Business Process Management: Dell Inc - Case Study Example

?Business Process Management – Dell Inc When it comes to manufacturing companies, the role of value chain or supply chain as well as quality aspects is very crucial for their functioning and success. If these two processes are not carried optimally, the manufacturing process will be impeded and importantly the manufactured product may not reach the customer with quality and also within the stipulated time. Thus, it is imperative on the part of the manufacturing companies to optimally focus on these two processes of value chain as well as quality related controls as part of their Business Process Management (BPM), so the eventual customers are fully satisfied. Among the many companies that operate in the manufacturing sector now, the computer manufacturing companies like Dell Inc are making sizable impacts. The last few decades of the 20th century saw the emergence of sizable computer manufacturing companies, which first started manufacturing basic level Personal Computers. Now, these companies including Dell Inc. have expanded into the manufacturing of many computer related or information technology related hardware, which are having applications in the various facets of human lives. Dell Inc was established in year 1984 by Michael Dell, originally under the name of PC's Limited. When he was a student at the University of Texas, Dell started selling IBM PC-compatible computers from an off-campus dorm room at Dobie Center in Austin, Texas. The thing that made this computer different from the computers sold by other companies at that time was, it was manufactured or even assembled from various computer stock parts. Michael Dell, with the aid of external financing and technological know-how, then started manufacturing their own computers under the name “Turbo PC”. From that initial initiative, the company grew strongly even changing the name from PC’s Limited to "Dell Computer Corporation" in 1988. Then in 2003, it re-branded to simply Dell Inc. to reflect its expansion beyond computer related products. Now, it designs, manufactures and sells personal computers, other computer and electronic related products. Although, Dell Inc. also sells products manufactured by third part manufacturers like Televisions, it directly manufactures many computer related hardware in its various manufacturing facilities located worldwide. In those manufacturing centers, Dell manufactures Desktops, Laptops, Servers, printers, ink cartridges, Mobile phones and various other IT and electronics based components, making Dell Inc. one of the top manufacturing companies of the world. Organizational Structure Dell Inc. is a public limited company, as it went public in the year 1988 itself, with the selling of around 3.5 million company shares at rates of $8.50 a share. (Ireland, Hoskisson and Hitt 2008). Although, it operates as the Pubic Limited Company in majority of the operations, in key markets like India, it operates as a private limited company. That is, in United States and UK, it operates as a public company only, with the word Incorporation or Inc used in the end for US operations, while in UK, according to the United Kingdom Company Law, the abbreviation Plc is added to the company name. However, in other emerging markets like India, it operates as private entity, taking the name Dell Private India Ltd. Thus, Dell’s identity or sector depends on the market it operates. After going public only, Dell focused on large clients particularly large contracts from the government agencies, thereby expanding and diversifying its organizational structure. When the company earned good profits in the years just before 1988, Dell Inc. thought going public can help generate sizable funds, which can be further utilized to tap the opportunities available then. “In 1988, Dell after becoming public added a sales force to serve the large customers and began selling to government agencies” (Thompson et al. 2006, p.36). Headquartered in Round Rock, Texas, Dell is run by a board of directors consisting of nine people. Its founder Michael Dell only serves as the chairman of the board as well as the chief executive officer (CEO), although he gave that designation to Kevin Rollins for a short period from 2004-2007. Shareholders only elect these 9 board members at annual shareholders meetings, with the board members not getting the majority votes needing to resign from the post, although it is left to the board on whether to accept or reject the resignation. As an extension of this organizational structure, Dell’s Global Executive Management Committee oversees Dell’s operations globally. Under this committee are the regional senior vice-presidents, who head the operations in countries other than the United States. In 2009, Dell restructured its main area of sales operations into global entities under three major customer segments - large enterprise, public sector, and small and medium businesses. (computerweekly.com 2009). That is, in to provide innovative and quality products and service within a short time, Dell restructured its global organizational structure. Each global entity was given greater responsibility and accountability to anticipate and respond to the customer needs in particular geographical areas. This way, Dell wanted to run their business as a wholesome global operation. As Michael Dell himself stated by this restructuring, “We have laid the foundation for the transition from a global business that is run regionally to businesses that are really globally organised.” (computerweekly.com 2009). Importantly, as Dell established manufacturing facilities in many geographical areas, they were able to provide the relevant products to the three customer segments. Thus, these manufacturing facilities operated under each country’s operations, even while reporting and catering to the 3 customer segments. Business processes and systems – Dell’s supply or value chain Dell through Direct Model or Direct Channel Method is able to offer the customers, customized and optimally configured computers, laptops, etc., at competitive prices in a timely manner. Although, Dell also sells its products through retail, sizable portion of its online sales is done through this direct channel method. In the case of online selling, after Dell receives a customer order, Dell will start the manufacturing process by sourcing the product from the suppliers. In the case of retail selling, Dell already manufactures the products “in the push phase of the supply chain because they must maintain assembled products available for purchase at retail stores.” (Chopra 2010, p.99) Fig 1: (Chopra 2010, p. 100) Among these two methods, the Direct channel method worked so effectively, that this Direct Channel method has become synonymous with Dell, with its competitors not able to replicate the same success. “Over a period of twenty years this fundamental business idea has transformed into an ideology Dell likes to call the Dell Effect.” (Whitaker 2008). Under this method, the customers will order products with their own specifications, and the manufacturing facilities will manufacture and assemble those products according to those specifications, and directly deliver to the customers. This being the processes, both the inbound and outbound supply chains has to work in a coordinative and effective manner, and for Dell it has functioned successfully with optimum value being added at each stage. As value Chain encapsulates addition of value to the products at each stage from sourcing of raw materials till its reaches the customer, Dell is able to do it aptly. In the case of Dell, the inbound logistics is the supply of various high tech computer related components from its suppliers, which are already value added. These components are only assembled and manufactured by the Dell workers as part of the operations to provide a finished product. The other factor, which adds value, is the cooperative attitude of the suppliers. Many suppliers of Dell have long term relationships with the company and were more than willing to set up their supplying units in close proximity to Dell’s manufacturing units. This flexibility exhibited by the suppliers helped Dell to reduce the transportation costs, and this reduction was passed on to the customer in the form of low cost products. In addition, the real time information regarding the customer’s orders and requirements maximally helped Dell to keep a low inventory of raw materials, thus avoiding any overflow. Importantly, these low inventories resulted in more cost savings, which also got transferred to increased value to the final customers. The same efficiency was also witnessed in Dell’s outbound supply chain. As discussed above, Dell provides the customers the online purchasing option, which is done with the help of suppliers. That is, the computers ordered online, will be delivered to the customers by the suppliers located at various places all over the world, thereby forming a unique supply chain. With the development of internet and safe transportation facilities, many customers are ordering and buying computers and computer products online. Dell pioneered "configure to order" approach to manufacturing in 1980's, thereby providing individual Personal computers configured by the customers themselves. This practice gives the customer the components they need, and thus avoiding excess or unwanted components. Dell for example has a separate website titled Dell Online Store: Build your system. In this website, the customer is given the option to select what processor they want, the size and specifications of the hardwares, color of the system, etc. “The company uses the Internet to offer a very wide variety of customized PC configurations with the desired processor, memory, hard drive, and other components. Customization allows Dell to satisfy customers by giving them a product that is close lo their specific requirements.” (Chopra 2010, p. 100). This plays a crucial role in keeping the price under control or if correctly said in the control of the customers. “By using the Internet to sell PCs directly to customers, Dell is able to eliminate distributor and retailer margins and increase its own margin, even while providing the customers at competitive price. (Chopra 2010, p. 100). More than the price, it kind of gives a personal touch, as the customer can select what he/she specifically wants and accordingly use. Even after 'reaching' the product to the customers, Dell continues to play indirect roles. That is, it has fully equipped service centers, established in various parts of the world and when the product malfunctions it can provide all the service. So, this chain, provides Dell a competitive edge over its competitors, as it manufactures products, integrating quality components from its suppliers, and is selling the finished products directly to the customers. However, because of this online customization and buying, Dell had to depend on its suppliers' to set the price and importantly for updates and process improvements. This in a way slightly reduces their bargaining power. To counter this negative aspect, Dell has slightly changed its Direct channel method, by sizably allocating the manufacturing process to the contract manufacturers. As Michael Cannon, President of Dell’s Global Operations, noted “Dell build-to-order and “do it all ourselves” model served the company well for almost 20 years, but “the environment has changed” (Gilmore 2008). Although, that model will continue, Dell using its flexibility in its supply chain has plans to utilize contract manufacturers as supply products to the customers, who are want and are satisfied with the fixed configurations, without any need for customizations. As this new approach in the supply chain was introduced recently, its progress has to be tracked for some before its feasibility and success can be assumed. Quality Since the level of pressure is increasing within a globally competitive environment and organizations are facing more challenges, they must pay attention to the quality of their products and services if they want to ensure long term survival in the marketplace. As a result, the development of a quality strategy has become vital and Dell is able to do it with mixed results. Dell incorporates quality at various sectors of the value chain and thus tries to maximize the productivity of an organization by continually improving the quality of its products, processes and even in its marketing strategies. Talking about products and processes, Dell applies four quality standards or elements which work in combined manner to maintain as well as optimize the quality of the products. They are Quality Management System (based on CMMI Level 3, ISO 9001: 2000, and ITIL Service Management) Category / Task Order Specific Quality Control Plans Annual Self-Assessments Government Performance Assessment and Feedback (dell.com). Dell follows these four standards of quality control both in its in-house manufacturing facility as well as in its supplier units. In the supplier units, Dell follows another set of quality controls by making its officials visit the supplier unit during the initial production process itself. When a supplier is preparing for initial production of the products including computers, hard drives, etc, etc, “Dell engineers perform an audit of the factory to establish Dell-specified processes.” (dell.com). Even after following stronger quality controls in its various processes, Dell faced some problematic quality issues in certain products. One of the major ones was the burning of the laptops, which was witnessed throughout the world. Increased costs issues and turmoil seems to have piled on to Dell's quality issues, “when the company recalled 4.2 million notebook batteries due to fire hazards.” (Moltzen). When this issue arose, Dell was quick to react and its marketing strategy was on correct lines. That is, when the issue got erupted, it accepted the quality problems, recalled and replaced all the faulty laptops, and did marketing campaign accordingly. “For its part, though, Dell has said it has found its response to customers with quality or technical problems have improved.” (Moltzen). Another quality issue that plagued Dell was the Optiplex machines with leaky capacitors, which is actually manufactured by one of its suppliers, the Japanese parts maker Nichicon. Although, Dell sold close to 2 million of these machines in 2 years to many companies, when the capacitors started leaking, there was hue and cry from the companies, with certain few even filing lawsuits against Dell. There are also allegations that Dell was well aware of the quality issues in the capacitors, when Nichicon delivered it, but Dell continued to sell it to all the committed customers, “opting to focus on damage control rather than quality control.” (Stokes 2010). Furthermore, Dell learned later majority of the Nichicon's capacitors caused problems, “and the quality problems were ten times worse than the company had originally estimated.” (Stokes 2010). This brought into focus the key issue of maintaining quality in the external supplier units as well. Conclusion From the above analysis of Dell’s supply or value chain and quality control as part of BPM, it is clear that Dell has been carrying out its BPM quite successfully, albeit with the need for some improvements. That is, its Direct Channel Method has been providing good benefits to Dell from customizing the product according to customers taste to delivering the product aptly at competitive prices, even while providing good margin to Dell. Although, Dell has made some modifications to this method, it could continue to give favorable results for Dell. When it comes to quality issues only, Dell has to improve certain aspects, particularly at its supplier manufacturing units. The perception of quality will differ depending upon where the viewer is located in the value chain. In the case of Dell, as they minimally oversee the manufacturing processes in its supplier units, they have to put in place more stringent quality standards for the Dell to follow. In addition, they need to send their own quality control teams at regular intervals, even making unannounced visits. As the goal of quality management, is to ensure continuous improvement, Dell has to come up with apt strategies, so its BPM is carried out optimally. 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Moltzen, EF, Dell Quality Control Issues Not Going Away, viewed on December 15, 2010 http://www.crn.com/blogs-op-ed/the-chart/198900549/dell-quality-control-issues-not-going-away.htm;jsessionid=3+q9sLU+Py7RoGS+OGML-w**.ecappj02 Stokes, J 2010, Lawsuit: Dell knowingly shipped 12 million faulty computers, viewed on December 15, 2010 http://arstechnica.com/business/news/2010/06/suit-alleges-that-dell-shipped-12-million-faulty-computers.ars Thompson, AA, Strickland, AJ, Gamble, JE and Jain, AK, Crafting And Executing Strategy 14E, Tata McGraw-Hill Education Whitaker, R 2008, Inside Dell: The Secrets of Its Supply Chain Success, viewed on December 15, 2010 https://www.socialtext.net/ism4300/inside_dell_the_secrets_of_its_supply_chain_success Read More