Date: May 3, 2019
Category: Analysis Essay
Supply Chain Management

Executive Summary (Why Dell Was Chosen)

Dell is the third largest private company in America. It is also one of the best employers in America, having recruited up to a hundred thousand employees. Its brand is valued worldwide, thus leading to higher sales of products and services that earn the company 59 billion dollars. The company offers a wide range of products and services with a high market value. Dell became a private company in 2013 and henceforth has experienced a lot of progress, especially with the acquisition of EMC, which is the largest pure record deal of the company in technology at the moment.

Dell Company has been chosen because of the great progress the firm has made in the industry over the years, including its deal with EMC, which has however generated controversies in the current market news. On the one hand, the purchase will see Dell suspend some of its businesses to assist in covering some of the debts that would come. On the other hand, the acquisition will see Dell combine a cluster of small businesses into one enormous company. This will be a major milestone for the company considering that it is a company that was founded by Michael Dell in his small room at the campus. He had an entrepreneurial spirit at that moment: because of this same spirit, he is willing to take risks and expand the company even more. This company has practiced a technological innovation, which has enabled the liberation of helpful resolutions of an array of solutions in computers over the time it has operated. It has also made technology accessible to everyone, considering the fact that its products and services are affordable worldwide. It has also made sure that it technologically catches up with the current generation by developing and designing many innovations to suit the current times, hence producing technologically advanced products that encourage advancements among consumers worldwide.

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Introduction to Dell Company and the Industry

Dell Inc. is a company functioning in the United States of America. It is privately owned and is named after its founder Michael Dell who founded it in the year 1984 in his room at a dormitory in Texas. The history of Dell Industry started at the University of Texas where Michael configured computers from reserve apparatus. He later got a boost of 1,000 dollars from his supportive family in order to expand his business. He dropped out of school, focusing on his business and it did not take long before it experienced its first major success, which was the production of the first computer called the Turbo PC. This development saw the company obtain 795 dollars, which was not bad for starters at that time. After advertisements and sales within the first year of business operation, there was a substantive amount of income adding up to 73 million dollars earned by the company, which was then known as PC’s Limited. The company achieved major growth with the help of Lee Walker and Morton Meyerson who were hired by Michael Dell to help turn the company into a larger one. The very first strategy envisioning an expansion of the company consisted of the makeover of the name to Dell Computer Corporation. With this name as well as offers from the public of a large percentage of shares, there came global attention and growth in the company’s market capitalization. It was hence recognized by the Fortune magazine in 1992 as the world’s top 500 biggest companies and Michael Dell was the youngest CEO of such a company. Much of the growth experienced in the late 1990s and early 2000s came when the company developed an internet site, which skyrocketed its sales. Another reason for success was the fact that the company channeled most of its sales to individuals and families rather than to the user market.

It is a technology company that deals with computers and associated goods and services. It is majorly involved in the business of developing, selling, repairing, and offering support services to computer users among other products. Bearing in mind that it is one of the biggest computer companies in the world, it is, therefore, able to employ thousands of people worldwide. It started as a small company that was selling personal computers only, but now it has developed into a large company that sells servers and data storage devices, as well as network switches, computer software, televisions, printers, cameras, and other electronics from various manufacturing companies. The company has a well-developed supply chain and has made significant strides in supply chain management and in electronic commerce. It has also developed direct-sales services whereby goods are manufactured with an approach of built-to-order. This approach has enabled the company to target the specific needs of customers worldwide in terms of how they would like their personal computers to be designed. Despite having specifically sold computer hardware for in the past, the company has recently ventured into several other businesses, including information technology (IT). This milestone was achieved after the company’s acquisition of Perot Systems in 2009. It has also developed in the areas of storage and networking. All these developments are done in an effort to enlarge its product and service range, hence meeting the demands of various customers.

There has been an increased demand for Dell products because many frequent buyers and clients look for more potent computers, which have numerous accompanying features and operational ease lacking in most systems that were available then. Because of such high demand, the company has been forced to develop better means of reaching its client base effectively and faster than it had been done before. This has been enabled through the development of a company-based transaction and advertising team involved specifically in serving families, as well as the introduction of a product line for personal users. Dell has since had the benefit of steady growth in business, accumulating market shares from rivals even during times when there is a general fall in the computer industry. Some of its competitors have been bought out during such rough business times, while others have quit the business altogether. Even after Hewlett Packard and its rival Compaq merged, they still could not outdo Dell, which experienced its fastest growth earlier on in the 2000s. Dell is recognized as a company that achieved and maintained the leading position worldwide in terms of computer reliability and client-based services until the release of Windows XP.

Kevin Rollins has been fighting for the acquisition of EMC Corporation since 2002 to decrease the company’s dependency on PCs production with not much avail. Even so, the company has since adopted the production of other products, including television sets, audio players, and printers among others. Due to this development in the company, it was renamed as Dell Inc., has noticed changes in its production base, hence engaging in the production of a wider range of products. In 2004, Michael Dell appointed Kevin Rollins as the company’s CEO, a post they held together. The company later acquired Alienware that came with several new introductions to the company’s line of products such as AMD microprocessors, which made the company break ties with Microsoft and Intel companies that had limited it to the manufacture of personal computers and other related businesses. The company’s sales growth reduced in 2005 because the distribution channel the firm had used before was becoming irrelevant in the new market of computers in which a large percentage of buyers came from developing markets. As a result, the firm’s stock lost about 25 percent of its value in that year and experienced more losses in the following year. The reduction in revenue was also occasioned by competition from rival companies such as Acer and Hewlett Packard; Dell lost its relevance in the market place as rival companies manufactured products of similar value in the market, which were more available as compared to Dell’s products. Since then, the firm has registered mixed performances in the market and has gone through many changes in an attempt to recover its market share and set itself on a developmental path again.

Dell's Logistics/Supply Chain Management

Supply chain management refers to how a firm manages the movement of products from its source to consumers. This process describes how a company obtains raw materials, stores them, processes and/or manufactures them, and sells them to the final consumer. The whole process is sometimes referred to as logistics management. In order for this process to be efficient, firms may need to effectively manage information, finance, and materials, including equipment such that products are made and efficiently delivered to consumers, which is sometimes done through wholesalers and retailers or directly.

For many years, Dell had a unique supply chain as compared to its competitors. As seen earlier, the firm used to make computers for home users who procured them directly from the firm. This was contrary to conventional channels used by its competitors that sold their computers to wholesalers who sold them to retailers before they were sold to final consumers. This channel is sometimes referred to as ‘ direct channel&rsquo. This channel works in a well-developed market when a firm is assured of a continuous demand for its products and that all products made will be purchased fast so that the firm can recover its capital and make a profit. When this is not assured, the firm would like to caution itself against losses in time and money in the channel by using wholesalers and retailers who share a risk relating to the loss of time and make a profit.

Still, when using the direct channel, the firm is almost sure that there is no time gap between production and consumption. Wholesalers and retailers help to bridge the time gap between the time of manufacturing and the time of purchase by the final consumer. In turn, direct channel requires that the firm has a robust presence either in physical or online stores coupled with an efficient distribution network such that the movement of the product between producers and consumers happens at the shortest time possible.

Supply Chain Managment

Figure 1. Dell’s supply chain model in the 1990s; Source: Dell & Fredman (2006)

In the 1990s, when there was exponential growth in demand for computers in the US and across Europe, Dell’s direct model was seen as being very efficient as it delivered computers quickly and at lower prices to final consumers. Later on, this model was slightly altered to ‘make-to-stock’ whereby many readymade units could be stored in warehouses to ensure a continuous supply. At the turn of the century, the firm Robust delivery channel shifted its approach so that units could be made on order. This was informed by the fact that the market was well served and that there was sufficient information among consumers, thus making them order their units whenever they deemed necessary. This was very efficient on Dell’s side as it meant that there was no need to tie much of its capital in buying raw materials and it could only purchase them according to the demand (Mangan, 2015). This was also seen as an improvement of the direct model and firms started learning that sometimes it was not necessary to store large amounts of raw materials or finished goods as they could adopt this model. This model was preferred both by tech firms and manufacturers of consumer goods.

However, the direct model is sometimes not suitable. When the market is well served and there is no distinguishable preference of firm’s products to those sold by its competitors, there is a need for the firm to have its products sold through the conventional channel as this will give final consumers an opportunity to compare products from different sellers. Dell’s direct model became a major setback for the company. Sometimes, when buyers cannot find a product on the shelves, they might as well assume that it is absent and select the one available in stores. Additionally, firms and individual consumers may find it time-consuming to order a product from the manufacturer and would rather pick it from the retailers’ shelves.

According to William Hutchinson who was the firm’s vice president for logistics globally in 2012, only 25% of the firm’s products were purchased through the direct model, while the channel was the key driver for the company’s sales in the 90s. The reason for this success was that buyers in the 90s were households in the US and other developed markets that would have to purchase a large number of products directly from the firm. After 2010, the main buyers for the company’s products have been small-scale buyers, a larger number of which come from emerging markets. Over this time period, the firm has lacked a clear model for its global logistics as it combines its direct model with the traditional one under which wholesalers and retailers are included in the supply chain. However, Hutchinson stated that the firm was seeking an innovative model for its supply chain management so as to compete effectively in the global market.

One Main Problem in Dell’s Supply Chain/Logistics Management

The main problem with the firm’s supply chain model is that it has not been responsive to buyers from developing markets. As seen earlier, the firm has focused on buyers in the US and Europe, while a significant percentage of consumers of its products are in the emerging markets of China, Brazil, India, and Africa. While Dell’s products may be absent from the retailers’ shelves in these markets, its competitors such as Acer and HP among others are represented in these markets. One characteristic feature of individual buyers is that they mainly purchase products from the shelves and most of them might not be interested in ordering from a manufacturer. Additionally, Dell’s services such as storage and networking services are conspicuously absent in developing markets, while being readily available in already developed markets where demand has been declining. As a result, Dell’s performance in these markets might not improve soon due to the fact that its products are largely absent in the market.

The main challenge resulting from this supply chain is that it makes the firm’s products partially available in the market. The supply chain was seen as the most efficient in the 1990s, which is a position it lost in 2011. However, it managed to be the fourth most efficient supply chain globally in 2012 according to Gartner’s ranking. The efficiency resulting from this system is the fact that it enables the firm not to tie its finances to purchasing and storing large amounts of raw materials as it can only purchase according to the demand. Additionally, it reduces the number of players in the distribution chain, which makes products cheaper in the market. However, a disadvantage of this model is the fact that it makes products partially unavailable in the market and denies them an opportunity to compete effectively with those produced by competitors. Besides, the logistical model fails to focus on the fact that emerging markets have become significant consumers of products and need to be served effectively.

The firm’s supply chain management has failed to envisage a time when the demand for its products among direct consumers would be relatively low such that sales to this group do not provide enough revenue for the firm to remain profitable. Wholesalers buy products from firms in bulk such that firms can recover their money easily, make a profit, and continue with production. Dell’s supply chain model, though being efficient, makes the firm generate fewer sales when there is normal demand in the market and the firm experiences instances with very low turnover. When a firm stays for long without making a significant profit, it may lack money to continue with production and may start using its financial capital, which makes the firm shrink. At the same time, low profitability discourages investors, which means that the firm continues shrinking.

Suggestions to Solve the Supply Chain/Logistics Management Problem

In order to solve the problem caused by Dell’s supply chain management, the firm should take into consideration that buying patterns across various markets of the world have changed. The firm should also be willing to compromise its efficiency by allowing many players to enter the distribution channel. The firm should seek ways through which services rendered by wholesalers and retailers can be reintroduced in the supply chain. The supply chain management can also arrange to have services of warehousing. For instance, if Dell is unwilling to handle raw materials for long, there are warehousing services, which can be acquired, such that they can manage to hand of these materials as the firm engages in production. Additionally, the firm can mass produce its products and seek for warehousing services as wholesalers continue buying these products. Traditionally, wholesalers effectively take up the role of warehousing as they buy a firm’s products in bulk such that the firm can continue with the production. If the firm allows wholesalers to participate in the distribution of its products, warehousing services might not be needed. They can buy in bulk and the excess of products would be taken up by retailers as they relieve the burden of warehousing experienced by wholesalers.

Considering the fact that the direct supply chain model applied by the firm has worked in the developed market, but may not be suitable for the developing market or service market, the firm can segment its markets such that areas that experience rapid growth in demand can be served using the direct model. In turn, markets that have a moderate demand will require the firm to utilize the traditional supply chain model and allow many players to participate. Moreover, the firm can intensify its innovation to ensure its technological lead in the market such that its products experience high demand as compared to those of competitors. This can allow the firm to maintain its efficient direct model and still remain profitable.