Evaluation of Dell Inc Operation Strategy and Value Chain

1. Introduction:

Operation management is a branch which provides the knowledge of managing the processes within the company to serve better to the customer and deliver satisfactory goods and services. Operation management enables the company to transform its resources into goods and services therefore significant in every industry vertical. Operation management has prime importance for computer industry as it has given the new rise to the world. The computer industry is the most competitive industries in the world which has benefited by the explosion of home consumers. Dell Inc is one of the most profitable and competitive companies in the computer and laptop manufacturing. In context of Dell Inc, the report discusses the operation strategy of the firm in terms of competitiveness and sustainability. Based on the analysis, the recommendation has been made to the company with justification for the changes required in the operation strategy of Dell Inc to ensure increased competitiveness and long term sustainability of the company.

2. About Dell Inc:

The company was started in 1984 by the vision of Michael Dell with the simple business concept to manufacture computers for taking ordering the selling the computers directly to the consumers. At the initial stage of the growth the company has faced numerous challenges to maintain the capabilities which were distinctive in nature. The company has set a history of gaining double digit sales. Dell has used objective analysis for ascertaining the competitiveness in terms of strength, weaknesses, threats and opportunity. The vision of the company is to closely work with the development partners to deliver 100% of the perceived value to the customers in application environment. The mission of the company is to become a successful computer seller across the world by delivering the best of customer experience in the market place and serve them at best possible manner. By doing so, the company will meet its customer expectations for high quality service, leading edge technology, competitive pricing, and individual as well as company compatibility along with the financial stability. There are the nine components in the mission statement of the company including markets, products/services, technology, growth, profitability and concern for survival. The prime concern for the company to satisfy the customer needs in best possible manner and second is to be the most valuable and profitable company.

(Source: www.dell.com)

3. Operation Strategy of Dell:

Dell inc has combined its business mission, core competencies and environmental scanning for the purpose of developing the highly successful strategic business unit. The company mission as stated earlier is to become a successful computer seller across the world by delivering the best of customer experience in the market place and serve them at best possible manner. With its mission statement the company has met customer expectation in terms of high quality, competitive pricing, accountability, leading edge technology, superior corporate citizenship and financial stability. All of these components are focused towards serving the customer and this is achieved by Dell through competitive operational strategy (Ahlstrom and Westbrook, 2009). With the operation strategy of the company enable it’s to maintain the competitive position in the market place. Apart from this the company has developed its growth through best in class service and support, flexible customization and competitive pricing. The company has developed in-house capability to reduce the cost. Dell sells computers directly to the customers with out any intermediary. However the other players in the market sell computers using retailers and distributors such as IBM and Compaq. Using the intermediary such as distributor and retailer leads to high cost of inventory and slow response to the customer needs. The idea of the founder Michael Dell’ idea was to sell the computers directly to the customer by knowing exactly what a customer want from the vendor within a short span of time. The company has defined its core competencies through latest technology offerings and flexible manufacturing (Gagnon, 2006). By putting together these competencies, a competitive business strategy has been developed by the company to deliver customized computer solution to the customer with in the two days at competitive prices. The business strategy of the company enabled it to take advantage of such opportunities which were uncovered by other business players such as business segment need identification, computer customization, and high reach to the customer and after sales support. This strategy was successfully implemented through optimal operation strategy by arranging all the resources in way that it should support the business strategy of the company. The operation strategy of Dell includes:

PC value Chain by Competitors (e.g. IBM, HP and Compaq)

PC value Chain by Dell

Manufactured of

PC’s Component

By

Suppliers

Assembly of PC by

PC Makers (to

Fill order from

Suppliers and

Keep distribution

Channel stock)

Manufactured of

PC’s Component

By

Suppliers

Purchase

By

PC Users

Service and

support activities

Provided to PC

Users by reseller

(or some PC

Makers – IBM to

PC users)

Sales and

Marketing

Activities of

Reseller to self

Inventories of

PC’s on hand

Service and

Support activities

Provided to PC

Users eithers by

PC Makers (via

Telephone, fax,

Email) ect.

Purchase

By

PC users

Customized

Assembly of PC’s

By PC Makers as

Orders from PC

Buyers come in

(Source: Gordon, 2003)

Manufacturing/developing the computers/PCs/laptops, servers and work stations to order as none was produced for inventory. The customers can therefore order the servers and workstations depending on their application needs

Dell does not have the in-house stock of finished goods and investor which benefited it to have no inventory cost (Porter, 2006).

Unlike other competitors, Dell does not have traditional supply chain in which the goods are delivered through resellers, distributors and retailers. It removes the intermediary cost such as distributor’s margin and retailer’s margin. Also it moved out the intermediaries’ personal benefit where they push the new models/stock in market after finishing the previous inventory (Kendall, 2007)

Dell has its own assembly plant in each continent such as USA, Europe and Asia pacific to deliver the PCs on time (Kendall, 2007)

Dell is partnered with the supplier as the company has a belief that partnering with the reputable suppliers of PC parts and components in spite of backward integration and component manufacturing by its own. By doing this the company has gained several advantages including the name brand components which enhances the quality and performance of the Dell’s computer, value based components procurement to supply across the world markets, using suppliers engineers for assisting Dell’s team in product design and long term relationship with suppliers enable the company to ensure Just in time delivery of the components to Dells assembly unit (Porter, 2006).

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Just in time approach yield the major cost advantage to the company to shorten the time it takes to produce new generation computer models and launch them into the market place. Also the new advancements can be brought in the so fast in the computer parts and components including disk drivers, modems and microprocessors so that the inventory become obsolete for a month and sometime quicker. In case the company builds the inventory, it will lead to delay to develop new generation computers so quickly. Also recently the component cost has fallen down by 50% which may lead to high cost of in case the company keeps the stock of components (Kendall, 2007).

Direct selling approach enable the company to have firsthand experience regarding customer wants and needs and getting immediate feedback related to design & any other technical problem (Porter, 2006)

Dell has deployed virtual integration and information sharing system with both the suppliers and customers who enables to blur the traditional boundaries in supplier-manufacturer-customer supply chain. The company has provided its customer with internal technical support tool which enable the customers to resolve the issues themselves (Kendall, 2007).

The demand forecasting in Dell is excellent. As the company directly deal with large corporate customer and general consumers. The pulse of demand therefore lies on the fingers of the company. It provides the strong capability of forecasting the demand (Porter, 2006).

The research and development activities in the company is efficient as more than 1,600 engineers work on product development by taking the feedback from the customers. The research and development activity also works on controlling the quality and streamlining the assembly process to gain the long term sustainability (Kendall, 2007).

3.1 Recommendations:

In order to ensure the competitiveness of the company along with the sustainability, there are the following recommendations provided to Dell:

Dell should re-evaluate its core competencies including the management of value, workforce, capacity management, facilities, market and financial know how, systems and technology, integration and affiliation of services. Since the current operation strategy is already composed of combining all these factors however to further optimize the operation strategy, it is essential for the company to re-evaluate its core competencies. In addition to this after re-evaluating the core competencies Dell should identify the major competencies and focus on those processes which enable the company to develop competitive advantage. The only way of developing the competitive advantage is direct selling to the customers. In such process the company should reduce the lead time to delivery to the customer as still the company takes two days to deliver the computer. Sometimes the customers are impatient and looking for instant purchase. In such case the company should improve it’s just in time delivery approach to deliver the computers less than two days (Rondeau et al, 2007).

Dell should develop the common process for producing the computers which are most common among larger group of customers. It will ensure volume based sales and generating profit and stop migrating the customers to competitors’ offerings (Spring and Dalrymple, 2001).

The customization based approach is the cost competitive strategy of the customer. However in some case it can lead the delay in delivering the computers on time. Therefore some of the processes should be standardized which is common for producing most of the models (Vokurka and Kelly, 2005).

Dell can also improve in modern day operation capabilities in which the transition of craft to agile manufacturing focused provided in the below figure.

(Source: Ward and Duray, 2001)

4. Evaluation of Recommendation:

By re-evaluating the core competencies will strengthen the resources of the company through optimal allocation of each resource into processes. Capacity management improves the procurement and supplier relationship. It also enables Dell to emphasize on the core process which provides greater chances to develop the competitive advantage rather diverting its focus on different process. It will save the cost of managing all the processes and further improve the efficiency of the core process. The second recommendation is made to develop the common process for producing computers which is common to large group of customers. It will lead to minimize the cost of every time standardizing the process and improve the timely delivery to the customers. The research and development activity can be further focused in the core process rather focusing on all the processes. The third recommendation is made to standardize the processes which are common so that it should reduce the lead time and on time delivery to the customers with competitive prices. The fourth recommendation is made to improve the modern day operation capabilities in which Dell should emphasize on high level skills and quality to develop as a integral part of the operation process. Moreover Dell dealt with directly to the customers without using any intermediary; therefore in such case the automation process improve the mass production to meet the bulk demand and minimizing the cost. It will also improve the relationship status with the customers who enable the company to utilize the suppliers’ resources such as engineers to designing, product improvement, product optimization and development as per the customer need. Majority of customers of Dell are large corporate. The company can provide the access to these customers to justify on site dedicated team to resolve the issue of the customers. Customers will be very happy to have a team of specialists to resolve their issues rather purchasing a computer from the vendor and providing simply servicing service. All these changes will be the value add for Dell (Robert, 2005).

5. Operation Plan for Dell:

The purpose of developing the operations plan for Dell is to identify the key focus points within the company for a long period of time, meet the external requirement and communicating the vision and mission to the team.

5.1 Section 1: Overview

5.1.1 Functional Group:

The functional group is the team of professional within Dell who will be responsible for implementing the operation plan. As per the recommendation provided to Dell for improving its process by standardizing those which are common and revaluating the core competencies, the strategy management team and operation team will be responsible for implementing it. The aim of the functional group will be:

To prepare the appropriate plan for re-evaluating the core competencies,

Identify the process which is common across the entire assembly unit

Identify the demand for most common models

Develop the process which common for procuring the above model of computers

The participating members will have more than 5 years of experience and a total of 10 members will work together as a functional group.

5.1.2 Time Period:

This section defines the time taken by the functional group to perform each of the above activity and time taken for implementing the complete operation plan. A Gantt chart has been used to show the time plan as below:

5.1.3 Mission and Vision:

The vision statement for functional group is to improve the operations in Dell to minimize the cost and improve the business functionality across the business units.

The mission statement for functional group is to integrate and streamline the operation process along with the suppliers to ensure that the delivery of goods on time with customer expectations needs and wants.

5.1.4 Differentiation:

The differentiation is linked to mission and vision statements which identifies the core areas to be stretched to fulfill them and in support of the Dell goals and objectives. Every team member of the functional group will work independently to prepare the planning related to the aims and objectives. The ideas then will be integrated to design the superior implementation strategy. In order to re-evaluate the core competencies, a proportionate analysis will be conducted to understand which competency contribute more towards the profitability of Dell and helping it to develop the competitive advantage. The proportionate analysis will help the functional group to optimize the core competencies and suggest the operations team to focus on that particular competency to maintain the long terms sustainability.

5.2 Section 2: Project Focus

5.2.1 Major Project initiatives:

As described earlier the operation plan is being developed to identify the key focus points within the company for a long period of time, meet the external requirement and communicating the vision and mission to the team. Core features of this plan is to plan the activities to be performed suggested in the recommendation section to improve the business profitability, competitive advantage and long term sustainability of the company. In order to complete the tasks, a team of 13 professionals will be required who will be responsible for implementing the plan. In addition to this 6 to 7 associate members will also work with the functional group to assist them in designing the basic framework for each strategy and activity. The project plan will be mapped to the core competencies. For example the team of professionals will be selected based in their achievements and experience to successful undertakes the implementation phase. This process will take about one month to finalize the team and initiate the project. Apart from this the complete project will be finished in 6 months time explained in the Gantt chart above.

At the initial stage only 3-4 members will work which includes the project manager, team leader and domain expert. Once the project will be started the new resources will be added to achieve the desired level of functionality. All the members of the team will be sources internally however there may be some external consultant use to test the competencies of the resources. In case the internal sources will be in competent, the external resources will be used. While performing the project tasks, the functional group can have the following challenges in place as listed below:

Resistance from the internal employees

Resistance from the suppliers

Limitation of time and gap between the preparation and implementation phase

Budgetary constraints

5.3 Section 3: Team Dynamics

This section provides the detailed profile of the functional group members. Below is the structure of organizational chart for the team:

Project Manager

Team Leader (Strategic team) Team Leader (Operation Team)

Strategy Manager Sr. Strategy Manager Operation Manager Sr. Operation Manager

Associate Associate

Associate Associate

Associate Associate

All these team members will have more than 5 years of experience and must have good skills to implement the operational plan within the company. All these members will be management graduates with the core competency in operation management.

5.3.1 Key Roles and Responsibilities:

The key role of associates is to assist the senior strategy manager in designing the base strategy, planning and basic measurements. The key role of strategy manager is to collect the input from the associates to identify the optimal strategy and assist the senior strategy manager to design the plan for implementing the strategy. Team leader is responsible for supervising the team. Project manager will be responsible to monitor the activities performed by each team and implementation of the each task to be performed in operation plan. There will be two separate teams which will be working to implement the operation plan and the total resource requirement is 13.

5.3.2 Anticipated Changes:

The anticipated growth for the team in fulfilling the operation plan objective will be 100% as specialized team of professionals will work on the project and these individuals will be screened by using the external vendor. Since the project manager will be assigned to monitor the activities of each team therefore no leadership training is required as only the individual with high skilled and having leadership quality will assigned as the project manager. Team leaders will also be appointed based on their work experience and with high leadership quality. Therefore the anticipated growth will be 35% per month to achieve 100% across the period of six months.

5.4 Section 4: Evaluation

In order to evaluate the plan, a tracker will be designed which will be utilized to track and monitor each individual activity and related performance of the company. The sales tracker report will be generate weekly to measure the impact of plan on sales as it is anticipated before designing and implementing the operation plan. The group evaluation program will be run to assess the performance of the team. The self assessment method will be used to evaluate the performance of the team members. An appropriate action will be taken to ensure to fill any gap exist between required level of performance and current level of performance (Vokurka and Kelly, 2005).

6. Impact of Power and influence on Operation Plan:

It is obvious that whenever a new plan is implemented it always experience some resistance by the employees who have power to influence the management decisions. As per the recommendations provided to improve the overall operational performance of Dell, it is required to standardize some processes. The production and assembly team may have some objections to oppose that strategy or they might not be co-operative to fully implement it. In order to resolve it, a proper dummy presentation will be made and showed to them to make them realize about the anticipated benefits which will be occurred (Vickery et al, 2000). The other employee in operation management can also oppose the implementation of the operation plan since they might feel de-motivated due to not selected as a part of implementation team. In such a case the team will be shown the benefits of the plan which will be gained not only by the company but the employees of the company as well. In addition to this the suggestion will be opened to take from the other employees in operation management to motive them and make them participative in the implementation plan. The leadership skills will be utilized to manage the issues within the company which are likely to oppose the changes in the company (Spring and Dalrymple, 2001).

7. Conclusion:

As identified from the strategy analysis, Dell has already incorporated best of the strategy in place for managing the internal operation. The mission of the company is to become a successful computer seller across the world by delivering the best of customer experience in the market place and serve them at best possible manner. The company has defined its core competencies through latest technology offerings and flexible manufacturing. By putting together these competencies, a competitive business strategy has been developed by the company to deliver customized computer solution to the customer with in the two days at competitive prices. The recommendation made to the Dell will improve the operational performance of the company.