Dell company overview and business operations

Dell

For many organizations, their performance in the international market is more important for their survival and growth than their performance in the home market and this performance has to be achieved. Dell as a company has outlined clearly its policies for operating in the International market and these should be viewed as its global strategy. This also should be the starting point for any discussions regarding its globalization.

The history of the company is quite interesting and it had begun as the company of Michael Dell in 1984 while he was still a student in Austin. The business started as one of selling upgrades of IBM compatible PCs and then shifted to a business of selling its own brand. He was operating on the direct sales model where the PC was built to the specification of the customer. Their retailing activities started in the year 1990, but the business went into a slump in the year 1993 and then they went back to being direct vendors. Their business grew rapidly and reached from $3.5 billion in the year 1994 to $25 billion in the year 1999. At that time, they were the largest sellers of PCs in United States and the second largest in the International market. To achieve this, the company manufactures in different regions with one or more plants for a particular region. (Dell Computer: Using E-commerce To Support the Virtual Company)

Plants in the "Austin, Texas area and Nashville, Tennessee serve North America; Eldorado do Sul, Brazil serves Brazil and South America; Penang, Malaysia serves the Asia-Pacific region; Xiamen, China serves China; and Limerick, Ireland serves Europe, the Middle East and Africa." (Dell Computer: Using E-commerce To Support the Virtual Company) Yet, whether the company can still be called a totally global company is open to dispute. Other companies generate more of their revenues outside their home countries - Siemens gathers 77% of its revenues out of Germany, and Coca-Cola gathers more than 70% of revenues out of the U.S. Companies that are dependent on domestic markets now include Google at 45% and Dell at 31% though they are also trying to become truly international companies. (Global by Design)

In the year 1994, as mentioned earlier, Dell was not doing well and Dell was a struggling second-tier PC maker. In comparison to other PC makers, Dell also ordered its components well ahead of time and carried out a huge amount of component inventory. If the forecasts did not meet the actual sales, Dell had to write off large stocks of components. Then they changed their system and over a period of four years, the revenues of Dell increased from $2 billion to $16 billion, which is a 50% annual growth rate. At the same time, earnings per share were enhanced by about 62% per year. This was reflected in the stock price rise of Dell which enhanced by over 17,000% in over eight years. In the year 1998, the return on invested capital of Dell was 217%, and the company had about $1.8 billion in cash. One of the strategies selected was to choose customers with relatively predictable purchasing patterns and service costs which were lower. This helped in lowering costs and increasing profits. (Dell Manages Profitability, Not Inventory)

The company also developed a core competence level for targeting customers, and maintained a massive database to carry this out. This led to a situation where a large portion of Dell's business came from long-term corporate relation accounts and these customers had predictable requirements which were closely related to their budget cycles. For keeping records of these customers, Dell developed customer-specific intranet Web sites which were powerful and which had predetermined custom specifications and budgets. Dell's forecast accuracy was around 70 to 75%, and the reason for this high accuracy was careful account selection. Demand management of these customers was also done and this, in turn, closed the forecast gap. The first set of objectives of Dell internally was based on lowering inventory by 50%, enhancing lead time by 50%, reducing the amount of assembly costs by that of 30%, and lowering the amount of obsolete inventory by 75%.

The new system was slowly brought in and the component inventory dropped in response from seventy days to a period of thirty to forty days, later to twenty days, and then to nearly zero as inventory disappeared. Correspondingly, the returns of Dell grew disproportionately. Not only did Dell avoid carrying costs and writing off obsolete stock, but importantly, at the same time it was saving a lot of money on purchasing components as at the same time component prices were dropping 3% per month. (Dell Manages Profitability, Not Inventory) The regular drop in prices of obsolete component prices continue even today, but Dell were probably one of the first to recognize this trend and take it into corporate planning. The principles of Dell are observes all over the world. This is also one of the main reasons why Dell achieved high profitability which led to its growth, and the matter was interesting enough for Harvard Business School to take note of.

Considering the fact that Dell has so many plants internationally, all producing goods for particular areas, it is important that these plants maintain certain international standards. This is contained in Dell's Global Supplier Management Program. The policies there are clear. The first check is on Certification and Standards and Dell suppliers must be compliant with ISO 14001, which is the most widely recognized standard for environmental management systems, and OSHAS 18001, a prominent standard for workplace health and safety management systems and the target date was 31 January 2004. If there were any problems, they had to obtain Dell's approval on a schedule for achieving certification. The second aspect was adequate Training and Communication. (Principles of Globalization and Global Citizenship)

The third aspect was that all suppliers had to sign an agreement acknowledging awareness of and their commitment to Dell social and environmental responsibility requirements. This was to ensure that responsible behavior is built into the business, and Dell conducts quarterly business and supplier reviews. Fourth point was to ensure that products came in time as that is the reason for the rapid international growth of Dell. Dell reserved the right to terminate its agreements with suppliers who violated or failed to comply with the company's Supplier Commitment Policy or Supply Chain Management needs. (Principles of Globalization and Global Citizenship)

In the year 2001, Dell Computer became the world's largest personal computer vendor, and it is still gaining market share and showing profits while the industry struggles with slumping sales and billions of dollars of losses. Dell sells 90% of its PCs directly to the final customer, and does not sell to the reseller channel that accounts for most of the sales of world's PCs. To succeed in selling, Dell has concentrated on a few key strategic activities, and is extensively outsourcing non-strategic activities. Dell works closely with external partners to produce its PC products to provide the best products to its customers. (Dell Computer: Organization of a Global Production Network)

For the purpose of manufacturing its products, Dell coordinates a global production network that includes the continents of Americas, Europe and Asia. This needs combination of in-house final assembly with heavy reliance on outside suppliers and contract manufacturers. Manufacturing of printed circuit board assemblies -- PCBAs, subassemblies, and some final products which were mainly notebook PCs is done by contract manufacturers or original design manufacturers like SCI, Solectron, Celestica, Hon Hai, Quanta and Arima. As in the case of other PC makers, Dell relies on outside suppliers for components and peripherals like disk drives, CD-ROM drives, semiconductors, add-on cards, monitors, keyboards, mice and speakers. Its PCs also can be sent with standard software like Microsoft Office or with specialized software when requested by corporate customers. (Dell Computer: Organization of a Global Production Network)

The partners of Dell include Wang, Unisys, IBM and BancTec. There are also resellers who support Dell hardware and receive referral fees for recommending Dell to customers. (Dell Computer: Organization of a Global Production Network) Even after twenty years, Dell has retained an informal and the energy to execute decisions as it happens in a start-up company. Dell is a flat organization. From the factory floor to corporate headquarters, decisions are made quickly and without considerations of hierarchy. If a supervisor on the factory floor sees methods for reduction of component inventories, he does it, and does not have to go up the chain of command for approval. Dell's internal communications are efficient, and decisions that do not require the attention of senior management do not get them. (How Dell got soul)

Dell has now become a global company operating in 34 countries in three world regions, with a total of 35,000 employees and about $30 billion in sales. Dell is organized along geographic lines into three areas of Americas, Asia-Pacific and Japan, and Europe/Middle East/Africa -- EMEA. Corporate headquarters are located in Round Rock, Texas, and this is also the regional headquarters for Dell Americas. Each of the three regions has its own regional headquarters and own assembly plants and own supply network. Other regional headquarters are that of Bracknell, U.K. For EMEA, Hong Kong for Asia-Pacific and Kawasaki for Japan. (Dell Computer: Organization of a Global Production Network)

Dell's business activities are separately organized for each region based on different customer segments of the area and generally have three categories: relationship customers; home and small business which are at times known as transaction customers; and public sector like government and educational customers. The figures for employees and sales are available for 2000 and the worldwide employment at that time was 40,000 and recorded sales were $25.3 billion. Of this, in the Americas, including both North and South American continents, the employment was 27,200 and sales were $17.9 billion. In the Asia-Pacific region the employment was 3,200 and sales were $1.8 billion. For Europe, Middle East and Africa, the employment was 9,000 and sales were $5.6 billion. Apart from this, Dell had subsidiaries in 16 countries which are not taken into calculations here.

Dell does not manufacture the components or sub-assemblies, but generally does the final assembly for all products. The exception is notebook computers which are manufactured by Taiwanese manufacturers - Quanta and Compal. The organization of manufacturing is by region and there are plants in Austin and Nashville for North America; Eldorado do Sul in Brazil for Brazil and South America; Penang in Malaysia for the Asia Pacific region; Xiamen in China for China and Japan and Limerick in Ireland for Europe, Middle East and Africa. Employment in an area is directly related to sales there. The Americas earn 72% of revenues and have 68% of employees, European region has 20% of sales and 22% of employment and Asia pacific has 8% of sales and 10% of employment. The lower employment ratio to sales in Americas is probably due to the large size of the market and the similarities in the nature of the market. (Dell Computer: Organization of a Global Production Network)

The choice of the location of the plants are based on three factors - market considerations, labor and infrastructure and government incentives received for the plant. This can be seen in that Texas is central for United States. Malaysia is central in the Asia Pacific region and Ireland though not central is part of the European Union and thus provides easy access to the European countries. Brazil and china plants are needed as the tariffs and taxes there would make imported PC prices uncompetitive. Texas and Tennessee are cheaper than Silicon Valley; Malaysia is cheaper than Singapore, though there are cheaper countries around it; Ireland is cheaper than many other countries, but Eastern European countries are cheaper and it is likely that Dell plant will move there.

One of major areas where Dell is involved in the international markets is now clear and that is production. Here they avoid existing industry clusters and prefer to locate their production facilities in areas where the labor markets are not so difficult. This is the reason why it avoided industry clusters in Sao Paulo of Brazil and Shenzhen in China. The location of the plants in Penang and Limerick were decided before these areas had developed into IT industry clusters. Even their operations do not have any reliance on access to research universities or areas where high concentration of specialized engineering talent is available. The aim for this is to avoid the high costs that are also associated with such areas. The organization does not feel that it is essential for them to be situated in an area very near the suppliers' manufacturing facilities. (Dell Computer: Organization of a Global Production Network)

Unlike other PC manufacturers, Dell does delegate the final assembly of the products to suppliers. It gets from other suppliers subassemblies, like motherboards and bare-bones PCs, and gets only nearly complete assembly of notebook PCs, and does only limited final configuration in its own assembly plants. Only in the year 2001, Dell outsourced production of a standard, non-configurable PC known as the SmartStep to Taiwan's Mitac, which is the manufacturer of the product in its plants in China. In Europe, Dell's Ireland plants get their supplies from Asia and from local plants. Many of these suppliers came to Ireland at Dell insisted that they do so. After opening the first Limerick plant, Dell gave their Irish suppliers only eight months to prove they could meet Dell's demands. When local suppliers could not match up to the requirement, Dell brought in outside suppliers.

The companies which came from outside Ireland purchased some Irish companies, consolidated others and generally took over the entire business of supplies. Most the suppliers who came were already established in the PC industry. They included names like Fullerton which is a Scottish company from Glenthes and is an established supplier for Dell and IBM; Lightening Beech and that is a United States company supplying sheet metal; Trend Tec is a company that supplies metal and plastics in U.S. serving both Dell and Compaq; and APW which bought two Irish companies for the purpose and supplies chassis, plastics and metal. There are also contract manufacturers from UK or Ireland who were supplying Dell earlier and they continue. They are like Jabil which supplies PCBA from Scotland, SMS from Wales and SCI from Ireland. Only one supplier from the area, Keytech met up to the requirement of Dell and they are making cases, chassis and subassemblies. (Dell Computer: Organization of a Global Production Network)