Examining Quality Control and Operation Management in Dell

Dell is one of the most successful and profitable computer corporations in history. It has been known for its innovative customer service and product custom configuration. As it continues to grow, it is faced with the challenge of how to maintain its customer relationships and inventory management, while continuing to meet the demands and requirements of its customers. This paper will examine how Dell implements enterprise-wide computing software, which profiles and targets its customers, as well as streamlines the flow of its products throughout the supply chain. Dell’s collaboration with other computer software companies has allowed it to become a leader in customer relationship management (CRM) and supply-chain management (SCM). These initiatives have resulted in net revenues of between $30 and $60 million over the last five years.

Supply Chain Management is becoming more and more important for the success of today’s business world. Dell has realized this trend from its very first step and has become one of the most successful PC companies in the world by putting emphasis on its supply chain, concentrating on its its build-to-order and direct sales strategies.

Dell is still figting with quality control management problem. . The quality problem relates to low and high end servers, laptops, and desktop models. The regular check up by company indicate a high increase in the number of machines that need to be serviced by Dell in the field soon after the delivery, and also machines returned to Dell for replacement/repair.

Introduction

Dell Inc. is a multinational information technology corporation that develops, sells and supports computers and related products and services. The headquarters of dell are in Round Rock, Texas, United States.Dell has employed more than 90,500 people all over the world according to the survey in the current year[update].

Dell grew during the 1980s and 1990s and became the largest seller of PCs but this was not for a long time. At the end of 2009, it held the first position in computer sales, the company sold 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. As of April 2010, Dell topped in computer sales leaving behind HP and Acer.

In 2006, Fortune magazine ranked Dell as the 25th-largest company in the Fortune 500 list, 8th on its annual “Top 20” list of the most-admired companies in the United States.

In 2007, Dell ranked 34th durinf first few months an during last quarter it was ranked 8th on the equivalent lists for the year. In 2006 one of the top magazines identified Dell as one of 38 high-performance companies in the S&P 500 that had consistently out-performed the market over the previous 15 years.

On January 31, 2007, Kevin B. Rollins, CEO of the company since 2004, resigned as both CEO and as a director, and Michael Dell resumed his former role as CEO. Investors and many shareholders said that rollins due to poor performance of the company resigned his job. The company announced fourth time in same year that the company was fail to reach what the analyst estimated and the results were not upto the mark.

In February 2007, Dell became the subject of formal investigations by the U.S. SEC and the U.S. Attorney for the Southern District of New York. The company has not formally filed financial reports for either the third or fourth fiscal quarter of 2006, and several class-action lawsuits arrised based on there recent performance report. Dell Inc due to lack of financial disclosure was in a bad side but would normally subject the company to de-listing from the nasdaq and luckily exchange gave a waiver to dell to exchange was done on normal basis and rate.

On March 1, 2007, downfall kept the company showing a quarterly report of gross sales of $14.4 billion, down 5% year-over-year, and net income of $687 million,down 33%.NASDAQ extended the company’s deadline for filing financial statements to May 4.

The computer industry includes computer software, computer hardware, as well as the production of computer components, assembly, logistics distribution, sales, marketing, and the provision of information technology services. Dell is in the business of manufacturing computers and servers. Its competitors are Hewlett Packard/Compaq, IBM, Apple, and Gateway(depending upon the country competitors may vary eg-gateway is not officialy available in india)

The new trend in the computer industry is to become a virtual corporation and Dell is leading the way. According to Dedrick and Kraemer (2006), Dell is “aiming to combine the cost advantages of horizontal specialization with close coordination of vertical integration”. In the early 1990’s, Dell shifted to new strategies and tried to distribute its products through retail outlets, later realizing how unprofitable this approach was. It decided to focus on improving customer service and support by allowing customers to place and custom configure orders directly. This resulted in a unique strategy-customization. Nearly one out of five standards-based computer systems sold in the world today is a Dell.

Dell has one simple concept: to sell computer systems directly to customers. Dell’s customers are global wide and range from individuals, small businesses, large businesses, and institutional organizations, such as schools and hospitals. The mission statement for Dell is “to be the most successful computer company in the world at delivering the best customer experience” (htttp:www.dell.com). Since Dell is a global wide company, its “direct approach is relevant across product lines, regions and customer segments” (http://www.dell.com).

Michael Dell started Dell in 1984, he had limited cash and purchased most of the supplies needed to build his first computers after the sales were made. Well-established computer manufacturers like IBM had a lock on the computer market, where customers preferred to purchase products from retail outlets. This new idea of “building-to-order” and ordering over the phone was a major risk. The first obstacle was to create a need on part of the customer to desire the purchase of a customized computer. The second hurdle was having customers call a toll free number to order the product. Dell had to find a way to overcome these obstacles and then provide a service that would build a reputation for superior business to consumer efficiency.

OPERATION MANAGEMENT

Every business is managed through three major functions: finance, marketing, and

operations management. Operations management (OM) is the business function that plans, organizes, coordinates, and controls the resources needed to produce a company’s goods and services. Operations management is a management function. It involves managing people, equipment, technology, information, and many other resources.

The role of operations management is to convert or transform a company’s inputs into the

finished goods or services. Inputs include human resources (such as workers and managers), facilities and processes (such as buildings and equipment), as well as materials, technology, and information.

Proper management of the operations function has led to success for many companies.

For example, in 1994 Dell Inc. was a second-tier computer maker that managed

its operations similar to others in the industry. Then Dell implemented a new business model that completely changed the role of its operations function. Dell developed new and innovative ways of managing the operations function that have become one of the examples in todays world. These changes enabled Dell to provide rapid product delivery of customized products to customers at a lower cost, and thus become an industry leader.

With historical development there are different concepts in operation management eg. total quality management supply chain management and inventry control management.

Total Quality Management

As customers demand never ending higher quality in their products and services, companies

have been forced to focus on improving quality in order to remain in the business. Total quality management (TQM) is a philosophy, promulgated by “quality gurus” such as W. Edwards Deming, that passionately seeks to improve product quality by removing causes of product defects and making quality that speaks by itself.With TQM everyone in the company is responsible for quality. TQM was practiced by some companies in the 1970s and became a major part of the company in the 1990s. This is an area of operations management that no competitive company has been able to ignore.

The importance of this movement is demonstrated by the number of companies

joining the ranks of those achieving ISO 9000 certification. ISO 9000 is a set of

quality standards developed for global manufacturers by the International Organizationfor Standardization (ISO) to control trade into the then-emerging European Economic Community (EEC). Today many companies require their suppliers to meet these standards as a condition for obtaining contracts.

Supply Chain Management

Supply chain management (SCM) involves managing the flow of materials and information from suppliers and buyers of raw materials all the way to the final customer. The objective is to have everyone in the chain work together to reduce cost and improve quality and service delivery. Supply chain management requires a team approach, with functions such as marketing, purchasing, operations, and engineering all working together. This approach has been shown to resulted in satisfyeing more customers, meaning that everyone in the chain profits. SCM has become possible with the development of information technology (IT) tools that enable joint planning and scheduling. The technologies allow supply chain execution and design collaboration, which enables companies to respond better and faster to changing market needs. Numerous companies, including Dell Computer, Wal-Mart, and Baxter Healthcare, have achieved world-class status by effectively managing their supply chains.

In details we will talk about the strategy and management of dell here.

Dell competetive advantages

Dell’s Direct Business Model

Commitment to Open Standards

Order Velocity/Build to Order

Supply Chain Optimisation

Continuous Process Improvement

Inventory control

The term inventory means the value or amount of materials or resource on hand. It includes raw material, work-in-process, finished goods & stores & spares. Inventory Control is the process by which inventory is measured and regulated according to predetermined decisions such as economic lot size for order or production, safety stock, minimum level, maximum level, order level etc.

Traditionally, the focus on inventory management has always been about not running out of finished goods. Manufacturers would always have more and more excessive amounts of raw materials, work in process, and finished goods with regard not for holding costs but only for protecting against a stock-out. If demand was higher than expected or a supplier missed a shipment, inventory would bail the manager out. As long as outbound shipments were satisfied, so were the operations managers. But there was a problem in this policy because holding costs and other practices were difficult to nagae due to low technology and managers ignore these.

Holding costs can be defined as the annual costs that are incurred by holding onto inventory.The dollar amount for holding costs typically ranges between 20-40% of annual average inventories. For example, if a firm has average inventories of $1000, the firm would have an annual holding cost at least $200. Common factors that attract holding costs include opportunity costs, increased rent required for the space of the inventory, higher premiums to insure the inventoryand cost of absolute goods.

Opportunity costs are the highest cost. For example, if a firm has an average inventory level resulting in $100 million worth of goods, the firm effectively has $100 million tied up in inventory. Assuming these funds are not being loaned to the firm (which immediately results in interest expenses), then these are funds that should be used in other investments.

Objectives of Inventory Control

To meet future demand due to variation in forecast figures and actual figures.

To cover demand due to seasonal or cyclic variations.

To meet the customer requirement timely, effectively, efficiently, smoothly and satisfactorily.

To smoothen the production process.

To provide help for intermediate several products on the same facility.

To gain economy of production or purchase in lots.

To reduce loss due to changes in prices of inventory items.

To meet the time lag for transportation of goods.

To meet the technological constraints of production/process.

To balance various costs of inventory such as order cost or set up cost and inventory carrying cost

To balance the stock out cost/opportunity cost due to loss of sales against the costs of inventory.

To minimize losses due damage,robbing etc.

To stabilize employment,resources and machine and human efforts.

Benefits of Inventory Control

Ensures an adequate supply of materials

Minimizes inventory costs

Facilitates purchasing economies

Eliminates duplication during ordering

Better utilization of available stocks

Provides a check against the loss of materials

Facilitates cost accounting activities

Enables management in cost comparison

Locates & disposes inactive and expired store items

Basis for financial statements which is reliable.

Inventory control Dell

Using today’s technology, manufacturers and retailers are achieving inventory turns that are as important as the supply chains that produce them. Take for example Dell. 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.

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 and maximum of 1 month. 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.

Backorder costs are the costs associated with failing to meet demand. Maybe the product is a commodity and the cost is nothing more than lost revenue, but maybe the backorder results in bad word of mouth that drives the cost even higher than the lost revenue. It is important for a firm to determine the approximate costs tied to backorders. When this is achieved, managers can compare holding costs to backorders in order to help determine what optimal inventory levels are. Unfortunately, backorder costs and holding costs aren’t the only variables involved with optimal inventory levels. Other costs such as ordering costs (costs associated with ordering. Includes paperwork, inventory counts, etc.) , supplier lead times (how long it takes between ordering and receiving materials), and supply lead time and demand variations are also important variables that can’t be ignored. All of these variables can make optimal inventory levels very difficult for managers to determine. Today, software business solutions help to both ease the workload and drive down costs (in particular, ordering costs).

Dell’s Inventory Turnover Data 

Year      Inventory Turnover         Week’s Inventory

1992      4.79                                10.856

1993      5.16                                10.078

1994      9.4                                  5.532

1995      9.8                                  5.306

1996      24.2                                2.149

1997      41.7                                1.247

1998      52.40                               0.992

1999      52.40                               0.992

2000      51.4                                1.012

2001      63.50                              0.819 

Key point to notice here is that Dell was carrying over 10 weeks worth of inventory in 1993. By 2001, Dell was carrying less than 1 week’s worth of inventory. This essentially means that inventory used to sit around for 11 weeks and now it sits around for less than 1 week.

So what does this mean for Dell?

computers lose 1 percent of their value per week. This isn’t like the canned food industry where managers can let their supplies sit around for months before anyone comes and orders. Computers aren’t canned goods, and as Kevin Rollins of Dell says-.they are rot,the longer a computer sits around, the less it is worth. 

Due to depreciation alone, in 1993 Dell was losing roughly 10% per computer because the computers were all ready to be sold but there was no order coming. In 2001, Dell was losing less than a percent. Based on holding costs alone, Dell reduced costs by nearly 9%. 

Since 2001, Dell has continueed to lower inventory. Looking at their latest annual reports, day’s inventory has dropped by approximately a day. 

Benefits of low inventory:

Supply chain management

A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request. In other words, a supply chain (SC) includes all organizations that collaborate in order to produce and deliver a finished product to the final customer. An example of a simple, direct SC would be the one which contains one supplier, a distributor of the materials, the bakery and a customer.

Supply chains can be different in size, how complex the relation is inbetween the members and distribution of physical presence. In the following figure two different types of channel relations can be seen: direct, where the SC consists of one supplier and one customer of an organisation, and extended, where apart from the above, a supplier’s supplier, a customer’s customer, etc. are included. In general, supply chains are dynamic, and involve the flow of information, products and funds between different stages.

Supply chain management has the objective to have the right products in the right quantities at the right time at minimum cost, a situation that would guarantee optimal service levels for the customer and optimal performance for the organizations as a whole and separately. So, SCM involves the management of flows between and among members of the supply chain in order to maximize total supply chain profitability, hence maximize the total value generated throughout the SC.

while recognizing the existence and importance of the others – an organization needs first to decide about its supply chain strategy and then decide and take required actions that will fulfill the customer demand.

Dell’s Supply Chain Strategies

The direct model refers to the fact that Dell does not use the retails channel, but sells its PCs directly to customers through its website, Dell.com, as Figure shows. This way the intermediary steps that may add time and cost are eliminated, and Dell is directly linked to its customers.this strategy look very simple but its very hard to adopt and manage such a policy,a very high qualified and experienced staff is required.

Fig 1

fig 2

Indirect Distribution channel for PC industry

Direct ditribution channel for PC industry(figure 1 as shown by dell)

When Dell was a smaller company than it is now, before the development of powerful, industry-standard servers of the type that Dell manufactures, the Dell IT group ran its SCM database applications on large, expensive, proprietary servers based on the UNIX® OS. However, as the company grew, servers lacking the necessary capacity had to be replaced with even larger, more powerful servers. And because the servers were not upto the mark and efficient, updating a single server often required shutting down entire systems. The increased performance of industry-standard DelPowerEdge servers, however, has enabled Dell IT to create cost-effective, highly scalable systems using Oracle Real Application Clusters (RAC) 10g.

In fact, Dell sells directly to all its customers, “from home-PC users to the world’s largest corporations”. This way it creates a direct relationship with each individual customer, which turns out to be a great source of competitive advantage. As Michael Dell has stated, this direct relationship “creates valuable information” about the customer, thus Dell knows who the end users are, what they have bought from Dell and what their preferences are, a fact that allows Dell to offer add-on products and services, and stay, in general, closer to the customer.

Quality control

Recent data points indicate that on top of mounting corporate governance and sluggish growth issues, but dell may also be facing a problem of quality control. The quality problem relates to low end servers, laptops, and desktops, not the high-end server models. Channel checks indicate a noticeable increase in the number of machines that need to be serviced by Dell in the field shortly after delivery, and also units returned to Dell for replacement/repair.

For the most part, Dell outsources assembly to offshore partners in Taiwan and China. It is not clear yet if the issues are caused by sloppy manufacturing or design flaws. We suspect the former, and will continue to check field data. In addition, Dell is struggling through early adoption of the Microsoft Vista operating system, and users may not be able to differentiate whether the problems they are having with new laptops stem from poor build quality, design issues, instability in the operating system or incompatibility in application components with Vista. Quality issues with Dell laptops are nothing new – we routinely saw evidence of that last year.

The rise of problems with low end servers and desktops is troubling — and our checks indicate that it is costing Dell money and starting the downfall of its brand. The timing of this quality lapse could not be worse for management, considering the recent announcements about errors in accounting and financial controls.

An executive of a system builder that often competes with Dell said he finds the company has been much less cost-competitive since Michael Dell has returned to the CEO position at the company, and that the PC maker is representing a certain amount of “confusion” in competing for business throughout this quarter.

Cost issues and turmoil appear to be piling on to Dell’s quality issues from last year, when the company recalled 4.2 million notebook batteries due to fire hazards. For its part, though, Dell has said it has found its response to customers with quality or technical problems has improved.

SWOT Analysis of Dell Computer

Strengths

Dell’s Direct Model approach of enables the company to offer direct relationships with customers such as corporate and institutional customers. Their strategic method also provides other forms of products and services such as internet and telephone purchasing, customized computer systems; phone and online technical support and next-day, on-site product service. This extensive range of products and services is definitely one of Dell’s strengths.

Dell Computer’s award-winning customer service, industry-leading growth and consistently strong financial performance differentiate the company from competitors for the following reasons:

Price for Performance – Dell represents a very efficient procurement, manufacturing and distribution process allowing it to offer customers powerful and customized systems at competitive prices.

Customization – Each Dell system is built to order to meet each customer’s specifications.this is the only company till now which has been efficient in applyeing this strategy through the world.Under developed countries like india where people are not much in contact with internet,they are also aware of the companyz system of online oredering and customizing and almost 90 percent of the people are satisfied by this.

Reliability, Service and Support – Dell’s direct customer allows it to provide the most efficient customer service before and after the sale.the industry of computer is such that only a technical help person can fix the system and when dell provides with such a service of online omitting errors and toll free registering complaint and on the spot servicing ,this gives a customer a plus point then other companies.

Latest Technology – Dell is able to introduce the latest relevant technology compared to companies using the indirect distribution channels. Dell turns over inventory for an average of every six days, keeping inventory costs low.

The company’s application of the Internet to other parts of the business –including procurement, customer support and relationship management — is growing at a rate of 30 percent. The company’s Web site received at least 25 million visits at more than 50 country-specific sites.the latest technology also carries effective attractions like customizing the outer looks like different variants of colours,the girls have different choice and boys have different.the company also earns more through this because the more you customize,the more a customer has to pay for it.now adays dell is also providing to make its own design on the outer screen .

Weaknesses

Dell’s biggest weakness is attracting the college student segment of the market. Dell’s sales revenue from educational institutions such as colleges only accounts for a mearly 5% of the total. Dell’s focus on the corporate and government institutional customers somehow affected its ability to form relationships with educational institutions. Since many students purchase their PCs through their schools, Dell is obviously not popular among the college market yet.

Dell is not available in retail outlets, customers cannot go to retailers because Dell does not use distribution channels. Customers just can’t buy Dell as simply as other brands because each product is custom-built according to their specifications and this might take days to finish.most of the times it happens that customer is unaware of the specifications of the the materials to be installed so according to him customizing the pc is a big headache and customer will go for simple buying.

Dell weakness lies in their time of delivery also.normally 15 to 20 days are followed after the order have been placed.people requiring a urgent pc or youth exited about a new laptop or pc doesn’t want to wait for these many days.it happens with us most of the times,whne we are in a mood to buy something we want that thing to be delivered as soon as possible.this is alos a major weakness of dell.

Opportunities

Computers according to customer demand and requirement and becoming more and more popular and also a necessity today. Customers are getting more and more educated about computers. The first time users may avoid dell but a second time usr will always prefer dell because now he or she is more known to the product,more aware about what he requires and also keen to use more and high performance technology.

Desktops are now out of fashion and people are going for laptops because it is easy to carry and easy portable device.this is a major segment where company can focus and attain a reputed position.

The internet is also playin a major role in dell sales and orders because dell is not available through outlets and now days people are more aware of the internet and its use.dell laptops and pc can be ordered with vast varieties of variants of each and every product where as in case of retail outlets the variety available is not so much.

Threats

This is such a industry or market where thousands of new products are launched each month because the it industry has well established and each and every technical person has an ability to develop a hardware or software.we can see each day a new and very innovative products are launched related to computer industry.dell has to keep an eye on new products that are alays being launched and also try to make new products so that company can maintain its reputation of an innovative company.

The company also faces a big problem of producing product that are high in quality and low in price.when such a situation comes a company has to make every effort to make maximum sales and profit.

One more problem or threat is price between companies are decreasing day by day and there is almost an equal price for the same product in two comapnies. Dell’s Direct selling attracts customers because it saves cost. Other companies are alsooffering computers at low costs, this could hurt the dell customer base and customers can shift to other pc companies. With almost identical prices, price difference is no longer an issue for a customer. They might choose other brands instead of waiting for Dell’s customized computers.

The next threat is decrearing rate of computer industry and unluckily dell has the maximum share in this industry,suppose if the demand decreases the the competition will become more hard and company would have to work more harder and harder to maintain its position in the market

Technology is advancing day by day.if on the one side its an opportunity for the industry,on the other side its also a threat for the industry because the computer industry is such an industry where an new technology or product doesn’t need a much high investment and large firms face competiton when small companies introduce new and efficient products at much smaller price

Technology dictates that the most up-to-date and fastest products are always the most popular. Dell has to always keep up with technological advancements to be able to compete.

Porters five force model for dell-

Threat of new entrants-moderate.

Reasons-

The capital required for investment is low for new companies.

Differentiation in products is also low but brand name can be considered as an entry barrier.

The economies of scale is also low.

The government or legal barriers are also low or alomot nill(depending upon country to country)

.

Rivalry-high

Reasons-

There is a price war due to low margin.

The continuing decrease in profit.

High concentration of the market.

Threat of substitutes-low

Reasons-

If we look at the survey evry 4 th person ahs a