Dell Computer Dell Operations Management Dell Computer Essay

Download this Essay in word format (.doc)

Note: Sample below may appear distorted but all corresponding word document files contain proper formatting

Excerpt from Essay:

Dell Computer


Operations management: Dell Computer

This seems fitting, given that it was Dell who conceived of the unique business model that catapulted Dell to the forefront of the PC market for nearly a decade. What is so extraordinary about the Dell success story (and some would say, the Dell fall from grace) is that Dell achieved its success through its operations management rather than creating a new product like Apple or Microsoft. Dell, in fact, hardly spends any money at all on R&D. "It's a simple business model, but what makes it a success is doing it on that kind of scale and with that kind of complexity... Dell spends little on product research and development -- $440 million a year, vs. $4 billion a year at Hewlett-Packard" (Maney 2003).

The direct-to-consumer model

Dell pioneered the direct-to-consumer model of computer sales. By building computers customized to consumer needs, Dell was able to bypass the expenses of the 'middleman' or retailer, and pass savings on to consumers. The PC market was flagging in the post-2001 market, but Dell prospered, despite the recessionary atmosphere. In "one of the worst PC markets in history, Dell gained enough become the number-one company in the business. At a time when every one of its major competitors is losing money in PCs, Dell is making it, keeping margins flat while waging a price war that's destroying its rivals. And the company's share price held up in the bleakest slump the industry has ever seen" wrote industry analysts soon after the recession took hold (Schrage 2002).

Building computers to suit customer's demands meant that Dell could keep inventories extremely low, much along the lines of the Toyota model of Just-in-Time (JIT) manufacturing. With technology, keeping inventories low is essential. Technologies so quickly become obsolete, unsold inventory becomes worthless. With JIT and building to consumer specifications, this risk is radically reduced and translates into cost savings for the consumer and for the vendor. Before Dell implemented its direct-to-consumer model, it was a struggling company with little to distinguish itself from its competitors in terms of its product, thus making it a "second-tier PC maker" to HP and Compaq (Byrnes 2004). "Like other PC makers, Dell ordered its components in advance and carried a large amount of component inventory. If its forecasts were wrong, Dell had major write-downs" (Byrnes 2004). Eliminating inventories with build-to-order computers eliminated the need for such write-downs.

Dell's model of management became more talked-about than the quality of its PCs. "Executives from all walks of industry have made pilgrimages to Austin, hoping to bring back a formula they could apply to their own companies. 'If this works for computers, it's going to work for automobiles, furniture, carpets, appliances, anything,'" (Schrage 2002). As American industry became increasingly service-focused, Dell staked its reputation upon selling a service, rather than a physical product, in a way that was unique in the PC industry and in a way which enabled it to use its operations model to keep prices low. "Coordinating a company's day-to-day activities through careful forethought and great management, was at the core of Dell's transformation in this critical period. Dell created a tightly-aligned business model that enabled it to manage away the need for its component inventories. Not only was capital not needed, but the change generated enormous amounts of cash that Dell used to fuel its growth" (Byrnes 2003). Dell saved money to pass onto consumers without slashing quality of service or product quality. It developed large cash reserves as a company and became one of the 'darlings' of Wall Street.

Lowering inventories

How did Dell keep inventories so lean? The first step of its new operations management policy involved understanding its customer base. "Dell purposely selected customers with relatively predictable purchasing patterns and low service costs" and established long-term relationships with corporate customers (Byrnes 2003). By keeping track of sales metrics in a database, it could predict with far greater accuracy than before likely customer demand patterns and cut more inventory 'fat.' Inventory monitoring was more challenging for the consumer market, but "Dell used higher price-points and the latest technology products to target second-time buyers who had regular upgrade purchase patterns, required little technical support, and paid by credit card" (Byrnes 2003).

Stable expectations regarding purchasing required a conservative focus by the company, which did not focus upon 'pushing' the next new thing like Apple. "If a product lead time was climbing, purchasing could expedite component deliveries or shift to alternative sources of supply, or sales could try to induce customers to buy substitute products. If component overages were accumulating, sales could provide incentives for order-takers to steer customers toward the makeable set of products, or could bundle products with an attractive umbrella price" (Byrnes 2003). Through incentives and discounts, consumers were encouraged to purchase what was already on hand, rather than to seek out new products. Dell's prices changed from week-to-week, in contrast to competitors, to encourage customers to take advantage of special deals which enabled the company to better meet its goals of moving inventory. The goal was to keep inventory to nearly zero and accurate forecasting as close as 70-75% as possible (Byrnes 2003).

Dell's focus has always been customer-centric and present-centric. "Let others dream up products never before imagined and risk their futures on that vision. Dell is content to ask consumers what they want and then sell it to them" or even in some instances to encourage consumers to buy inventory it wanted to 'get rid of' versus their initial request (Ricadela 2009). This unique approach did enable it to stand at the forefront of its industry and distinguish itself from Microsoft, Apple and its rivals for years.

Declining PC demand

However, Dell's model of focusing on consumer needs in the here-and-now created tunnel vision about where the PC industry was heading in the future. Although Dell weathered the 2002 recession admirably, it did not fare so well after the 2008 recession. During the earlier half of the decade, "the company wanted to beef up areas such as data storage and tech services to better compete with IBM...Wind the clock forward a decade, and they've done almost none of that," resulting in a relatively stagnant business that had once been the flagship of out-of-the-box thinking (Ricadela 2009).

Consumer technology spending as a whole has been dropping, and Dell has been hurt as well by the fact that it has a less 'sexy' image than its rival Apple, and it is no longer able to compete solely on cost, given that its competitors with higher cash reserves like HP are also slashing prices. "In a tough consumer economy, companies such as HP can make up for weaker PC sales with better results from high-end servers or printers [but] Dell's business is so tied to PC sales that it has little choice but to cut prices" (Mintz 2008). Slashing prices has enabled Dell to boost sales and slashing employee payrolls has reduced operating costs, but has also resulted in a dramatically lower profit margin.

But the reasons for Dell's decline may also be structural as well as due to the economic downturn and inferior products. The fact is, quite simply, that Dell's business model rests upon PC sales, and consumers are buying fewer PCs and relying more on tablets and mobile phones for their computing needs. This is helpful for Apple and dire for Dell. As early as 2003, while Dell was prospering, there were warning signs of a weakening PC market, but Dell continued to rest upon its laurels and focused upon what it did best -- keeping inventory low and responsiveness to customers high (Maney 2003). Conventional wisdom suggests that a company 'sticking to its guns' and focusing on 'doing what it does best' is often…[continue]

Cite This Essay:

"Dell Computer Dell Operations Management Dell Computer" (2012, July 16) Retrieved October 25, 2016, from

"Dell Computer Dell Operations Management Dell Computer" 16 July 2012. Web.25 October. 2016. <>

"Dell Computer Dell Operations Management Dell Computer", 16 July 2012, Accessed.25 October. 2016,

Other Documents Pertaining To This Topic

  • Operations Management Supply Chain Management at Dell

    Operations Management Supply Chain Management at Dell Computer Corporation Supply chain management systems have historically been designed to bring increasingly higher levels of automation and standardization of processes throughout supplier relationships, fulfillment, quality management and services. Throughout the latter half of the 20th century the concentration on lean supply chain performance sought to drill out every errand and unnecessary step and costs from supply chain collaboration, planning and execution (Foreman, Gallien, Alspaugh,

  • Dell the Current Situation for Dell Is

    Dell The current situation for Dell is that it is trying to recover from a downturn in its business. The company has a good brand name, a strong online distribution channel and good relationships with its suppliers. Key weaknesses are a lack of innovation, poor offline distribution channels and the company's finances are not great anymore. There are opportunities for Dell to rebuild its corporate business, or enter new consumer segments

  • Operations Management Strategy of Lenovo

    In this regard, Lin and Lin add that, "The Chinese personal computer manufacturer wanted to increase its share in Western markets. The acquisition hoisted the manufacturer from 9th place to 3rd place in terms of PCs sold. These acquisitions illustrate China's desire to spend low-cost money to acquire existing brands and distribution access, as well as securing additional outlets for other Chinese produced goods" (2008, p. 32). Planning and control. Although

  • Computer IBM Entered the Computer

    To some users of personal computers, who state, never trust a computer that you cannot lift; the IBM has been viewed, more often than not, as an enemy, and according to Byte, the computer magazine, this was because of the fact that the IBM company rose to fame mainly on the basis of its mainframe computers, that were large and forbidding, and overwhelmingly bulky. This was probably why, when

  • Dell Computers Presents a Useful Company to

    Dell Computers presents a useful company to perform a strategic management analysis upon. The personal computer industry has changed and evolved considerably in the past years and the market conditions today are also presenting new and exciting problems for this organization. The purpose of this essay is to examine Dell and its industry in terms of its current strategic outlook. The essay will present information on the personal computer industry,

  • Dell Case Study Challenges Facing

    In particular, Wyse gave Dell a better foothold in the sprawling segment of cloud computing. This area has helped companies save money through the delivery of affordable services and software over internet-based infrastructures (Ignatiuk, 2008). Dell will also benefit from the prior experience of Silver Lake expertise that has revived several tech companies such as Skype. This wrenching would typically change Silver Lake to be tricky for a public corporation

  • Dell s Inc Accounting Fraud

    DELL INC. FRAUD Business practices came under fire when America's seventh largest firm Enron collapsed due to unethical accounting strategies. This case triggered a series of unwelcome events where one after the other, large organizations in the U.S. collapsed or run for bankruptcy cover with one case even implicated the infamous Martha Stewart for insider trading. The various deceitful activities of some larger companies resulted in widespread public mistrust of business

Read Full Essay
Copyright 2016 . All Rights Reserved