 suppliers providing 75% of the inventory, the suppliers make it a standard practice to hold 8 to 10 days supply of the inventory in SLC. Dell practices supplier tiering from Tier 1 to Tier 3 based on criticality to business, Dell also hired a third party agency, CSR to conduct assessment of the suppliers SER and recommends improvements. Diversity is a key aspect of Dells business model. Dell welcomes supplier from businesses that are owned by individuals of diverse backgrounds.

 Dell promotes entrepreneurship and gives every one equal opportunity without neglecting individuals with special need veterans and minorities. With the help of Ariba Buyers e-procurement solution, Dell has managed to achieve 61% reduction in requisition cycle and alleviate operational cost by 62% (Dell, 2001).

DELLS DISTRIBUTION AND SUPPLY CHAIN INNOVATION

In 1985, Dell changed his strategy to begin offering built-toorder computers The meteoric rise of Dell Computers was largely due to innovations in supply chain and manufacturing, but also due to the implementation of a novel distribution strategy. By carefully analyzing and making strategic changes in the personal computer value chain, and by seizing on emerging market trends, Dell Inc. grew to dominate the PC market in less time than it takes many companies to launch their first product. No more middleman: Dell started out as a direct seller, first using a mail-order system, and then taking advantage of the internet to develop an online sales platform By 1997, Dells internet sales had reached an average of $4 million per day.

 This move away from the traditional distribution model for PC sales played a large role in Dells formidable early growth. Additionally, an important side-benefit of the internet-based direct sales model was that it generated a wealth of market data the company used to efficiently forecast demand trends and carry out effective segmentation strategies. Virtual integration The company sought to develop long-term relationships with select, name-brand PC component manufacturers. Dell also required its key suppliers to establish inventory hubs near its own assembly plants. This just-in-time, low-inventory strategy reduced the time it took for Dell to bring new PC models to market and resulted in significant cost advantages over the traditional stored-inventory method.

 Innovation on the assembly floor: In 1997, Dell reorganized its assembly processes Dell instituted manufacturing cells. These cells grouped workers together around a workstation where they assembled entire PCs according to customer specifications. Reduced assembly times by 75%. The following are some key lessons from the story of Dells incredible rise: 1. Disintermediation (cutting out the middleman): 2. Enhancing customer value 3. Process and operations innovation 4. Let data do the driving

FUTURE STRATEGY

Inventory management with an SLC model can be improved further with the adaptation of Vendor Managed Inventory (VMI). This model will operate exactly how a JIT organization operates but with a real time visibility of the inventory of the client. The future of lean operation is outsourcing. This is because professional graduates in countries like India, Philippines and China are willing to work for one fifth of the current wages.

 Outsourcing saves cost and improves the quality of product as the product or service is built or rendered by a specialist. It also saves times to focus on core business and planning and switched fixed to variable cost by easing the need of huge upfront capital (Reilly & Tamkin, 1997). By choosing to strike a balance between and cost reduction, an organisation adopts to a more sophisticated but demanding approach to outsourcing. Instead of having a bigger pool of people, organisation will choose to maintain a few managers to manage contractors to ensure brand and quality is up to expectation and the intellectual property is being protected.