"Using an example of a firm in an industry of your own choice, critically evaluate the issues that the firm has in managing relationships with suppliers."
The aim of this report is to assess how Dell manages its relations with its suppliers and various issues it faces while managing it. There are many models or relational marketing available but the six market model presented by Christopher et al 1991 will be used in this paper. There are six markets described in this model with the customer market being the core. This model provides a clear insight of the relational aspect of marketing and makes it easy to measure. The reason for choosing Dell Computer Corp for this paper was due its huge success in last 10 years, making it one of the most admired companies in the world (Fortune 2005). In this paper a general outlook of all the six markets will be presented with major emphasis on Supplier markets.
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All firms in today's market are oriented towards consumers. Even Christopher et al emphasized on its importance by placing it at the centre of all markets in six market model. Michael dell the CEO of Dell states the importance of customers for Dell by giving the following statement "Finding ways to get close to your customers is critical to your success."(Dell 1999, p.157). He named this strategy "Virtual Integration with customers" (Magretta, 1998). Michael dell also confirms that partnership is not only the job of marketing function and he places it in the hand of everyone in the company; in turn they become responsible for nurturing relationships with customers. Dell's business revolves around three main customer bases: big commercial consumers, home and small businesses and the public sector. Dell adopts relationship marketing to approach these segments (Kraemer et al 2000, p.8). Thus it approaches all these segments in a different way according to their needs. Dell uses two communication channels namely Internet and Call centres. Direct model is used by Dell to maintain its customer relations. As Dell deals with customers directly and not via show rooms, it gets valuable customer feedback from them. This strategy is called knowledge based marketing by McKenna. Customer feedback allows Dell to constantly evolve its products to better meet customer expectations.
One of the main sections of six market model is Supplier market, and it is interesting to note how Dell manages these relationships with its suppliers. These relations are called Business to business relationships (B2B). According to Palmer (2000, .689), B2B is described as 'Vertical integration' i.e. it integrates all or a part of the supply chain. Dell has evolved its supplier relations in the past 15 years or so. Earlier Dell had nearly 140 different suppliers. Over a period of time the maintenance of these relationships started getting too costly and complex at the same time thus reducing the time to market. Due to this Dell focused on reusability of its components i.e. different models utilize of majority of the same components (Zuckerman 1997 in Kraemer et al.2000). At present Dell has about 30 suppliers which cater to 75% of its material requirements (Jacobs 2003). This means that these suppliers are international suppliers, which follow their consumers in international markets; this exactly implies that they build establishments next to the DELL establishments (Dell 1999, p.178, 179). As indicated by the current trends the unsaid rule at Dell is 'fewer the supplier the better' (Magretta 1998, p.75). However to have a multiple partner view in vertical integration, as pointed by Gummesson's (1999,p.129) is also followed by Dell. Most of the components have two or more suppliers at Dell (Jacobs 2003); through this Dell avoids single sourcing risks. To remain independent Dell tries to maintain a vibrant supplier relationship, which implies that not all the relationships are long term. The sectors in which technology is stable e.g.monitors, DELL tries to maintain a faithful long-lasting relationship, e.g. with Sony. Whereas the segments which are subjective to the changing technology, e.g. memory components, There could be short relationships (Magretta 1998, p.75). Dell emphasizes on just in time delivery process, which requires suppliers to dispatch stock only when they are required by Dell (Dell 1999, p.170). This concept is difficult and requires the relationship between Dell and its supplier to be strong e.g. suppliers having unpredictable quantities of required components at any time (Kraemer et al.2000, p.5). This is implemented by interlinking the supply chain of both Dell and its few suppliers. This means that Dell shares inventory, quality and technology data with its suppliers (Magretta 1998). To improve the value and operations of suppliers Dell also shares customer feedback info with them. Using this info suppliers try to improve themselves and better meet customer requirements. Dell also passes down any changes in customer buying behaviour info to its suppliers so that they can adopt immediately to changing circumstances (Dell 1999, p.174, 175, 179). Michael Dell states that using these methods the usual buying and selling is replaced by a partnership which is beneficial for both parties (Dell 1999, p.180, 190). The online sharing of placed order info throughout the supply chain provides independence and cost reduction to Dell and its suppliers. Though inventory is low both Dell and its suppliers manage to do smart sales because of inventory limitations (Kraemer et al. 2000, p.8). Dell is also maintains lowest inventory levels in the industry which means a lot to an IT business where inventory depreciates rapidly. The supplier relationships also exist in the field of R&D for Dell. Due to rapid advances in technology and new marketing models R&D costs have increased which has pressurised companies to work together on research and development for cost reductions and risk aversion (Sheth & Parvatiyar 1995, p.410). Dell does not invent any new components as it does not want to be a part of that race; in turn it tries to partner with prominent players in the market like Microsoft, Intel etc (Magretta 1998, p.82). Dell forms joint design teams in which engineers from suppliers are present (Dell 1999,p.195, 196). To wrap up, it won't be exaggeration to state that Dell applies a vast plethora of relationship marketing methods with its suppliers and sustained its success. In spite of statement given by Michael Dell about supplier relations being pleasant; the case is different in reality, as he himself says that Dell wants to be a tough customer. This concept is implemented to avoid the feeling of self-righteousness which starts developing between suppliers; as pointed by Brennan (1997, p.771). Dell also uses variety of techniques to measure the effectiveness of its suppliers and also compares different suppliers in order to avoid being with a wrong supplier (Brennan, 1997).
Always on Time
Marked to Standard
In normal marketing scenarios relational marketing is broadly overlooked and more emphasis is given on product and promotion; whereas relationship marketing is the core of internal market. An employee is seen as the key player who enhances customer relations (Christopher et al, 1995, p.15). If put more bluntly the fact is entirely true that "if internal marketing is neglected then external marketing suffers or fails" (Egan 2001, p. 149). The main player of internal market is the employee. Employees are essential to marketing as they are responsible for forming and maintaining customer relations (Parasuraman et al. 1991, p. 43). What an employee wants should always be regarded; Shershic (1990, p. 45) goes as far as to argue that meeting employee needs ensures that customer needs are also met to a major extent. Michael Dell emphasizes on the important role played by employees in creating value for the organization.
He states that, the development Dell has undergone within the last ten years could only be attained due to the attitude and culture practised by its employees (Dell 1999, p.108). He further weighs on the fact that 'greatest threat to DELL wouldn't come from a competitor [â€¦] It would come from our people'. (Dell 1999, p.107) this means that if Dell fails to satisfy its employees it will fail as a company in the market.
Not all skilled people work for a single firm, so is the case with Dell. Thus arises the continuous need to attract and retain talent pool. 'The scarcest resource for most organisations (â€¦) is skilled people'(Cranfield School of Management 2000, p.21).Through recruitment market Dell manages to expose itself in front of talent pool available at universities and colleges and recruit skilled people. Dell incorporates direct model even in its recruitment process; non university candidates apply online and university students are recruited via on campus interview held at selected campuses. Direct model to recruitment is implemented by providing necessary information regarding interview expectations and after selection procedures to potential candidates via its website. It also provides tips and tricks for giving an effective interview along with CV building tips. The whole process is kept as transparent as possible. This helps Dell to attract people with a mindset to grow. In 1999 Michael Dell stated that, 'You have to hire based upon the candidate's potential to grow and develop' (Dell 1999, p.109). In order to keep its work force happy Dell also provides a number of benefits in the job package. These approaches for selection and retention of its work force has allowed dell to manage its customers better and keep on moving on the path of growth.
Influence and referral market:
An organization is influenced directly by components of influence markets. Thus it is important for an organisation to understand what methods and practises influence its market and try to exploit them to gain customers (Cranfield School of Management 2000, p.23). According to the Cranfield School of Management organisations 'need to consider both existing customers and intermediaries as sources of future business' (Relationship Marketing: Marketing Multiple Markets 2000). Satisfied customers refer their immediate friends or family to enjoy the same benefits as they have experienced via Word to mouth marketing. From the data available at the home page of Dell; it is clear that Dell is engaged with US defence department in joint ventures regarding computers and technology advancements. These partnerships allow Dell to have a certain amount of control on the U.S market and thus influence its market and increase its market share.
In terms of the referral market Dell supplies computers to educational and government institutes. This acts as a direct advertisement for its products, for example a customer who is satisfied will spread the Dell fame via word to mouth and refer their friends.
Thus managing its relational market has made Dell a successful brand. Supplier relationship ensures that there is a feeling of togetherness between supplier and consumer when managed properly, both try to exceed each other's expectations. No doubt there are problems while managing supplier relations, but it is up to the discretion of parties involved to effectively manage the relation and avoid problems together. Relationship marketing facilitates the suppliers and firms across the value chain to understand each other perfectly and try to exceed expectations. It is evident from the current trends in market, firms are engaging in cost reduction and operational effectiveness by coming together. Supplier relationship management is requires firms to understand their suppliers better; so that they can contribute to the value chain better. This process when carefully planned and implemented enhances the value chain performance; thus giving rise to successful firms like DELL.
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