1. INSTITUTE OF PROFESSIONAL EDUCATION AND RESEARCH<br />ASSIGNMENT<br />ON<br />PRODUCTION &OPERATIONS MANAGEMENT OFDELL COMPUTERS<br />Submitted to: Submitted By: <br />Prof. Hersh Sharma Mohit Malviya (21)<br /> Varsha Nair (48) <br /> Aniket Bushal (57)<br />INTRODUCTION<br />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.<br />In 2006, Fortune magazine ranked Dell as the 25th-largest company in the Fortune 500 list, 8th on its annual quot;
Top 20quot;
list of the most-admired companies in the United States. <br />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. <br />DELL COMPUTER’S STRATEGY <br />The company’s strategy was built around a number of core elements:<br />Build-to-order manufacturing, <br />Partnerships with suppliers,<br />Just-in-time components inventories,<br />Direct sales to customers,<br />Award-winning customer service and technical support, <br />Pioneering use of the Internet and e-commerce technology.<br /> 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 quot;
cell manufacturingquot;
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<br /> 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. <br />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.quot;
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. <br />4) Just-in-Time Inventory Practices<br /> 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. <br /> Fiscal Year Average Inventory Turn Over Ratio 1995, 32 days. 1997, 13 days. 1998, 7 days, 1999, 6 days’<br /> Gateway’s 14-day average, Compaq’s 23-day average, estimated industry 50 days. <br /> The company’s long-term goal was to get its inventories down to a 3-day average supply. <br />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 <br />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, <br />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.<br />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.<br />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.<br />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. <br />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. <br />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.<br />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.<br />Service and support activities provided to PC users either by PC makers (via telephone, fax, email)etcPurchase by PC usersCustomized assembly of PC’s by Pc makers as orders from PC buyers come inManufactured of PC component by suppliers<br />